Thank you everybody for coming in today. I am going to read the important disclaimer which you can find on the Morgan Stanley website. With that, I would like to welcome Waleed Hassanein, CEO and founder of TransMedics. It is a company that is very near and dear to my heart, so I am excited to host this fireside chat in particular. Waleed, maybe to start us off, five years from now, what do you think investors will realize that they misunderstood about TransMedics today?
Neha, first, thank you for the kind invitation to be here today. For those in the audience, Neha helped take TransMedics public, so this is a great opportunity. Five years from now, I think we believe that the market is going to recognize how truly TransMedics has grown the organ transplant market, and turned into be one of the best, if not the best transplant company in the world, as a med tech, high growth, high earner in the field.
So.
Okay, perfect. Well, maybe we will talk about the bridge to getting to that five-year out point. In particular, you have talked about reaching 10,000 U.S. NOP cases in 2028 and potentially 20,000 by 2030. What do you think are the two to three biggest assumptions embedded in those two numbers?
10,000 transplants, those are with the existing assumptions, no change.
It's 20,000, 30,000. The biggest assumptions are OCS kidney transplant platform to be approved by 2029 and OCS Gen 3.0 to be deployed starting with OCS Liver, OCS Heart, and OCS Lung, 2029 and 2030.
These are the key embedded assumptions into these numbers.
Okay, great. When we were working on the IPO, there was two big growth stories. One was the share shift, taking away transplants from kind of the existing standard of care, which obviously had its weaknesses, but also growing the pie.
If you think about long-term growth given where you guys are today, how much of it comes from the conversion versus doing more transplants and expanding that pie?
I think over the last three years, we've proven that we've grown the national organ transplant volume in the United States by 25%, that we're the primary driver of that growth. So we have proven the thesis that we can grow the overall transplant numbers. The bottom line going forward, we're going to continue to do both.
Grow the overall number and continue to take market share. We have to do both.
It's not one over the other.
Yeah.
We've proven that we can do both so far, and we expect that to continue.
Okay, great. Liver has been a phenomenal story for the company. Penetration on the liver side is about mid-30s, high 30% in 2025 versus 18% in heart. Heart is closely following, but still some work to do. What have you learned from the liver adoption curve that you think can be an important factor for people to keep in mind as they think about heart's trajectory and even lung's trajectory, and their ability to follow a similar path?
Two very important points. One, when you are delivering superior outcomes, the market will react, which what we are delivering in liver. We are delivering superior outcomes in liver across the two key metrics in organ transplant, patient and graft survival. Vastly superior to anything else, including competing technology. That is number one. Number two, the impact of NOP.
NOP enabled for the first time in history of liver transplantation, the concept of semi-scheduled transplant or morning hour organ transplant. These two are fundamental learnings that are helping us and shaped our strategy to embark upon building another layer of evidence in ENHANCE
and De Novo to get the heart and lung to approach liver from an adoption curve standpoint, but also to leverage the NOP at scale.
Right.
That's what we learned from the liver.
You touched on a couple of the bottlenecks that transplant volumes have been hindered by. You mentioned surgeon capacity, logistics, transplant center economics, donor organ availability. There's a number of them. Can you talk a little bit about which ones you feel have been solved or resolved by your technology, and which ones are still on the come in the way you're growing that pie?
I think for us, the technology resolved a very important fundamental issue related to organs that are currently or historically have not been utilized.
We've proven that with OCS we can utilize these organs. The NOP solved the issue of the learning curve, the adoption hurdle. Logistics solved the availability of logistics platform to deliver the organ from point A to point B. I think we are so far have been delivering on our promises to continue to grow the pie, grow the overall transplant volume, but also increase market share. What's coming is really taking that into the next level of growth, is about cloud-based-
control and monitoring. To scale, to go from 5,000 transplants, 6,000, 10,000, 20,000, 30,000 transplants, we need to scale the operation. Scaling the operation requires us to rely heavily on remote monitoring, remote control, embedded controls, automation to minimize the impact of headcount on the overall business growth.
