TransMedics Group, Inc. (TMDX) Earnings Call Transcript & Summary

Good afternoon. My name is Josh Jennings. I'm with the medical devices team at Cowen, along with [ Brian Kennedy ], Neil Chatterji and Eric Anderson. We're hitting the last fireside chat of the medical devices track, and we're thrilled to have the management team from TransMedics. Waleed Hassanein, President and CEO and Founder; and Stephen Gordon, Chief Financial Officer. Gentlemen, thanks so much for joining us this year again, and it's great to see you.

Same here, Josh. Thank you for having us.

I know you guys just hosted your fourth quarter earnings call last night and gave a strong update. And so it's good to talk to you again so soon.

I wanted to just follow up with a couple of questions off the top just on recent trends in the transplant world. Clearly, there was an impact throughout 2020. You guys have been describing that as we moved through the quarters last year and just on the fourth quarter call yesterday, but recovery was noticeable in the fourth -- in your fourth quarter results. And I think the high-level first quarter guidance of sequentially flattish revenues with 4Q suggested that lung and heart volumes could increase this quarter sequentially, considering the liver CAP program's second tranche isn't going to be up and running until 2Q. Is that a fair kind of interpretation of the setup? I think we're 2 months into the first quarter in transplant volumes. Despite the surges here that have lingered, even January and February are holding up.

Yes. From what we see, Josh, that's exactly what we're seeing here in the U.S. The liver and heart and, frankly, even lung volumes are holding up in the U.S. Outside of the U.S., however, COVID still remain a very negative impact on transplant volume across the globe, Europe, obviously, impacted the most.

Understood. It's really challenging to find silver linings in this era of the pandemic and through last year. But there are some, and one of them for TransMedics was, I believe, accelerated interest in the service model that your team is bringing to the table. With some of the restrictions, travel restrictions, I think transplant centers were rethinking protocols and provided you guys that opportunity to introduce the service model to your current customers, potentially, and just get it out there in the transplant community. Maybe you can just talk about that dynamic and then where you sit today with the service model. Sorry to ask you to repeat some of the update from last night, but I think it will be good for investors.

Yes. No worries. No worries. No worries. No, we're very excited about the National OCS Program or historically named as the National Service Program. We think COVID was a perfect opportunity for us to lean forward into it and launch the program. And I wouldn't call it an accelerator, but we actually are proving to our customers and our community, transplant community in the U.S. that, listen, we can be a trusted partner, capable to deliver organ across the U.S., continental U.S. for them. And we moved from one region in the beginning of 2020, we ended the year with 4 major regions, and we're just getting started. I mean we added 2 new regions just at the second half of Q4. So we're just getting started, and we expect that to continue to grow regionally in 2021. The exciting thing for us now and the focus for our team now is to start generating more missions and more cases through the national program. That being said, we still have our direct acquisition model where transplant programs buy our technology directly and run their cases on their own. That's still open, and we plan to maintain maximum flexibility. But having the COVID crisis and having the limitation of travel and having TransMedics come up and say, "Listen, we're ready to go. We will deliver these organs to you guys," to transplant programs was an important step. And that's why I said publicly several times during the early part of the pandemic that this is the time for us to lean forward and continue to drive the program. And I think it paid dividend to do that. And we'll continue to monitor the progress throughout 2021.

Excellent. It may be helpful just to kind of walk through some of the specifics of how the service model works, from the staffing on the surgeon side in your different regions to the TransMedics team that will be with the organ and the OCS -- hooked up to the OCS system and the transport to the recipient and just how the reimbursement comes in so that the recipient hospital can pay for the OCS circuit or disposable and the service as well. It would be great to run through there real quick.

