Organs-as-a-Service medical technology company!
TransMedics Investment Case!
For thousands of years, people have been dying from organ failures, and there was nothing that could help.
Until December 23, 1954, when Dr. Joseph Murray performed the world’s first successful organ transplant surgery. Before this surgery, organ transplantation was looked at as fringe science or something out of science fiction novels.
While the invention of this procedure revolutionized medicine, it was far from perfect, as due to various reasons, most organ transplant surgeries failed.
Over the years, scientific understanding of the procedure grew, and we learned that the methods used in storing and transporting organs are key factors that determine the outcomes.
This is the area that TransMedics has chosen to tackle!
TransMedics is an organ transplant storage and transportation solutions company.
Their products have seen explosive demand, with sales growing 20x in the last 5 years!
Such strong growth has sent their stock up 440% since their IPO in 2019!
In this TransMedics Investment Case, I will explain their business model and future growth opportunities!
1. Business Model
2. The Opportunity
3. The Ecosystem
4. Kidney System
5. International Expansion
6. Finances
7. Valuation
8. Conclusion
1. Business Model
TransMedics (TMDX) key product is their Organ Care System (OCS).
OCSs are medical devices that are custom-built for safe organ storage and transportation of organs, focusing on the lung, heart, and liver.
Procuring organs for patients is only part of the puzzle, getting them to the hospital in an ideal condition in time for the surgery is a serious challenge.
Key bottlenecks include:
Effectiveness of cold storage
Limited organ utilization
Logistical constrains
High cost
Keeping organs on ice in a traditional cold storage keeps them “alive” only for a few hours. This causes damage, reducing the quality of the organ, often leading to decreased outcomes and even death. OCS is designed to keep the organs warm, oxygenated, and functioning. This doubles or even triples the time an organ has for transplantation.
Furthermore, the time it takes for an organ to be transplanted is limiting organ utilization. Before organ transplantation can take place, doctors need to assess which organs can be used, who is the most appropriate recipient, and harvesting must take place. Often, by the time all 3 steps are done, the organ is already dead. OCS helps stretch that time, enabling more organs to be used.
But even when all those steps are completed, an organ still needs to be transported to the recipient, often thousands of kilometers. This makes time a huge logistical constraint. Extending the useful life of an organ transplant by 10+ hours significantly increases the radius within which the recipient could be. This means that more organs could be given to patients.
Most importantly, organ transplantation is extremely costly. A single organ transplant procurement cycle, surgery, and post-surgery care costs hundreds of thousands and sometimes millions of dollars. As this is largely covered by the insurance or the government, everyone ends up paying for it. OCS helps reduce the overall total cost of care by fighting waste, reducing complications, avoiding organ failures, and increasing patient life spans.
In the above picture, we see trial data presented in the TMDX 2024 Investor Presentation.
The first graph shows the results of a lung trial with expanded criteria for acceptable donor organs. 87% of lungs were utilized for transplants, compared to 23% using traditional cold storage.
Meanwhile, the second graph shows the heart trial with expanded criteria that led to an increase in utilization from 32% to 81%.
In this context, expanded criteria mean organs that would normally be rejected for transplant because of a low likelihood of a successful outcome (23% for lungs and 32% for hearts). Often, the organs are donated by people who were older or had some health conditions.
This trial data means that 4 times more lungs and almost 3 times more hearts could be used for surgery with expanded criteria, significantly increasing the available organ pool!
The last trial looked at hearts that are donated after circulatory death (DCD). These are instances when a person dies and the heart stops beating, but there are no structural issues with the organ.
A human heart is an extremely sensitive organ that, as soon as it loses oxygen flow starts to die. This makes DCD transplantations using cold storage impossible, thus the reported 0% utilization rate. During the trial, OCS was used to keep the hearts warm with a constant oxygen flow.
This revolutionary method enabled 89% of the hearts to be utilized for surgery!
From 0% to 89%.
