Q3 2020 Transmedics Group Inc Earnings Call
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I would now like to hand, the conference over to your speaker today Mr., Brian Johnson, let's give them Joe Martin Great.
You May go ahead Sir.
With this operator earlier today turns Medix released financial results for the quarter ended September Thirtyth 2020.
Three of the press release is available on the company's website.
Before we begin I'd like to remind you that management will make statements. During this call that include forward looking statements within the meaning of federal Securities laws, which are made pursuant to the safe Harbor provision provisions of the private Securities Litigation Reform Act of 1995 any.
Any statements contained in this call that relate to expectations or predictions of future events results or performance.
Looking statements.
All forward looking statements, including without limitation, our examination of operating trends the potential commercial opportunity for our products and our future financial expectations, which include expectations for growth in our organization regulatory approvals and reimbursements and guidance and our expectations for revenue gross margins and operating expenses in 2020 RBC.
On our current estimates and various assumptions.
These statements involve material risks and uncertainties that could cause actual results or if that's really differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements for a list and description of the risks and uncertainties associated with our business. Please refer to the risk factor section.
Our annual report on form 10-K filed with the Securities and Exchange Commission on March 17 to 2020 as supplemented by our other filings, including our quarterly report on form 10-Q for the third quarter of 2020.
Hi, its medix disclaims any intention or obligation, except as required by law to update or revise any financial projections or forward looking statements, whether because of new information future events or otherwise this.
This conference call contains time sensitive information that is accurate only as of the live broadcast today November four 2020.
I'll now called to turn the call over 12, <unk>, President and Chief Executive Officer.
Thank you Brian.
Good afternoon, everyone and welcome to transmit Ics, 2023rd quarter's earning earnings call.
Joining me today are Stephen Gordon, Chief Financial Officer, and Dr., Tamar KL, our chief commercial officer.
I want to start by taking a few minutes to reiterate our overall strategy.
And plans to capitalize on the significant market opportunity in front of us.
Simply stated our goal is to establish and solidify trends Medix OTI has technology and services as the new gold standard for lung heart liver and ultimately kidney transplants worldwide.
Tries medics is uniquely positioned to provide a turnkey technology and service solution to streamline organ transplant process and expand transplant volumes.
We are marketing this strategy in the U.S. under the National C. S Service program.
Got you to achieve this we have developed a multifaceted strategy design to create a first of its kind national transplant ecosystem that leverages our old she has technology.
Publishes a new regional Clinicals, yes expertise that our street strategically located across the United States and initiate a working relationship with leading organ procurement organizations.
We do this to enable us to access the broadest number of potential donor organs for transplants in the U.S.
In addition, we are creating a comprehensive new workflows that will enable us to clinically manage and transport donor organs from dorner, two potential recipients anywhere across the continental U.S.
Despite the macro headwinds over the past few months, we have made significant and meaningful progress and implement in implementing this strategy.
And we expect to continue to grow our footprint and activities throughout 2021.
This program would be another major catalyst for our near and long term growth for trends medics.
Securing if the approvals for the OTI has pipeline of clinical indications are paramount to maximizing the commercial opportunity within our three transparent markets. These are lung heart and liver transplantation.
We are confident that despite the challenges posed by the cobot pandemic.
The recent FDA panel delays that we have a unique and frankly unrivaled offering that our that.
[music].
And that our mid and long term prospects remain very strong.
With that as a backdrop, let me turn to <unk> to review our third Q.
Our results.
Our third quarter net revenue was 7.1 million.
[noise] outperforming expectations.
While overall revenue was down 2% year over year U.S. net revenue grew 36% from Threeq 2019.
In terms of recovery, we saw try spend volume improved steadily throughout Q3 with lung transplant lagging behind heart and liver due to cold weather impact.
We expect we expect this clinical phenomena for lung transplantation to continue to up the cobot pandemic.
Our performance was driven in part by our own C. S. Part D program, which continued to accelerate through Q3, as we completed enrollment of the Lcs BCD Hawk trial, where.
We recently secured FDA approval for an L.C.S.D. cap or continued access protocol that would enable us to transplant 90 additional patients.
We expect this to be initiated in early 2021, given the need for new RFP processes et cetera, with within the transplant centers.
In the third quarter, we initiated and booked orders from eight new U.S. heart transplant centers.
Meanwhile, our interactive review with the FDA for our Rcs live or P. amazed on volume and we are confident that we remain on track for potential approval in 2021.
This as soon as we have noted before and they have the advisory panel meeting given that it is the first of its kind pmeight or normal karmic perfusion indication for liver transplant in the U.S.
As mentioned our National Rcs Service model is also continuing to progress nicely in its early days in Q3.
Our service program in one OPO enabled for lung transplant.
What's interesting is that three out of those four long transport truck with transplant were transplanted new transplant centers that had never.
Never use the LCFS before.
We're excited about this because that shows the ability to grow our footprint within the U.S. using this national service program.
Importantly, we have confirmed interest to expand.
