Business context and reporting period
TransMedics Group, Inc. is a commercial-stage medical technology company developing and commercializing its Organ Care System (OCS), a platform for preserving and assessing donor organs. This unaudited Form 10-Q covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net revenue | $8.2m | $3.4m | $15.2m | $10.9m |
| Gross profit | $5.6m | $1.9m | $10.4m | $6.8m |
| Gross margin | 68% | 56% | 68% | 62% |
| Operating expenses | $15.5m | $9.8m | $26.8m | $22.6m |
| Operating loss | $9.9m | $7.9m | $16.4m | $15.9m |
| Net loss | $10.7m | $8.5m | $18.6m | $17.3m |
| Net loss per share, basic and diluted | $0.39 | $0.36 | $0.68 | $0.78 |
Q2 revenue increased 141% year over year; first-half revenue increased 39%. Q2 growth reflected higher OCS Lung and Heart disposable-set sales, including increased U.S. Lung sales as COVID-19 disruption eased and higher Heart trial-related sales. First-half OCS Liver revenue declined as enrollment in its U.S. trial concluded. The company remained loss-making, with higher operating expenses offsetting some of the gross-profit improvement.
For the six months, operating cash use was $12.9m, compared with $16.7m in 2020. Investing activities provided $13.1m, largely from marketable-security maturities and sales; financing provided $0.8m. Cash, cash equivalents and restricted cash totaled $25.8m at June 30. Cash, cash equivalents and marketable securities totaled $112.2m, versus $125.6m at December 31, 2020.
At June 30, total assets were $140.5m, current assets $135.1m, current liabilities $15.1m and stockholders’ equity $89.0m. Long-term debt was $34.9m net of discount and accrued end-of-term payment; principal was $35.0m. The OrbiMed loan is interest-only until maturity in June 2023, with principal and accrued interest due at maturity. Its reported rate was 9.5%; the company stated it was in covenant compliance. The debt is secured by substantially all company and guarantor assets, including intellectual property.
Material changes versus the prior comparable period
- Q2 net revenue rose $4.8m, with OCS Lung revenue increasing to $3.6m from $0.4m and OCS Heart revenue to $4.6m from $2.2m. No OCS Liver revenue was recorded in Q2 2021, versus $0.7m in Q2 2020.
- First-half U.S. revenue increased $3.9m; revenue outside the U.S. increased $0.4m. First-half product mix included $6.0m Lung, $8.8m Heart and $0.4m Liver revenue.
- Gross margin improved in both periods, attributed by management to higher-margin disposable-set sales and improved production efficiency.
- Q2 operating expenses increased $5.7m, including higher R&D activity and commercial-team, personnel and stock-compensation costs. First-half operating expenses increased $4.1m.
- Despite revenue growth and improved gross margin, the Q2 net loss widened by $2.2m and the first-half net loss by $1.2m.
Outlook, commentary, risks and unusual items
Management expects continued operating losses and higher spending as it expands commercial and clinical teams, scales manufacturing, pursues R&D and clinical trials, and seeks regulatory approvals. It believes available cash, equivalents and marketable securities can fund operations, capital expenditures and debt service for at least 12 months after the filing, but notes assumptions may prove incorrect and additional funding may be required. The filing provides no specific revenue or earnings guidance.
Management said COVID-19 negatively affected OCS sales from Q2 2020 through Q2 2021 and anticipated continuing sales impact through 2021, despite recovery in transplant procedure frequency to pre-pandemic levels in most countries in the most recent quarter. Risks include renewed disruption to transplant procedures, clinical trials, supply chain and customer spending; market adoption and reimbursement; dependence on OCS products and limited suppliers; regulatory timing; competition; and financing needs.
After quarter-end, the FDA advisory panel voted unanimously that OCS Liver was safe and effective, and 12 to 1 that its benefits outweighed risks. The panel’s advice was non-binding; the company expected an FDA decision within three to four months of the July 14 meeting. On July 30, the FDA cleared OCS Lung Solution for lung transplants using cold storage. These developments are not June 30 results.
Other items to note: customer clinical-trial reimbursements reduced reported revenue by $0.5m in Q2 and $1.1m in the first half. A $9.5m non-cancellable purchase commitment entered in January 2021 runs through December 2029. A requested extension of one VA-licensed patent remained unresolved; an interim extension ran through September 23, 2021, and FDA input indicated a potential extension through November 6, 2021. No material legal proceedings were reported. The company expects to lose emerging-growth-company status at year-end 2021, increasing compliance requirements and costs.
Important facts for investors to verify
- Progress and timing of FDA decisions for OCS Liver and Heart PMA applications, and the commercial impact of the Lung Solution clearance.
- Whether transplant activity, customer adoption and reimbursement support sustained revenue growth after pandemic-related disruption.
- Cash burn, liquidity and potential financing needs relative to the stated 12-month runway and the $35m loan maturity in June 2023.
- Ability to scale production, improve margins and manage dependence on sole-source or limited suppliers.
- Terms and expected purchasing obligations under the $9.5m commitment, and the status and scope of the VA patent extension.