Right.
And scaling the business.
Right. Yeah, and making NOP as efficient and leverageable-
Exactly
as possible.
Exactly. Scaling the OPO operation.
Yeah. That kind of leads to a fundamental question of what type of company is TransMedics, right? Is it a traditional med device company? Is it an integrated transplant infrastructure company? Is it a transplant services company? Is it all three in one?
Yes. TransMedics is a high growth, highly profitable transplant business.
Med tech infrastructure.
Services
transplant company.
Yeah.
That's who we are, and we love it. We still have a lot of room to grow.
Yeah. I think the other important thing for folks to appreciate about NOP is that it really allowed you to have a deeper relationship with transplant centers, because it wasn't only about, hey, we're providing a device which is critical and necessary, but it's about lifting that surgeon workflow burden off of the transplant centers themselves and allowing them to do highly profitable procedures for them. As you think about the higher switching costs of working with you all and the competitive moat you have built in with these transplant centers, can you give us a little bit of a flavor of what you've heard from them in your conversations as to why they're loyal to TransMedics?
I think there's several things that are critical in what we've established there. Loyalty starts with them being convinced that we are there for the right reasons, which is the outcomes to the transplant recipient. So that's number one reason. Two, the ability for us to cover any case, no matter what time, what the logistics hurdle is, because we have a vertical integrated logistics network. So we can get them access to organs that routinely they would not have access to. Three is the quality of service that they're getting from our team, from our support team. Four, the outcomes they're experiencing to their patients. That's really it.
You can't compete with a company that is delivering not just great service, but ultimately the technology. The fundamental basis for what we do is the OCS value, is delivering the best organ transplant to the recipient, and doing this in a way that is cost effective and economical to the transplant program. We are sharing with them some of the cost. We're making investments in the relationships that we are establishing. Our latest kind of expansion of the NOP service, we're providing donor and recipient screening and coordination service for the transplant program so we can help them access more and be more efficient to access more donors and transplant more cases. All of the above results in this. They're seeing us reinvesting in the business. They're seeing us partnering with them on cost sharing.
Right
of all the challenges that come with the operation.
Yeah. One of the major investments you all made was the decision to buy aircrafts.
Now you have over 20 aircraft. What do you think you can do with an integrated aviation network that you could not do by using third party? I know this is a topic that investors and you in particular love talking about.
Yeah. Well, Neha, it's no longer a guess.
Yeah.
We know for a fact that we could not be sitting here with the growth that we've achieved if we had been relying on third party logistics. It's impossible. The reason why we entered into this space is we were losing 25%-30% of our volume, and that's back in 2023. We wouldn't have achieved the success that we've achieved to date, and we wouldn't be planning to achieve more growth if we didn't control our own logistics.
I'm very excited that we made that decision, and it's part of the success journey here.
Yeah. You made another major investment with the PAD Aviation deal that kind of sets the stage for international expansion.
But before we get into the details of that, if you could just tell us a little bit about how we should think about that international plan. It is a very different market. Europe is a very different market than the U.S. Healthcare systems, reimbursement structures are different. So what needs to happen for the NOP model to be successful in Europe as it is in the U.S.?
Sure. Completely agree. Europe is different than the U.S., but also Europe is 50% of the global transplant market.
TransMedics, as a global transplant company, we cannot ignore Europe.
Despite its difficulties, we have to find a way for TransMedics to be active and taking significant market share in Europe. That is no question about it. What needs to happen in order, first is establishing a regional or national reimbursement mechanism for the technology and the service because we are approaching Europe today through NOP lens. We are no longer a direct acquisition model in Europe because we believe Europe actually has a bigger need for NOP because they have much stricter working time hours, shortage of technical staff, clinical staff. So NOP is paramount to the success in Europe. So first, it is the reimbursement. Second, it is for reimbursement for both OCS and services, and third is the logistics. Europe has the same problem with logistics networks for organ transplantation. It is fragmented mom-and-pop operations. It is very inefficient.