No, no. Thank -- yes. Thank you, Josh. No, that's very straightforward. So let's start -- now that we have a year of this program under our belt so I can tell you that it starts even before the surgical retrieval part. We are now in -- as I discussed in our call last night, that we're now involved in even screening donors even before the organs are offered for transplant. So you start with a screening capability that your -- gives us ability to access every potential donor in the regions we're active at. That's very important. That gives us huge access to a donor pool -- the donor pool for -- in these regions. From there, we screen the donor for suitability for OCS perfusion. If the lungs are suitable, we tell the transplant -- the organ procurement organization. If a center wants us to deploy the national program, we're ready to go. So they make that as a disclaimer on the offer that goes out to the different transplant program that this organ has been screened for the national program, the OCS program, and is suitable. So every center now can decide whether or not they want us to bring these organs to them. And that is an important decision matrix for them because they -- now they're worried about logistics and teams and availability and who's going to go out at 3 in the morning to get this organ. Let's say a transplant center in the South is -- but the donor is in Boston, and we have to have a team go fly out to Boston to bring the lungs and bring it back. Now once they see that disclosure on the offers, like, okay, we call TransMedics and TransMedics brings us this organ. TransMedics deploys a team that has a surgeon who can retrieve the lungs and instrument the lungs in OCS. We have a team of -- a clinical support team that would manage the lungs in OCS and babysit the lungs through the flight down to Florida or wherever that organ is going. And the surgeon and the surgical team once they arrive, they assess the lung. And if it's transplantable, they take the lungs, and our team comes back to home base. Every aspect of this procedure is done today with cold storage and is being reimbursed today by the same payer. All of what we did is to kind of efficient-ize it and make it done with one team, one standard, one protocol, one process. So from a reimbursement standpoint, it doesn't change the reimbursement mechanism. It's a part of the organ acquisition cost, and that will always be the case at least for the foreseeable future. It doesn't impact reimbursement at all.

Excellent. And just in terms of the revenue for TransMedics, as investors try to model out kind of the per-organ revenue run rate for each OCS case in the service model, how would you suggest we bake in, I guess, the disposable costs combined with service? Is -- clearly, there would be an uplift to account for the manpower on the surgical team and the perfusionist team and the transport. But any advice there?

So I'll give you my perspective, and I'll ask Stephen to comment on it as well. From our perspective, we foresee this, the national program, as a mechanism to increase adoption of our disposable and our technology. So the lion's share of our revenue will always be, at least in the near future, all driven by the disposable economics. We -- there is a charge for the service, but it -- right now, it's small compared to the cost of the OCS. So we're always going to try to be flexible to ensure that the national program is facilitating more adoption and not really focusing on maximizing every aspect of the service charge per se but generating more revenues on the disposable side.

Understood.

So Stephen, do you want to address that?

Yes. Josh, I'll just add. In general, per procedure, it's probably about a 15% to 20% uplift from kind of the current price. I would think about it in that way. It could generally differ if we're doing the surgery or not doing the surgery and just the management, but I think that's probably a good rule of thumb.

No, that's helpful. One last question on the service model, Waleed. If we think about the organ procurement organizations and how this benefits them, and then is there any competitive dynamic in play?

We think this is -- we always think about approaching everything we do as a win-win strategy. We all know that CMS wants to see more organs utilized for transplantation. That's become public with the final ruling of CMS earlier in 2020 basically saying that every OPO is going to now be measured based on performance to increase the yield of organs for transplant and their same rule to the transplant program saying that their annual Medicare certification for transplant, the outcomes -- outcome measures would be lifted to enable hospitals and transplant programs to do more and become more aggressive and do more organ transplant. So that's the backdrop. And what we have is a technology that could actually make that a reality because if you continue to use ice, which -- we know what the results are for the last 40 years. The numbers haven't changed. In fact, the utilization rate is maybe flat or even slightly declining for the last couple of years. So we need to do something different. And we think this is a huge win for everybody involved. The OPOs win because they can allocate more organs. They need the CMS ruling or guidelines and has favorable economics to that. Transplant programs would win because of the same reason. They're transplanting more patients. They're generating healthier economics through the transplant program and also meeting the CMS rule. For TransMedics, obviously, that's also a win because we can save more lives and generate more use for our technology and better economics.

Absolutely. That makes a ton of sense. I mean the service model makes the lives of the transplant teams easier, decreases their travel in order for them to have a more orderly surgical schedule, if you will, most likely. So I guess the question is, just why wouldn't a transplant center participate in the service model? And why would they stick with the old own the capital or at least have the capital place the OCS system and run the procurement themselves?