I can only describe it as a miracle machine.
This will enable thousands, possibly tens of thousands, of previously discarded hearts to be used for life-saving surgeries.
How TransMedics makes money?
TDMX negotiates agreements with hospitals or organ transplant centers for services and pricing. Many organizations don’t have the funds to purchase the OCS, so TDMX often leases or rents them. These organizations pay TDMX for its services.
Then, these health care facilities bill the patient’s health insurance company or government-sponsored programs such as Medicaid or Medicare.
The company makes money in 3 key ways:
Device sales
Single-use supplies
Services
TMDX business model could be compared to the razor and the blade model. They sell the organ care system once, but for it to be used effectively, hospitals must purchase supplies that require replacement after each use.
A single OCS could cost around $300,000 and requires tens of thousands of dollars in yearly maintenance costs.
Furthermore, each organ transplant surgery requires various liquids, tubes, filters, and other tools. These costs could add up to $40,000 to even $80,000 per organ transplant procedure.
Product sales generate 62% of the revenues, with the remaining coming from services.
TMDX provides key services such as:
Training and other support
Organ retrieval
Device maintenance
Logistics support
OCS machines are sophisticated pieces of equipment that require extensive training to operate. For this reason, TMDX provides training and certification courses to hospital personnel.
Additionally, the company has trained surgeons, technicians, nurses, and other staff on its payroll who help hospitals and organ procurement centers during the organ retrieval process.
Furthermore, OCS systems must be cleaned, maintained, and calibrated. This generates recurring maintenance revenue.
But most importantly, TMDX provides crucial logistical support. As of Q1 2025, they have 21 private airplanes that the company has purchased to operate organ flights to hospitals across the US.
2. The Opportunity
TDMX has the opportunity to dominate a large, growing, and highly lucrative market.
Analysts at Precedence Research forecast that the global organ transplantation market will grow with an 8% CAGR to reach $39B by 2034!
As of today, TDMX only has a 3% market share in this market. If their products are as promising as the trial data suggest, the company is well-positioned to capture a larger slice of the market.
A growing market share in a growing market is a very potent combo for explosive growth.
Let’s try to quantify the opportunity.
You can see in the picture above, a slide from the TDMX 2024 Investor Presentation, highlighting the severity of the organ underutilization problem.
In the US in 2023, there were 10,438 organ donors after brain death (DBD).
From these donors, only 2,687 lungs, 3,437 hearts, and 7,850 livers were collected.
This data suggests that 74% of lungs, 67% of hearts, and 25% of livers were unused.
Furthermore, there were 5,894 donors after circulatory death (DCD). In this case, only 309 lungs, 602 hearts, and 1,696 livers were used.
In DCD situations, 95% of lungs, 90% of hearts, and 75% of livers were unused.
TMDX systems could significantly decrease underutilization, potentially making 10,000+ more organs available for transplantation.
Let’s remember that each procedure costs $40,000 to $80,000 in supplies. This means that just the underutilization opportunity in the US is worth $400M+ in recurring consumable sales.
This doesn’t include device sales, maintenance, logistics, and other services.
3. Ecosystem
TMDX is taking an approach pioneered by the software industry and building a SaaS-like OaaS offering.
To deliver a comprehensive SaaS-like, Organs-as-a-Service offering, TMDX is building its National OCS Program, which is a fully integrated end-to-end transplant network.
The NOP network consists of:
On-site OCS devices
Trained surgeons
Clinical specialists
17 procurement hubs
21 private planes
Ground transpiration network
24/7 support center
The NOP network enables the transplant centers to not actually operate the OCS console as it’s all handled by TDMX’s trained professionals, from start to finish.
This outsourced model is highly attractive to overburdened hospitals that lack in-house logistics or organ procurement teams.
With the NOP network, TMDX could monopolize a large share of the US organ transplant market!
TMDX is not just a simple medical device company. They provide a complete solution, making their services more sticky, reducing churn, and increasing pricing power.