It's relying on very old, antiquated aircraft that they end up losing significant portion of the donor pool because of the lack of a vertical integration of logistics. We know how to solve this. We solved it in a very complex market like the U.S., and we're planning to do the same thing for Europe. The approach we're taking towards Europe right now is built upon the success we've achieved in the U.S.
but it needs to start with finding a mechanism of reimbursement. Once we do that for OCS and the service, we will make the investment in the logistics and start taking market share there.
Okay. Let's talk a little bit about PAD Aviation. What is the deal? If you could just give a little bit of flavor for people to level set and then talk us about kind of future investment needed beyond that to build out this overall vision within Europe.
Sure. PAD Aviation is a very important acquisition for us because it gives us the opportunity to set what is going to become the first European transplant logistics network. It's a different deal structure than what we've done in the U.S. because, again, it's early days in Europe, so the deal itself was a mid-single digit from an acquisition standpoint. But the plan is not to invest heavily in aircraft because they currently have six leased aircraft. We're planning to use those first to build the demand, build the case volume, build the infrastructure, and as we grow the case volume, we will gradually replace those leased aircraft with owned aircraft.
and start expanding the fleet based on expansion across Europe. It is critical to have access to PAD Aviation because it gives us the ability to compete for transplant logistics tenders-
on a national level in Italy or throughout the European Union. And we loved everything about the team in PAD. They share the same vision, they love the mission, and they are very passionate about what they do, so we felt it is a perfect match for TransMedics.
Okay. Perfect. I would like to talk a little bit about pipeline, and you guys are always busy between clinical trials, pipeline development, whether it is OCS Gen 3.0, kidney down the road. Maybe we can talk about kind of each of those in lockstep. On the clinical trials front, are there updates and milestones that you would like investors to keep their eyes on for the next 12, 18 months?
Sure. I think the next 12, 18 months, there is a lot to pay attention to, and sort of from near term to longer term of that horizon. First is the ENHANCE Part B heart program in the U.S. That will give us immediate access to 600 heart transplants in the U.S. that we currently are not servicing, which is DBD hearts, four hours or less of preservation. Second is the De Novo program-
which is our vision of resurrecting the lung market for machine perfusion.
That will give us access to 450 lung transplants that today, again, we don't access. We envision that we will have the IDE supplement to allow us to initiate these programs with CHOPS in late Q3, beginning of Q4. Hopefully, by the next earnings call, we'll have that announcement public. But we expect that to start generating significant catalyst for our growth in the early part of 2027. From there, we move our vision towards CHOPS.
When I say CHOPS as in after the clinical program, because as we stated publicly before, we plan to gain 510(k) approval for CHOPS as an individual medical technology that is owned and marketed by TransMedics to give us access to that pool of DBD hearts
and lungs that are not accessed by OCS today. From there, we set our sight to the big prize, the kidney program.
Yeah
which we hope to come online second half of next year. For that, as you said, we are very busy, but we are very excited about what is coming.
Yeah. Okay. I think it might be worth just spending a bit of time around kidney. We spoke about this a lot during the IPO. Why was it the last one that you went after? What are the learnings from liver, heart, and lung that you are going to utilize to help make kidney successful? I think a little of that color would be helpful given how big of a TAM it is.
Sure. Kidney is the largest segment of the transplant market, not just in the U.S. but around the world. In fact, I would argue when people say, Well, Waleed, why Europe next? I say, well, there is more deceased kidney transplants in Europe than actually in the U.S. So this is a very important market segment for us. From a clinical perspective, kidney has two major limitations that the OCS comprehensively address. First, we lose a lot of kidneys. In the U.S. alone, 10,000 kidneys last year were thrown away last year because of prolonged ischemic injury or prolonged time on ice. OCS eliminates ischemia during preservation, so you can increase the supply of kidneys by 10,000 a year. That is a huge win. Who wins at the end? Obviously, the patient, but you need to remember that CMS Medicare covers the waiting list for kidney transplant and all end-stage renal disease.
