Good afternoon, everyone. Suraj Kalia, Senior Medical Device Analyst at Oppenheimer. Really pleased to have Waleed Hassanein and Stephen Gordon, CEO and CFO respectively of TransMedics, with us this afternoon. Gentlemen, always a pleasure to connect with you. And, Waleed, I think so it's safe to say TransMedics is the most talked about company in med tech land nowadays. So I think this conversation is timely, and your insights, I'm sure, will help investors a lot. So Waleed, let's start out, you know, I remember the time of our heart panel, right, right? All the debates and everything, and there was certain level of, should I say, hesitation for OCS and the technology.
From that point to now, like two years in, how do you think the hurdles have changed in terms of marketing and positioning OCS, organ irrespective, just in general, what do you think has been the shift?
Suraj, first, thank you very much for the opportunity. We're honored to be here with you today. And thank you for that question. I think a lot has changed since having our first panel after COVID. And then we had the second panel a couple of months later, and here we are today. And that major shift, as we all see it, has been driven primarily by our bold idea of accelerating the access to the NOP concept a lot earlier than what we had originally anticipated. And if you remember, we were preparing for it, and really, nobody really understood what we were doing. But without the NOP, the NOP was the major catalyst for rapid adoption for the growth that the business has been experiencing.
And I repeat what I've said several times on public calls, we're in the early innings still. You know, we have a long way to go, a long opportunity for growth. Having 12% growth for heart and liver in 2023 over 2022, I think is a great first step, but we are, we're not stopping here. We have a lot to do to get that, and reach that, you know, 10,000 transplants in the U.S. in the NOP platform by 2028. So, we're, we're humbled and excited and thrilled about where we are, but we have a long way to go, still ahead of us, and we're planning to capitalize fully on it.
So, Waleed, let's touch on some of the questions that constantly come up in investor conversations, right? So first is hearts.
Mm-hmm.
I'm just kinda averaging it. I might not be precise. Let's say Q1 2023 was 15%. Your exit, at least our math, was almost 18% market share. You know, everyone looks at the total number of hearts, and it's... You know, walk us through the dynamics in terms of how do you think about growing this line item, DBD versus DCD split, and how do you capitalize? Because this is, I think so everyone and their brother really hones in on this line item. What-- You know, clarify some of the misconceptions for us-
Mm
... or just might, give us some additional insights.
Sure. I don't think there's. I'm not aware of any misconceptions. The way we look at it is very simple, and it's not just for heart, it's the way we tackle it for heart, liver or lung. But if you wanna speak specifically about heart, again, we're early days. We know for a fact, so we look at the heart in several segments. And heart is unique because heart is the only organ that we—there's a segment of that market that we don't have a label for yet, but we're planning to get there very soon. So, let's start with the current label.
So on the DCD front, we know that we've done approximately 70% of the DCD in 2023 were done on our platform, and the majority of that were, vast majority, were done in NOP. So, where do we go from here? Well, one, we still have 30% to penetrate into the DCD, but more importantly, DCD is the fastest growing segment of the donor pool. So we don't know what a DCD pool of 2024 and 2025 and 2026, and by the time we reach 2028, DCD could be 50% of our U.S. donor pool. So that's a huge area of growth. Second is the DBD component, and in the DBD component, we have the indication for anything greater than four hours.
And I'm sure, as you reported, a few days ago, we have a very important paper that just came out in JACC last week, showing a long-term result of EXPAND trial, which is basically historically rarely used DBD hearts from different extended criteria, older donors, long cross-clamp time, mild LVH, history of downtime in the donor that was resuscitated, et cetera. And showing great results equal to or sometimes slightly better than standard criteria heart transplant. That's a huge, huge opportunity for us that we, you know, we're just scratching the surface on penetrating that. Then, the segment that we are not in today, which is the sub-four-hour preservation that's now all preserved using cold storage, you know, that is our new frontier.
We will talk about how are we gonna tackle that new frontier and new label to expand our heart indication to cover the gamut in our May earnings call.
... and Waleed, are you all still on track to present data on OCS versus standard cold storage at ISHLT? I know you've talked about it-
We're presenting the results of our OCS Heart Perfusion Registry data, comparing DCD OCS versus NRP, and comparing our DBD outcomes and DCD outcomes to historical... I mean, concurrent controls from the SRTR database. We're also presenting a, you know, some high-level economic data comparing OCS DCD direct OCS DCD procurement versus NRP to dismiss the myth that NRP might be cheaper than OCS. It's absolutely a farce. So, we're looking forward to that, and we're also looking forward to show outcome data on how the OCS outcome data in certain high-risk recipient indication is even superior than other modalities for DCD procurement.