As anything, Josh, when you're transforming the standard of care, it never is -- even though it's very obvious and very intuitive, but you're dealing with a historical mindset. So there needs to be an educational campaign around that articulating the value, articulating what we're trying to do, articulating that this is a win-win. We're not trying to displace anybody or replace anybody in the chain. We're trying to improve everything and streamline everything. So we cherish that role, being the pioneers in the field. We know that's our challenge, and we welcome that challenge. And we're working diligently with transplant programs, OPOs and payers to educate them about why this is important and why is it good for them as it is good for us. And so far, knock on wood, it's been met with positive early signs. So our goal in 2021 is really to continue to drive that, and Tamer and our commercial team are doing a great job at driving that forward, and we're going to be monitoring the progress quarter-over-quarter. And we expect that -- to see that starting generating meaningful impact on revenue throughout the year.

Excellent. Excellent. Well, 2021, outside of the service model, is shaping up to be a transformational year for you guys: a couple of indication approvals in heart and liver, and the first one of those -- and a couple of publications as well, another data set for DCD heart. But the heart panel for DBD heart indication just a month away, congratulations on getting that date finalized. But it does -- it's only a month away. It seems like a little bit of an accelerated time to prepare for panel. I know you've been in the middle of preparation for a little while and you have urgency to get there. But is this -- it sounds like the time line was something that you accepted and maybe collaborate on with the FDA. Anything you can share in terms of how those discussions around panel timing played out? Because it feels like the panel timing was coordinated, more coordinated than usual, at least for this final date. And that's typically a positive, but I just wanted to throw that question out there for you.

I think we have tremendous partners at the Office of Cardiovascular Devices. They understood the impact of that delay that happened in September. We made them aware of the negative impact and the perception. And we're very fortunate to have good partners in FDA. And I think the panel is scheduled on April 6, and we're looking forward to that date. We're looking forward to continuing our collaboration. It's not going to be a cakewalk. Panels are a serious thing, and we are preparing for it. And we are going to be ready to address any FDA questions or panel questions relating to our data, results or the value proposition. And we can't wait for April 6 to be here. And then we will turn our attention to, hopefully, the next panel, which is going to be the liver panel in the same fashion to try to have a -- secure a positive outcome for the OCS liver platform. That's all I can talk about publicly, Josh. We're looking forward to April 6.

Is there anything you can comment on not just on the data but just in terms of what you would -- during the panel, what you would guide investors to analyze? And if we think about the proposed label or the -- within the indication, our thoughts were a combination or looking at the EXPAND data set, looking at the CAP data set, maybe a combination of those 2 patient groups -- or patient data sets together as one. But how would you guide investors to analyze the data when they see the briefing documents in front of the panel and as the panel is going on?

Sure. So 2 things. I would kindly ask any investor, analysts or anybody who's interested in TransMedics to read our panel briefing document and not just FDA. And the reason for that is we, in a systematic way, have addressed every question that we're aware of that was raised during the review process based on data and based on our understanding of the results and the data in, hopefully, a clear and succinct way. So any reader or any interested party who wants to know what TransMedics' position is or how TransMedics is going to address this particular FDA question, it's all in our panel briefing material. So please, if you're interested, please read both material or read ours, whatever you prefer, but don't just read the FDA and not read ours. So that's number one. Number two, it's a long day. Panels are long days. It starts at 8:30 in the morning and finishes sometime between 5:00 and 7:00 p.m. at night. So it's a rollercoaster ride. It's ups and downs. So we need to have ice in the veins, and we need to go through the process, and we need to trust the process. So that's another thing. But there isn't a question -- I mean this is -- people ask me today, "Waleed, are you confident?" While I'm confident, I can't comment on FDA. That's not my job. I can only comment on what I can control. What we're confident of is that we know our data inside and out. What we're confident of is we know that our results are solid, air tight. What we're confident of is we can address any FDA question, whether on the EXPAND trial or even the PROCEED trial, which is not even relevant to our indication at all, yet the FDA might raise that PROCEED trial because it's a historical trial. So that's all I can comment on. That's what brings me confidence. Between now and April 6, nobody is going to outprepare TransMedics for this important panel meeting. And that's what we do for every panel. This is not just for the heart panel. So that's one thing. The other thing is please don't spend a lot of time on the labeling. Why? Because our labeling is a statement of fact, meaning as exactly as you said, Josh. It's a statement of fact of the type of donor hearts that we used in EXPAND and EXPAND CAP. It's very simple, very straightforward. And we did that intentionally because that's what we want. That is why we conducted this trial. This is why the results of EXPAND and EXPAND CAP is the most relevant data set for this indication. So for me, it's pretty straightforward. It's black and white. It's a statement of fact, and we hope it doesn't change because that's what we study. It's not -- there's no nuances. There's no -- we're not trying to get something that we didn't study. That's not here at all. And today, we have not heard any criticism, albeit too early in our indication. And we made it clear that it's a statement fact, and we have not heard FDA object to that. But we'll have to wait and go through the panel process and see what happens.