The waiting list cost alone for CMS is estimated to be $10.5 billion annually. So that is a huge economic value to CMS in addition to life-saving for patients. Next, what are the next major hurdle in kidney transplant? It is the development of a major complication after kidney transplant called DGF, or delayed graft function, which means the kidney does not function well and the patient is back on dialysis and sometimes requiring a second kidney transplant within the first year. That happens at a rate of 35%-50%, sometimes even higher in DCD donors. The primary driver for DGF is ischemic injury. OCS eliminates ischemic injury during kidney preservation, which we believe will significantly reduce the form of DGF.
Another huge clinical advantage for the recipient, but also another $0.5 billion cost saving to Medicare CMS who covers the cost of DGF. That is the clinical value. Now let us talk about what Neha was asking about is the complexity of kidney transplant and why did we wait until now to access this very important and very critical market segment? It was by design because of the way the kidney is matched between donor and recipient, there is a significant time lag between identifying the kidney, identifying the donor, and actually matching that with a recipient. Historically, this whole time is managed by Organ Procurement Organizations. Historically, when you wanted to introduce the OCS, the OPO says, "How does TransMedics come and salvage the kidneys before we know where is it going?
That is TransMedics of the past. Today, TransMedics is sitting on the only national organ procurement infrastructure and a logistic infrastructure that makes that problem go away. The plan is we will access every kidney that in the trial, and hopefully once approved from time zero, from the minute the kidney leaves the donor is going to be on our OCS system. It is going to be managed by the NOP staff and remotely monitored and controlled, and then transported to the recipient that the kidney would match to ultimately. That sequence of event did not exist until now. Now we have the critical mass, the infrastructure, and the logistics that will allow us to make this happen today.
Yeah, because I am sure the question on investors' mind is the NOP infrastructure as it exists today now set up for kidney, or are there going to be changes that are required given the differences in kidney? But I think what you explained is that this is purpose-built.
Exactly
to finally go after.
The only way we would be able to tackle the kidney is with the NOP infrastructure.
Yeah. You mentioned the OPO. There's been a lot of scuttlebutt and noise in D.C. I know you've been involved in some of those conversations. Could you just give a little bit of a flavor for where you see the OPO going, changes, anything that people should be aware of just on the landscape front?
Sure. I think OPOs are a critical partner in the journey of organ transplantation. There's no doubt about it. The noise is really stemming from HHS, HRSA, and CMS initiatives to modernize the transplant system in the U.S. and reduce the number of Organ Procurement Organizations in the U.S. We don't know what that reduction is going to look like. We're waiting to hear from CMS, and we're waiting also to hear if that's going to happen, when is it going to happen, what's the final number would be, and if they would be able or open to the idea of having outside entities becoming an Organ Procurement Organization to potentially drive more efficiency. That's all in the hands of CMS.
We expect to know a lot of the answers to this. We hope to know a lot of the answers to this sometime later this year. That's all we know about this.
Yeah
particular topic.
Okay. What can you share about OCS Gen 3? You mentioned automation, you mentioned remote monitoring. What can you share about
Sure
the new one?
That's an excellent question, Neha. Gen 3.0 is not just a new technology innovation. It's a fundamental, purpose-built infrastructure or technology platform that is designed to gain significant, and I repeat, significant operating leverage by design. Lower part count, up to maybe 50% reduction of part count. More automated assembly to increase reliability and increase overhead. Remotely controlled, remotely monitored, and with more mature technologies like heart, like liver, we will have built-in algorithms.
to manage the organ. The whole concept is to scale and scale efficiently and with significant operating leverage.
That's really what Gen 3.0 is designed to achieve.
Okay. You know, you mentioned you described TransMedics as a high-growth, highly profitable, and you mentioned scaling, et cetera. I think for high growth companies and for the way investors think about high growth companies, there's always a bit of a tension between delivering on growth and focusing on margins.
profitability.
You guys have done and demonstrated well the ability to do both. This year is a big year of investment, right?
