Transmedics transplant done right (again)

What happened

TransMedics delivered outstanding results

At the end of last week, TransMedics delivered a blowout 1Q report, with revenue surging 48% to $143.5M, nearly $20M above consensus, driven by explosive U.S. liver growth (+63%). EPS of $0.70 crushed expectations $0.26, thanks to strong gross margins and tight cost control. The company raised full-year guidance to $565-585M (+28-32%) and still looks poised to exceed it, even assuming seasonality and limited clinical trial impact. Margin expansion continues, with SG&A and R&D ratios improving, and product profitability reaching new highs. It was a clean beat-and-raise quarter reinforcing TransMedics' organ transplant innovation leadership. 

Impact on our Investment Case

TransMedics, a long-term conviction

Our point of view on TransMedics, as repeatedly expressed in various articles (mid-2022, December 2022, mid-2023, last May, last October, and last November) remains unchanged:

Since May 2022, the company has been the only FDA-approved provider in the U.S. market capable of extending the viability of livers, hearts, and lungs outside the donor and has shown and will show stellar growth in an underpenetrated market.

Organ transplant in the U.S. is an $8bn market. Depending on the type, 40 to 80% of organs become non-viable within hours after the donor's death and must be discarded. This inefficiency represents a potential revenue loss of $6-8bn, given the $200'000 to $400'000 cost per transplant in the U.S.

As TransMedics' solution could increase the donor pool in a supply-limited market, we are convinced the market underestimated how much bigger it could be, not including the potential international expansion.

All of the year-end worries starting 3Q24 have vanished

Investors were worried about increased competition, market share loss, and margin contraction due to increased logistics services. First of all, none of the worries materialized. Secondly, all items improved. 

TransMedics gained market share in all segments, with an increase in margin! In addition, TransMedics's competition, reviewed here, is foreign except for 2 small startups. With the recent escalation of U.S. tariffs on Chinese and European medical devices, foreign competitors face higher costs and longer lead times to enter the U.S. market, TransMedics’s home turf.

This trade protection further strengthens its competitive moat, where scale, logistics, and regulatory familiarity are critical. By contrast, smaller foreign players will struggle to justify U.S. commercialization efforts amid rising costs, leaving TransMedics to consolidate its dominance with minimal domestic resistance. 

Most of all, the beat was predictable

Flight data has become a reliable indicator since 2Q24. Even the CEO reminded the investor on R&D day in December last year that flight data is now highly correlated to Transmedics' revenue.

Given 1Q flight data, the revenue projection was pointing toward $140-145mn; they did about $143mn. The only question was the marginality and whether that flight surge could have been costlier. As the jet fuel price was trending down and plane maintenance was as expected, we posited that the chance of a negative surprise would be low. Eventually, even we were surprised at how big the EPS beat was.

Valuation is still palatable

Market’s base-case expectations for 2025 to 2028 appear conservative. Current projections do not account for TransMedics achieving its management’s target of 10'000 transplants in 2028. Should the company reach this goal, revenue could range between $1.1bn and $1.2bn. At the current net profit margin, this would result in an EPS of ~$5, where the market consensus hovers around $3.6, and push the 2024-2028 EPS CAGR to 46% (from the current 34%).

2Q flight data until early May point toward 20% growth QoQ, when the market expectations are -0.8%! At that rate, TransMedics could reach more than 10k transplants by 2028. On top of this, TransMedics still sports a 28% short interest, so the likelihood of a short squeeze in 2Q remains high.

TransMedics trades now at x7.2 P/S CY2025, a more reasonable multiple given the revenue growth and closer to the x11.8 at the ATH. As a reminder, the only listed direct competitor Xvivo Perfusion AB trades at x10.0 P/S CY2025 with 4 times less revenue and 2/3 of the growth. For a broader comparison, the trio of "high growth" MedTech darlings Abbott Laboratories, Boston Scientific, and Intuitive Surgical trades respectively at x5.2, x8.0, and x20.9 P/S.

TransMedics's catalysts for 2025 and beyond are not even in the models

TransMedics is poised to launch clinical trials for next-generation solutions for heart and lung transplants toward the end of 2025, with preclinical data already showing the potential for up to 24 hours of organ viability using its OCS-perfused technology. These advancements mark a shift from cold perfusion to improved warm perfusion solutions for both heart and lung transplants. By enabling extended storage times, these innovations significantly improve operational efficiency for transplant centers. For now, the FDA has not approved all the study designs, meaning any upside is not yet factored in the company's guidance increase.

Geographical expansion is also the next leg of growth. While TransMedics' financial analyst models currently exclude European market contributions, there are clear indicators of imminent expansion. A few days ago, the company announced plans to build a facility in Italy to manufacture its OCS disposable perfusion kits. This announcement followed a conference a few months back at which the CEO mentioned an upcoming geographical expansion.

Our Takeaway

At the cost of repeating ourselves, TransMedics is transforming the organ transplantation market with its market leadership, groundbreaking technology, and strong growth trajectory. Last year's 3Q setbacks were temporary, as we expected, and did not deserve to overshadow the company’s long-term potential to capture a significant share of a currently underserved $8bn market. 

For investors like us seeking exposure to a high-growth MedTech stock with a clear competitive advantage, TransMedics is still a "strong buy".