Excellent. And just thinking about the CAP program, continued access program, for DBD heart and that data and the importance of the FDA validating that, that was one of their reasons that the panel date was pushed out a little bit. But validating that in front of the panel in regards to timing after the panel of ultimate approval and how that may be accelerated.

I'm sorry, Josh. Can you...

Oh, the timing between the panel, the vote by the panel and then FDA's actual approval decision, just having that validation of the data and the panel briefing timing...

We hope...

That's -- yes.

Yes, I got it. I got it. Thank You. I think -- listen, we -- it's the reason why we agreed to delay the panel. We had to be collaborative, and we hope that it pays dividend. From our knowledge, there's nothing left to discuss except the final language in the label and the clinical push work and the design of the post-market registry. We've already even proposed a design with a statistical plan. So just tweaking that, I expect -- I hope that it will be a streamlined process once we hopefully secure a positive panel outcome. And as I predict -- as I suggested yesterday, we expect somewhere between 60 and 90 days. I hope it's sooner, but FDA has a specific time line, and we'll work diligently to try to do our part to accelerate that time, but we're not in control of that time line by ourselves.

Great. Understood. I think the surgeons that we've spoken to, heart transplant surgeons, are excited about the DBD indication and maybe even a little bit more excited about the DCD indication. Can you just talk about the status of that CAP program and whether the CAP data from DCD heart will be submitted as part of the filing?

So by definition, the CAP is actively enrolling right now. And many new centers are contributing to that CAP, and we're very excited that we have 25 active centers now in the CAP program, 25 very busy heart transplant programs that, hopefully, once the heart is approved, this will be the first target for our commercial launch for our heart product. Relating to the second part of the question, which is do we expect to have the CAP data from the DCD trial presented, by definition, we have to. It's not an option for us. By FDA standards, you have to present every in PMA or a panel the latest data set that you as a sponsor are aware of. The good news is we -- between now and the reveal of the primary endpoint, we will accumulate some patients and we -- by definition, we will put the patients that meet the primary endpoint of -- or meet the window of follow-up of 6 months in the PMA. And we will continue to follow the rest of the CAP patients as we usually do. And when the FDA asks for the update, we have to provide it. So that's -- I don't want people or investors to think that getting CAP data is signifying anything positive or negative. This is the norm. We have to submit the CAP data for every program we're involved with. For example -- I'll give you a different example in the liver front. So we just submitted the CAP data on the first 50 or 52 liver transplant as a part of our PMA for the liver. That's by law. We have to do that. So we expect that will happen in the DCD as well.

Fantastic. Maybe last question on heart before we get to liver since our clock is running here. But just in terms of the commercial prospects, assuming you have the DBD and DCD indications approved sometime in 2022, just the setup for the commercialization in the United States for the heart indication versus what -- everything you've learned in the lung launch, with the service model in place, how would you have investors think about the heart launch? I mean, clearly, my question, I'm setting up that it could be stronger, but I just wanted to hear your thoughts there.