The company clearly lacks marketing acumen, as NOP is a very poor name for such a network. YES, would have been more appropriate. However, what they lack in branding, the company compensates for with execution.
In 2024, there were 3,715 organ transplantations using OCS, an increase of 58% Y/Y.
As the NOP network grows, and the company signs up more hospitals, its OCS systems could be used in 10,000+ cases a year in just a few years.
4. Kidney
TMDX is working on a new OCS system that could be used in kidney transplant procedures.
If everything goes according to plan, the company could begin trials in 2027 and bring the device to the market by 2029.
According to the United Network for Organ Sharing, there are around 25 thousand kidney transplant operations in the US!
While cold storage is quite effective for kidney transplantations, it still suffers from the same problems as other organs.
Warm storage could increase the time for a transplant, enabling more kidneys to be used, leading to better post-surgery outcomes.
Today, because the company doesn’t offer kidney services, hospitals must use other technology and other suppliers for this procedure.
A new organ added to the NOP network would reduce the need to employ alternative organ transport providers. Moreover, the company could cross-promote its other services, enabling higher economies of scale, lower unit costs, and higher profits.
Most importantly, it would increase their moat, as it is unlikely that a competitor could build an offering that is comparable to TMDX.
5. International Expansion
The company makes 97% of its revenues in the US, so there is a massive opportunity for international expansion.
The EU is an especially promising market, consisting of 449M people with many socialized healthcare systems.
It will take some time to get regulatory approvals and establish operational presence on the continent. In healthcare, it is not as simple as other industries, TDMX can’t simply export their OCS machines, as without proper certification, they can’t be legally used.
Furthermore, even once they are certified, operators need to be trained on how to properly use the OCS.
Recently, the company announced a $200M investment to build a manufacturing and R&D facility in Italy!
This facility will produce consumables that will be used by OCS machines in the transplant surgeries in the EU.
Additionally, salaries for experts in Italy and the EU in general are significantly lower than in the US. This will allow the company to increase the amount of high-quality research without affecting margins.
I find it highly likely that more facilities will be announced in the coming years.
TDMX aims to launch NOP pilot networks in select markets by 2026.
The TAM for the NOP network in the EU could be similar to the one in the US, but the adoption is likely to lag many years.
6. Finances
The company finished 2024 with revenues of $441.5M, an increase of 82.7% Y/Y, and 1,622% since 2020.
Furthermore, 2024 was also the year in which TDMX became profitable, with operating profit of $37.5M and net income of $35.5M.
This growth is quite impressive considering the company is still so early in its growth journey!
In the graph above, we see that TDMX’s top-line growth was not only driven by the sale of OCS devices and consumables, but also by services.
Product revenue grew by 81.7% per year to reach $274M.
Meanwhile, service revenue exploded from essentially $0 to $168M in just a few years!
This is a direct result of their NOP network strategy.
I wouldn’t be surprised if, in the next few years, service revenues would overtake product sales.
Margins
As just mentioned, the company only became profitable in 2024, so there is a lot of work to be done to improve margins.
Gross margin has fallen from 64.9% to 59.4%. This is because the company has shifted its business from being primarily a medical equipment provider to an end-to-end comprehensive organ services company.
As the gross margin of many of the services is lower than OCS devices and consumables, the overall gross margin falls. The gross margin may fall further, as logistics becomes a larger share of the business.
However, operating and net income margins have improved significantly, from negative 100%+, to around 8.5%!
The company achieves such results thanks to improved economies of scale.
For instance, research and development costs, as a share of revenue, have fallen from 73.5% to 12.7%.
Meanwhile, administrative costs were 94% of the revenue but now sit at 38%.
There are still a lot of improvements that could be made, so I think the company could exceed operating margins of 20% in the next few years.
Cash Flow
In addition to becoming profitable in 2024, the company also began to generate positive cash flows from its operations.
Operating cash flow now sits at $48.8M, around 10% of revenues!