Got it. Waleed, the other stress point, if I can characterize it that way, in client conversations, and more recently, is that TransMedics has become more of a liver company. It sort of tag teams to that earlier question about hearts, right?
Mm.
How do you see the... I guess one part of the question is: do you worry about organ concentration?
Mm-hmm.
But the second part of the question is: how do you spread it out or diversify across heart and lungs?
Sure. So let me start emphatically by stating we are honored to be in liver transplant, and we're honored to be the lion's share of machine perfused livers in this country and around the globe. Period, full stop. That being said, we are not worried one bit that the liver is growing at the pace it's growing. We are a multi-organ company. In fact, we are the only multi-organ company that has approved product in the United States, and actually operational. The idea of being a multi-organ company, Suraj, as we discussed over the years, is to... We know that transplant can go in ups and downs, mid-year, inter-quarter, inter-year, and it doesn't really matter. For us, it's early innings.
We're trying to capture market share, grow the business, grow the field of organ transplantation, and we know where the pieces of the mosaic that we need, or the next piece, chess pieces that we need to put together to take over, more share and grow the heart, and grow the lung, and revive the lung, really. The lung is a sleeping giant, and we have a long way to revive that market. So for us, we welcome that notion that we, we're not a single organ company at all. And at this point, we are not losing sleep at all about where the growth comes from. It's way too early.
As I said, there are areas in the market that we're in that we don't even have an FDA label for. So we're still early, guys, and to be able to achieve this growth in such a short period of time, you know, it's something that we are, again, very humbled by, but we're not basking in our success. We know we have a lot more work to do to continue that growth trajectory and demonstrate and quiet these kind of whispers around, "Oh, it's an, a liver-only comp-" Well, first of all, there's nothing wrong with that. There are many companies in the field that are a single organ company. There's absolutely nothing wrong with that, but that's not TransMedics.
TransMedics have built our reputation, built our platform, built our regulatory strategy on being the only multi-organ platform that is portable, that is FDA approved, and tackling three out of the four major organs at the same time. That's who we are, and that's what we are gonna continue to thrive to, to achieve.
So Waleed, the third topic, again, we've talked about this on calls and even offline, that always... And clients bring this up very frequently, that, "Hey, I talked to this and this transplant surgeon," and if I could characterize the pie chart, 99% of the conversation of, if I could say, the pushback on TransMedics or OCS, is the economics.
Mm-hmm.
Maybe 1%, and I mean maybe, on relative outcomes, right? Which is a huge sea change from two, three years ago. Walk us through what is the level of misinformation? What don't we understand? Why is there so much disparate pieces of information on the reimbursement and economics? If you could, tie that for us, and help us understand better.
Sure. Suraj, I hate to characterize it as misinformation. It's not misinformation, as much as what you're seeing is the heterogeneity that exists in the market. Not every transplant program manage their finances properly and with, you know, sharp pencils. And it takes time. When if you are talking to a program that just got into the OCS, they probably haven't even built the case yet to get additional dollars from their commercial payers.
If you are talking to a more experienced center that have been using NOP for the last 18 months, not only they're, they've talked to their commercial payers, but many, if not all of them, have secured significant additional dollars to cover the cost of being an NOP user. So it's just, it's a heterogeneity of the current state of the market. You know, again, we don't see that as a you know, a fundamental issue. We see that as just we're early in a growth cycle. And, you know, the success and the data and the execution speaks for itself.
If this is really a product that is not generating enough revenue, profitability, and margin contribution to the programs, we would not have succeeded in achieving that. Yes, we have a high-value product because we believe in the significant value of growing organ transplant. We also have proven not only we can grow organ transplant, which, if you remember, Suraj, it was one of the biggest question when we were going public. People were wondering, "Are you really gonna be able to grow organ transplant market in the US?" The market hasn't grown more than 1% or 2% year-over-year, and now we've proven it. But we're seeing significant economic benefits on post-transplant outcome and the contribution to the margin.
We're seeing a more significant impact of NOP and really the resource utilization and the work-life balance for transplant programs, teams. Not just work-life balance from a work-life balance for the surgeons, but also to perform better surgeries and have better outcomes. And in teaching institution, it's critical because you're teaching the next generation transplant fellows how to do this properly, and it's better to do it, you know, between six in the morning and six in the evening, instead of three in the morning and six in the morning. So, you know, all this, all this, the all these impacts are high value to the transplant program. And again, you know, we're still early.
Some programs still haven't built that enough critical mass of cases to be able to go and review their contracts with their commercial payers. But the ones that they've done it have been successful, and we feel very strongly it's just a matter of time where this is going to be the norm. And we are gonna continue to work with the market and with our users and educate them, and have these sessions with the National Transplant Working Group, which is a select group of top transplant programs administrators that have successfully managed to grow their reimbursement from commercial payers based on their excellent outcomes using the OCS NOP.