So we -- as I've said publicly several times, we've learned a ton from the lung launch. Big mistake and big learning we've learned from the lung launches. You can't leave a big hiatus between finishing the pivotal trial and launching without any Continued Access Protocol because people would forget how to use the technology, they forget the value proposition, it just is no longer a part of the routine. For heart and liver, we never stopped having the CAP. So we always have an ongoing CAP to keep the trained hands going and keep the clinical momentum going and keep the understanding of the technology going while the FDA is reviewing the filing. So that alone should bring a little bit of efficiency to the heart and liver launch. Second thing is the breadth of the number of centers that are active in the CAP. So in heart, we have 25 centers. That's the largest number of centers we have been in the United States without including international centers. So that gives us another leverage point to hopefully streamline the process. And then finally, the national program. So national program in all of the regions we're active in, they all are fully aware that TransMedics intend to move from lung to lung and heart; to lung, heart and liver once the FDA's approval for heart and liver is obtained. So that, again, will add another layer of kind of efficiency to the uptake. Again, it's never a flip of the switch as much as we want to. But our team is doing a great job educating the market, the transplant programs, the OPOs, about what's coming. They know about what to expect. So there are no surprises. So we hope that that's all going to result in what we all hope to show by the end of this year: a significant catalyst to our growth and exit 2021 on a run rate that is healthy to even pivot higher in 2022 and beyond.

Excellent. Excellent. Sorry, we only left a couple of minutes for liver, but it's another big deal for the TransMedics story. Maybe just talk about -- the publication is coming for the PROTECT trial results, I think 12-month results. Just within that publication, outside the top line data, it has been very impressive and has resonated with some of the surgeons we've spoken to. What would you guide investors as to what physicians will be looking for? The other metrics that weren't included in the top line data now, I know you can't share them in front of the publication, but just what would you have us focus on when that publication hits?

I think there's 3 major areas that weren't obvious or apparent in the top line data release. One, look at the rate of utilization of DCD livers on OCS versus control. Two, I think once the publication is released, you will find that it's going to be the first of its kind in defining and proving the mechanistic reasons of why the outcomes are as good as they were in the PROTECT trial. And then finally, the importance of adding an assessment tool to donor liver assessment ex vivo on the impact on decision -- clinical decision-making. I think these are the 3 new areas that the publication highlights pretty strongly.

Excellent. I'm sorry if I missed this yesterday. But is it -- when should we -- could we be expecting a panel date or liver panel date? Is that a definite that there will be a panel?

It's a definite there would be a panel. The timing is not definite yet. Yes, we're discussing potential tentative dates with the FDA right now. We expect it to be somewhere in a June, July time frame.

Excellent. I mean, just back to the PROTECT trial, are you able to share the mix between DBD livers and DCD livers in the OCS group? And is that a -- just I guess the question is, right now, are there enough DCD livers to -- for the analysis to be significant?

Yes. We believe so. We believe so. Yes.

Excellent. And maybe we can -- and just one last question, Waleed. Sorry, there's a lot more to talk about in liver, and I didn't leave enough time. But just in terms of the international opportunity, I mean, clearly, OCS has been in a number of different countries for a number of years. The FDA approval and the reimbursement in the United States sometimes causes a domino effect in terms of decision in other countries. Is that what you expect for -- potentially for heart? And where are you in terms of -- are we close to any positive reimbursement decisions for OCS utilization in any countries internationally in 2021? Or should we be expecting them in 2022, 2023?

I think -- I'm hopeful that by the end of 2021, there will be a major catalyst OUS, in Europe, in a major European country for the OCS platform. It's been a long time coming. We've been at it for several years, and I'm hopeful that we will reach positive outcome on that front by the end of 2021. Others will be in 2022.

Excellent. Well, great. I think we'll -- I think I got to stop there as we hit at the end of the half hour. I can't thank you and Stephen enough to -- for joining the Cowen Health Care Conference once again this year. Great to catch up, and congratulations on all the progress.

Thank you very much, Josh, and thank you for having us.

Absolutely. All right. Take care.

Bye-bye.

Thanks, guys.