However, TDMX hasn’t yet reached FCF break-even, due to high capex.
As we can see in the graph above, the company spent close to $130M on capex in 2024, leading to a negative FCF of $81M.
This is understandable, as the company is investing heavily to build new manufacturing capacity for OCS machines and consumables!
Furthermore, the buildout of the NOP network requires major investments in on-the-ground facilities for logistics.
With the announcement of the $200M investment in Italy and the company’s ambitious expansion plans domestically, capex could likely remain elevated for a few years.
Balance Sheet
Looking at the balance sheet, we notice that the company has a fair bit of debt.
TDMX has $510M in long-term debt and $5.5M in long-term leases, compared to the cash position of $310M.
This results in a net debt position of $195M!
Considering the company is now profitable and operating cash flow positive, they are in a safe situation.
TDMX has enough cash to cover capex needs, and the balance sheet is strong enough for them to issue more debt if necessary.
7. Valuation
With a market cap of $4.3B, TDMX trades for a TTM P/E of 91. The stock has had quite a good 2025, being up 105% so far.
While this is certainly a premium multiple, the market expects the company to grow a lot in the next few years.
Wall Street analysts expect the company to grow revenues by 31.3% in 2025 and 85% by 2027. While this is fast growth, it is quite a significant deceleration from 2023 and 2024, when the company grew by 158% and 83% respectively.
Despite the deceleration in revenue growth, analysts expect huge improvements in profitability and FCF!
EPS is forecast to grow by 214% by 2027. Meanwhile, EBIT and FCF are to expand by 322.9% and 316% respectively.
Taking these growth estimates into account, 2027 P/E is 38, whilst P/FCF is 30.
This is a high multiple, even taking all the growth into account.
Valuation Model
TDMX has a target to reach 10,000 surgeries by 2028, but let’s assume they reach that level by 2030.
Next, I model the total average revenue per OCS surgery to increase by 2% per year as the company adds new services.
That leads to revenues of $1.34B by 2030, an increase of 204%, CAGR of 20%!
Next, I model the operating margin reaching 25% by 2030.
Whilst the tax rate settles at around 25% in 2030.
The result of these assumptions is a net income of $251.7M, an increase of 610%, CAGR of 39%!
As TDMX is still a relatively young company, we can expect some dilution, so I used 4% per year.
Assuming TDMX trades for a P/E of 50, we get a market cap of $12.58B, and a share price of $296.
That is a 131% upside from today’s share price, or a CAGR of 15%!
Such a return seems decent, however, if the market assigns a lower multiple, let’s say 30 to 40, the upside is only between 39-85%.
That doesn’t look so exciting anymore.
New investors at the current levels could see great results, only if the company outperforms market expectations, or keeps trading for elevated multiples.
It is possible for this to happen if the expansion to the EU goes smoothly, and the kidney machine gets released in 2029 and sees strong adoption.
However, if there are delays, the stock will likely underperform.
8. Conclusion
Overall, TransMedics is an innovative medical technology and services company serving the large and growing organ transplant market.
Their Organ Care Systems can make thousands of previously unusable organs usable, saving the lives of thousands of people!
As the company builds its National Organ Program network, it will capture an increasing share of the organ transplant spending. The NOP network will increase its moat, enabling higher pricing power.
Furthermore, the company is uniquely positioned to grow market share in the global organ transplant industry by releasing a kidney OCS device, growing the range of services it offers, and entering the EU and other countries.
A growing market share in a growing market is a very potent combo for explosive growth!
While the company has solid finances and improving margins, it trades for a premium multiple of 91.
Despite the premium multiple, the valuation model shows there is still an opportunity for upside, but only if the company continues to execute at a high level.
There could be a 131% upside in the stock if TDMX reaches 10,000 yearly procedures, margins expand, and multiple remains elevated.
However, there is a risk for the stock to underperform if the company expands more slowly than that or mature margins are not as high.
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