So we're gonna continue to be a part, play a part of that and facilitate that to bring the entire market up with the current and latest ideas and concepts to achieve that.
So Waleed, if I could ask the same question slightly differently. Let's say you, you guys are on a rapid growth pace, right? The numbers show it. Would the price, is the price elasticity of demand such that, you know, if you were to move one lever on price, your unit growth and/or market share would be X plus delta X?
Yeah. Yeah, I don't believe so, Suraj. I do not believe so. You know, the people who are complaining about the price, they're gonna complain about the price even if we drop the price $5,000, $6,000, $7,000, $8,000, $10,000. It's simply stated, there shouldn't be a complaint about the price if we understand the way organ transplant is highly valuable to transplant payers and to the program from a margin contribution. I mean, this is a fact. This is not us saying. This is a fact. Organ transplant is the gold standard for treating end-stage organ failure, which is a very expensive disease condition that cost payers and CMS hundreds of millions of dollars every year to keep these patients on the waiting list, only on the waiting list.
You know, we haven't talked about the huge demand beyond the waiting list. So, it's a factual thing, so.
Got it. So Waleed, obviously, logistics is one of the key things. You know, you guys are strategically putting in different building blocks, you know, in terms of increasing your stickiness to the end customer. On logistics in particular, let's say you go and say, "Hey, Dr. Stephen Gordon, you should use TransMedics Aviation.
Mm-hmm.
Dr. Gordon's maybe has a relationship with someone else, or whatever, contractual or otherwise. Question number one that comes up is: How pushy can you all be? Question number two is: If Dr. Gordon said, "Nope, I want to use someone else's technology for transport," would TransMedics still be open in maybe in the future to transporting someone else's technology on, on their aviation?
That's a very, very important question, Suraj, so let me address that in multiple layers. First, we are extremely confident in the strategy of integrating our logistics, transplant logistics, into NOP and OCS, and we're bullish on the future impact of integrating logistics for TransMedics' growth, and also for the growth of the overall NOP infrastructure, and overall national transplant organ growth. So we could not be more confident in that strategy. Now, the second piece is: how are we implementing it? Right now, given that we're new to this, we are leaving the final decisions completely in the hands of the transplant program.
We offer quotes for the logistics for every mission that we get through the NOP, and it's up to the transplant program to say yay or nay, whether or not they wanna use TransMedics logistics, whether it's air or ground. We do that to do two things. There's no contract out there that is exclusive. There's no such thing in organ transplant, because most of the contracts that are existing out there, they cannot satisfy the demand anyway, so these are non-exclusive contracts. And we've said numerous times to transplant programs, we don't operate based on a contract concept. We wanna make sure that our service, our world-class service, and our availability, and our pricing, is what brings you back to using TransMedics logistics. So that's what have we been implementing to date.
So it's up to them, whether or not they use us or not. As far as the third piece of the question is, at some point, would we transport other technologies? At this point, we can't even. We don't have enough capacity to meet the demand for NOP. So when we have capacity to meet the demand for NOP, we might consider moving other technologies. But right now, we're just building infrastructure to meet the demand and the growing demand for NOP cases. Because we all know, Suraj, that the reason why we accelerated access to logistics is, with NOP, you're now accessing a much broader distance, and many of the existing operators and brokers, they don't have that breadth of coverage and availability 24/7, 365.
So, but at one point, when we, when we have that capacity filled, we might, we might consider doing other things as well.
Waleed, you have OCS, the technology, you have NOP, and you have aviation today, right?
Mm-hmm.
In various levels of importance on an account basis, fast-forward to, let's say, three years down the line, do you—what do you think is gonna be the most critical component in this whole value chain of TransMedics? Would you contend it's gonna be aviation, or would you still say it is gonna be modularity of products that TransMedics might offer? How should we think about how the relative importance changes?
Suraj, I'll give you my view, and I'd love to hear Stephen's as well. I think for the foreseeable future, and for any future, as long as we're here, TransMedics will always be an organ transplant medical technology company. Logistics is nothing but a facilitator to growing the access of OCS, to grow the transplant volume, and improve post-transplant clinical outcomes. That's who we are. We're not a charter operator. We are not in the logistics business for the sake of being a logistics business. We're a medical technology company focused on organ transplant, and the logistics is nothing but a catalyst for growing the access to our life-saving technology, to grow overall transplant volume, and improve post-transplant outcomes. Stephen, I don't know if you see it differently.
