The "organ transplant as a service" market is taking the medical world by storm. How long can the accelerated growth rates continue?
August 21, 2024
TransMedics (Nasdaq: TMDX) is a unique company you might have never heard of. But it’s playing an important role in saving the lives of thousands of Americans every year.
As the creator of its patented Organ Care System (OCS), it is the only FDA-approved technology to transport lungs, hearts, and livers in the United States. When a registered donor is recently deceased, TransMedics’ OCS keeps their organs functional long enough to be transplanted into another patient who is badly in need. The transplant must happen as quickly and as efficiently as possible, since this is a matter of life and death.
Logistics is one of the most important keys of things going successfully, so TransMedics is also the pioneer of offering organ transplant as a service. Rather than just selling the OCS box to transplant centers, the company handles everything that’s required to get a healthy organ into the hands of that surgeon. That involves flying an aircraft to the donor, placing the organs in the device, transporting them to the transplant center, and having them immediately ready for the operation.
In the words of its founder and CEO Waleed Hassanein:
Transmedics does two essential things: it keeps donors’ organs alive and healthy for much longer than any other product on the market. And it solves all the logistics involved in recovering the organ, transporting it to where it needs to go, and servicing it fully in accordance to all health-care-standards, all the while keeping it in the best condition possible until it begins its second journey in the body of another human… whose life the organ will save.
It’s a genuine miracle and I want you to acknowledge it!
Its miraculous solution is indeed being acknowledged by the medical community. Even though TransMedics was founded in 1998, it was only recently that its solution is rapidly gaining adoption.
Take a look at the company’s revenue growth during the past three years, and telling me if it doesn’t cause your growth-style investing heart to skip a beat.
That revenue growth is in the shape of the beautiful “s-curve” that has become synonymous with market innovation. The combination of the OCS system and the logistics-as-a-service are solving a huge and previously-unmet need in the world of organ transplants. TransMedics’ revenue has increased 10x in three years and doesn’t seem to be slowing down (more on that in a minute).
Wall Street’s analysts have been sharpening their pencils and trying their best to keep up with TransMedics’ growth. The institutions who issue sell-side reports on the stock have across-the-board been scrambling to increase their price targets to account for the accelerating growth rates.
Analyst Price Targets for TransMedics. Source: Ortex
When 8 out of 9 analysts of record are bullish and they are continually increasing those price targets, the result is a stock that shoots to the stratosphere.
After increasing 222% in 2022 and then 27% in 2023, TransMedics’ stock is again up 110% in 2024. It’s been one of the stock market’s best performers during the order-of-magnitude revenue increase of the past three years.
The investing case for TransMedics boils down to donors’ organs currently being underutilized because of the logistics challenges involved. TransMedics is solving those challenges through an innovative device, a fleet of aircraft available in hubs across the nation, and well-trained personnel who believe in its mission.
It also appears that those growth rates aren’t slowing down any time soon.
By the numbers, there are 250 transplant centers in the United States and there are around 16,000 available donor organs available per year. TransMedics is already actively being used at 126 of those 250 centers; which is up from 105 centers just one quarter ago!
And consider the following (as reported by the Organ Procurement and Transplantation Network):
Altogether, that totals 2,660 healthy organs delivered and lives ultimately saved last year. That statistic alone is simply incredible when you think about it.
Bigger-picture, Hassanein has gone on record and stated that TransMedics’ goal is to do 10,000 US transplants per year by 2028. Of 16,000 available organs, that would represent around 62% market share.
There’s a bit of a hard ceiling to this industry. Even though TransMedics is growing revenue in each of its divisions at 100%+ right now as it’s quickly catching on, there are a relatively fixed number of donor patients and organs available for transplant. The overall number of transplants done in America is still growing at 12% per year, largely thanks to innovations like the OCS.
Yet even so, it appears that TransMedics can legitimately quadrupled its current revenues before they begin to plateau. That could mean there’s still plenty of blood pumping the investment gains even higher.
Tomorrow, I’ll dig deeper into who’s actually paying the $80,000+ bill for the TransMedics transplants and why this could present an investment risk worth considering. I’ll also dig into the valuation and how much conviction I have in the stock today.
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