As we think about international expansion, et cetera. How do you guys think about that balance between growth and profitability?
We think both are critical.
We think growth first, profitability very close second.
Because you can't just think about profitability and starve the growth.
Right.
This is a growth first business. We need to capitalize on the opportunity in front of us, but we have to be disciplined in the way we grow and disciplined in managing the growth. That is how we are thinking. Right now, we are still in the early to mid-innings of our growth cycle. We cannot starve the business. We have to be focused on driving growth, growth, and also being disciplined in deploying our capital and making sure that we are keeping an eye on the profitability. Yes, we could do a better job in communication and articulating the different kind of peaks and troughs
on the spending. No doubt about it. As I indicated that previously, but it is definitely growth first, profitability second, and it is not too distant, and it is a significant profitability as
Yeah
we have demonstrated in the past, so.
Yeah. I think that is what is so unique is that you have taken an industry which literally was an ice box, right? And you have completely transformed it, and yet there is still so much opportunity and so much runway
ahead of you all that it would be a shame for folks to not get the
Exactly
full access to the technology.
Exactly.
There has been a lot of misconceptions about this story. It's taken time for people to fully understand it. You revolutionized the standard of care that, like I said, was an ice box. Then you went after airplanes. If you could dispel just one misconception that investors have about TransMedics today, what would it be? I'm going to ask you to pick one.
I think, listen, there has been a lot of confusion about TransMedics, but that doesn't bother us.
Yeah.
It doesn't bother us at all. For us, it's all about execution and putting points on the board. It's also good because competitors need to understand that this is a very difficult environment. You need to be able to demonstrate ability to execute. Otherwise, it's the NFL. It's not for long if you can't demonstrate the ability to execute. So we love it.
Yeah.
We love it. So I would say, we, TransMedics, need to continue to deliver on our promises. We need to deliver on our execution metrics and goals, and we'll let the execution speak for itself.
Okay. I think that all makes sense. Look, I think we've seen your guys' ability to do that, right? When people discount you, come up and then the quarter is phenomenal, so no question. I guess if there's three to five things you want investors to look out for as they think about pipeline, you have so much ahead of you. What KPIs or pipeline events over the next 12, 18 months would you say people should really keep a focus on as big, chunky drivers of the story going forward?
Very straightforward. ENHANCE Heart Part B, 650 hearts that we don't have access to today. Followed by CHOPS 510(k) give us access to the delta between 650 hearts and 2,300 hearts, which is as a bridge gap to the full approval of the OCS and that new indication of DBD hearts of four hours or less. De Novo-
two shots a goal. One is through OCS. If we can galvanize the market to focus on the benefit of NOP and machine perfusion.
Yeah
That's OCS. If the market really doesn't see the value and they want to stick to cold, we're delivering the best cold technology in CHOPS, controlled temperature. We will resurrect the lung market come hell or high water. We're going to do it either with OCS or with CHOPS or with both. All of those are happening in 2027. Then Europe.
We hope to see Italy start generating some meaningful uplift throughout mid-next year, and then end the year strong with the kidney program.
Yeah.
That's going to be huge. As I stated publicly before, watch out for the kidney. If you think TransMedics achieved significant success with the liver adoption and the trajectory of the liver adoption, you have something else coming with the kidney. The kidney will be faster adopting than the liver. That's my bet based on the value that we've seen so far pre-clinically. We're very excited about where we are. We think the next 12 - 18, 24 months, it going to be hugely transformative in TransMedics. Yes, we're taking our lumps in 2026 because of the investments we're making, but we're not looking back. These are critical investments to be able to harness that growth that we outlined.
Perfect. Well, look, very helpful. It's always great to level set with you guys. Business transforms continuously. I feel like every time we chat, I learn something new about the new direction you guys are heading in. I'm sure investors found this very helpful, and we're looking forward to seeing what you guys do next.
Great. Thank you, Neha. I appreciate the opportunity.
Great.
Thank you all.