Yeah, I support that 100%. If you recall, Suraj, every kind of business model change we've made, whether it be the NOP clinical service or the logistics provision, is in support of having more adoption of the organ care system to increase the number of transplants in the United States, and we're really starting to see that happen, and that's what we wanna see. So it's really the core of what we do is always gonna be the device, and everything else is gonna be: how do we increase adoption and increase transplants? You know, if we could maximize the utilization and do as many transplants as we could, and we didn't need the other things, that would be great, but we know that that's not the case.
We know that offering this kind of one-stop solution and taking the burden off the transplant center is really the thing that's the catalyst to using it more often and doing more transplants.
Yeah, and Suraj, if you allow me, you asked me a question, you know, a couple of minutes ago about cost. The reason why we're in a logistics aspect of this chain is because we see a huge opportunity to reduce cost and share that with the transplant program. We're in this for the long term. We see a huge opportunity to efficiently run our own logistics network and pass that cost efficiency back to the transplant program. We want the transplant program to benefit from using our logistics. We're in this not to gouge the system, we're in this to make it more efficient and have 24/7, 365 availability, which nobody could do that today with the current historical, you know, broker structure.
So we're gonna do it like we did the OCS, like we did the NOP, and, you know, we're not gonna stop until we succeed.
Waleed, a few minutes ago, you had mentioned NRP, right? There seems to be a divergence in the, let's say, company commentary, in terms of the importance of NRP. How do you see NRP 'cause it is part of some of your competitor trials, how do you see NRP short term versus medium term-
Yeah
... and maybe long term?
Yeah.
How do you see this playing out?
There has never been any diversions on TransMedics, in my view, on NRP. NRP is a useful tool to expand donor DCD donor utilization for transplant, and for us, that's a good thing. We believe there are some limitations to NRP that OCS overcomes in spades. The ethical limitation is one huge one, that many hospital system in the United States have banned NRP altogether. The fact that NRP is mostly used for local donors, that's great. If the donor is less than three hours away and and a you know, relatively healthy donor, so be it. But many of the centers that even do that are using OCS NOP for DCD, but distant DCD donors, so it's not scalable. So it's a tool, it's a beneficial tool.
Anything that increases organ utilization for transplant, we welcome it. However, we think the OCS offers a more scalable, more efficient, and frankly, cost-effective tool to grow the DCD utilization for heart transplant. And on top of that, our outcomes, we're gonna show our outcomes comparator at the ISHLT, and I hope that would be sort of the exclamation point in that argument. The other thing is, NRP is not without its some of the unintentional or unintended negative consequences on other organs. We hear a lot from the field that, you know, if you don't have an experienced NRP team in the room, the lungs are completely gets damaged during the NRP process. And vice versa, if they're doing NRP for the abdominal organ, it might impact the heart and lung.
So it's not without its complications. We don't hear about those things because, again, it's an exciting opportunity. We live in a renaissance in organ transplant today, and anything that grows utilization of DCD or DBD organs, we are 100% supportive of. But the data speaks for itself. We did close to 70% of the DCD heart transplants in the United States last year, and we don't intend to stop here. We hope that our data that we present at the ISHLT will help us grow that number. And even if we stay at 70%, but the overall DCD pool grow in 2024, we're happy with that as well. Anything that grows organ transplant is a plus for TransMedics.
Yeah, so Waleed, a question for you or for Stephen, right? You look at 2022, you guys, if my memory serves me right, almost doubled what your initial guide was, right? 2023 also, you know, your numbers were pretty high, right? You'll handsomely beat. I'm not gonna ask about what is the cushion in FY 2024 guide, but what I'm curious is, as you're in this third year of this hyper-growth, what are the different levers you're seeing that can help TransMedics, you know, optimize, you know, in terms of revenues and your outlook, and continuing on this trajectory of beats?
I think we talked about them, Suraj, early on. I think, you know, growing our transplant volume, growing our center volume, reviving the lung program, growing the DBD in hearts, and livers, you know, livers continue to grow the DCD. We're only at 51 or 52% of the DCDs in liver, so we have a long way to go. The logistics and, the revenue generated from logistics, so all that is, levers that we see. How much of that we are gonna mature in 2024 versus early 2025 remains to be seen. And we're still growing, we're still, you know, investing in the infrastructure, we're still standing up the logistics business, so that's why we had to be conservative on the overall guidance.
But, we hope that our track record over the years will speak for itself. But also, I wanna caution that the basis we're operating from today is completely different than the basis we were operating from two years ago.
Yep, yep. No point, duly noted. Gentlemen, we are up on time. Always a pleasure to connect, and always incremental insights, and learn a lot more about the space. Thank you so much for taking the time, and congrats on all the progress again.
Thank you.
Do-
Thank you so much, Suraj, for the opportunity, and looking forward to hosting you, very soon.
Yep, thank you.
Thank you.