TransMedics Group, Inc. (NASDAQ:TMDX) Q3 2023 Earnings Call Transcript

Dry runs is the nature, of the DCD donation. It is going to be with us as long as we have DCD donors, there is always going to be a case where the DCD, potential DCD donor doesn’t progress to DCD. And as long as we are using DCD donors, this is going to be the norm for us, as we go forward. As far as the trend we saw in the quarter, I would say, it was the rate of DCD donors progressing or lack of a progression of DCD donors was a little bit below Q2, but that’s all, I can comment on. But there is always DCD lack of progression when you’re using DCD donors.

Suraj Kalia: And, Waleed, for my second question, I know when we were at your — during the site visit. If memory serves me right, you had indicated that, 70% or north of 70% of all DCD hearts were — TransMedics was capturing those. I would love to get some updated color from you, especially in hearts, how do DCD and DVD trajectories look like? If you could also characterize how you think TransMedics’s share progression within these subcategories is moving? Gentlemen, thank you for taking my questions.

Waleed Hassanein: Thank you, Suraj. Appreciate the question. So, let me address the two-part question you asked. The first is, yes, TransMedics continues to do the lion’s share of DCD heart donation in the United States. We expect to release the annualized number after at — by year-end when the full number of DCD hearts are released. But from where we see it here, we are continuing to be north of 70% for sure. As I stated, many times publicly, DCD is the low-hanging fruit right now because it’s the sort of the black-and-white option to growing US transplant volumes. That’s why we expect to see the overall heart, lung, and liver transplant to grow this year over last year because of the high use of DCD donors, especially in heart and livers that is afforded by OCS.

Now that doesn’t mean that DVD were not — the DVD is not being used. The opposite is true. I would say, so far, it’s between 45% to 50% of our volumes are DVD. We expect to see that growing into in ‘24 and beyond as we are now highlighting the benefits. There will be some data readouts, there’s some publications coming up in early ‘24 that will clearly point out the importance of using DVD organs to expand, the donor pool even further. So, we are confident that as we move forward, the DVD and DCD portion of our business will continue to grow and will continue to achieve the high success rates on both.

Operator: Our next question comes from Ryan Daniels with William Blair. Please go ahead.

Ryan Daniels : [indiscernible] I know there was a little bit of controversy on NRP over the last few quarters and just demand in the market with DCD for that, but we’ve actually heard recently in our channel checks that many systems, especially non-profits, are just banning NRP outright due to ethical issues. So, I’m curious if you’ve seen that in the market where that’s actually started to face some bans across the United States.

Waleed Hassanein: Hi, Ryan. As I stated last call, and you are absolutely right, we are not concerned at all about the progression of NRP. We are seeing the opposite is true. We’re seeing many centers that uses NRP are now or used to use NRP and now shifting towards OCS. Again, we are doing more than 70% of the DCD hearts in the United States, so I’m not concerned at all NRP is going to be — it’s going to be limited in nature. We have our results is pointing to that. And we have a couple of abstracts at the upcoming ISHLT that will address this point directly and clearly show the importance of OCS and its capabilities of OCS including cost comparison between OCS and NRP because — for a while, there was a misunderstanding and misnomer that OCS might be more expensive than NRP.

The opposite is true. So, the bottom line is, TransMedics is doing the lion’s share of DCD hearts in this country. We expect that to continue to be the case and ultimately at some point will probably be doing the vast majority of it. We are proud of where we are. We trust our technology, we trust our methods because it eliminates all these ethical and legal concerns that exist around NRP.

Ryan Daniels : Got it. That’s super helpful color. And then I guess the additional question, and I’ll hop back in the queue, real really good progress adding clinical staff, I think you said 45 new clinical staff and 10 surgeons. Can you speak a little bit to how that progressed through the quarter? So, did you see the benefit for the full quarter? Was that kind of spread throughout the quarter? And then how should we think about the investments there in the fourth quarter to get to the scale you need to continue to grow into 2024. Thank you. And congrats again.

Waleed Hassanein: Thank you, Ryan. I think, to be fair, I think this came mainly through the second half of the quarter. So, they contributed some, but not significantly. We expect those to contribute more in Q4, and we will continue to make investment in building out the clinical support staffing in Q4 to prepare for ‘24 and beyond. So, this is going to be a fountain that doesn’t stop giving, because as we see more and more growth, we would need more and more clinical support, staffing and Tamara and his team and are doing a great job in getting them trained and deployed to the field. But we will see the impact of these 45 new hires in Q4. And as we ramp up in Q4, it’s mainly to see the impact in early ‘24.

Operator: Our next question comes from Josh Jennings with TD Cowen. Please go ahead.

Josh Jennings: Thanks, Waleed, and Stephen. Congrats on the early strong results. Wanted to just ask on two things. We believe you said on your prepared remarks. Think first was just center numbers. You don’t believe it’s an accurate predictor of growth anymore. Hope. I’m not asking you to repeat yourself on some of the other questions that you’ve answered already, but can you just give us a little bit more detail on why center numbers are not an accurate predictor of growth? And just build on that download.

Waleed Hassanein : Sure. Thank you, Josh. Really what I meant by saying that Josh, is as long as we’re growing our revenue per organ segment quarter-over-quarter, that is the — for us, that is the most strongest indicator of our growth. With NOP as you know, I mean, every quarter we get a handful of centers that never use the OCS in their life, in our life, and they jump in into the NOP. Most of those continue and grow, but some of them may they slip a month, and then come back again. Some continues every month. It’s, all I’m trying to say is it’s becoming noisy to be looking at the center to center — quarter-to-quarter center growth. The other thing is, and that’s the most important, is for liver and heart we’re already at a critical mass of centers.

We’re already north of 40 centers per heart and liver. So, it’s, growing beyond that is mostly growing within the center. IE increasing the adoption and penetration within the center. That’s important. The lung, until we have a new clinical program in lung, it’s going to be few centers doing the lung. But this quarter was the largest anyway, and it’s reflective of the lung revenue. That’s what we’re saying we want to be not confusing the market with too much data that really may not track the growth. The growth is tracked by the quarter-to-quarter progression of per organ revenue. That is the most accurate indicator of growth.