Two three new opioids in Q4, and a robust pipeline of several opioids to be initiated over the next several quarters.
Turning now to our first Rcs heart indication.
While we continue to await the the rescheduling of our FDA panel meeting we have already submitted all relevant material to if the beauty we.
We continue to believe that the delay.
Is a net positive for transmix given that all data would have been verified by FDA by the time of the new panel meeting.
We've been notified that the FDIC is currently working to schedule. Our panel meeting in Q1, 2021, and we look forward to announcing the exact date as soon as it is scheduled by FDA.
Let me be crystal clear.
Despite this unforeseen delay we remain extremely confident in the robustness and quality of our clinical data from our in the Lcs Heart Pmeight.
We remain extremely confident.
In our clinical positions and our ability to address if FDA or panel questions relating to our Rcs Harp hear me.
Now, let me cover cobot pandemic and the potential impact on the remainder of 2012.
Looking to the next several months.
I would like to reiterate that we are cautiously optimistic with our expectations for the duration of this year.
Why do we have seen incremental recovery in transplant procedures.
And revenue growth since earlier this year.
We're also cognizant of the strong signs of a potential second major peak of covert in the U.S. and Europe.
Depending on the ability of hospitals to mitigate impact we may see capacity constrained and disruption to the normal flow of transplant operation as we've seen in Q2.
Given these uncertainties, we are not restating our guidance for 2020 for 20 Twond.
That said given the strength of our balance sheet, we are confident in our ability to remain flexible and to drive the business forward. Despite the ongoing cobot impact and.
If the delay on our revenue growth.
Now, let me turn to.
Who what we're foreseeing for next year for 2021.
Looking further out to 2021.
In addition to achieving OTI has heart if the approval hopefully early in 2021.
We're also looking forward to a number of key catalysts and milestones.
We are planning to achieve next year.
One we expect to achieve Rcs liver, if the approval in the second half of 2021.
Two we expect to expand our national Rcs service model to cover many of the major transplant and hope you all regions throughout the year.
Three we expect to announce the results of those he has heart DCD trial in 2021.
Before we plan to file our view.
CDP a may two ft in 2021 for the expansion of our heart indication to include act to include access to BCD donors.
Overall, we fully expect that we will have all three rcs products approved and generating commercial revenues in the U.S. in the second half of 2021.
Finally, we expect several major scientific and clinical publications reporting the clinical results of Opus, yes programs throughout next year.
With that I will turn the call to Stephen Gordon our CFO to review our financial results for the quarter.
Thank you our lead.
I will provide some additional detail on the third quarter results and other financial information on the quarter.
For the third quarter of 2020 gross revenue was $8 million and net revenue was $7.1 million.
Net revenue decreased by 2% from the third quarter of 2019.
In the U.S. gross revenue was 6.8 million.
Net revenue was 5.9 million.
U.S. net revenue increased 36% from the third quarter of 2019.
The organ breakdown on US net revenue was 2.6 million loan.
4.3 million apart.
And $1 million of liver.
And actually less revenue was 1.2 million.
Thats down 59% from the third quarter of 2018.
Almost all of the ex US revenue was Lcs heart.
As evidenced in our topline results the impact of COVID-19, and subsequent recovery of transport volumes has disrupted various trends of our business.
A substantial portion of the less revenue in Q3, 2020 was driven by Lcs heart orders.
Related to our DCB and expand tough trials.
As we mentioned we have several initial stocking orders in the quarter, which supported the strong heart revenue.
Well the other heavy owes the U.S. only as long as well as ex us business in general have been slower to recover to pre cobot levels.
Our gross margin for the third quarter of 2020 with 71% this.
This is up from 59% in the third quarter of 2019 and also up from the 65% we reported in Q1 of 2020.
While we believe the strength in our gross margin this quarter helps to show a path toward our goal of mid Seventys at steady state.
Our third quarter gross margin was higher than what we would consider typical at this level of revenue.
Gross margin was favorably impacted by the higher mix of US revenue from Craig achievements as you have sales of a higher average selling price. We also saw favorable impact as we will recover in production volumes from the second quarter, what would impact. It also driven by lower overall spending during the period.
Total operating expenses were $9.6 million in the third quarter of 2020, that's down $1.8 million from the third quarter of 29 to.
1.2 million sequentially from the second quarter. Please.
During this period, our spending levels in several areas, including travel trade show attendance and other discretionary items continued to be lower than normal.
However, we are continuing to add resources and incremental investment in our growth specifically in two critical areas. The National service program at our next generation or didn't care system.
Our operating loss was $4.6 million in the quarter of 2020 in the third quarter compared to $7.2 million in the third quarter of 20 Nike.
Our net loss for the third quarter of 2020 was 5.1 million compared to $8.3 million in the third quarter 20 late Q.
Cash cash equivalents and marketable securities closed at $132.7 million as of September Thirtyth 2020.
Which equates to a burn of $6.7 million in the quarter.
And weighted average common shares outstanding for the quarter was 27.2 million.
Finally, while we are not giving specific guidance for Q4, given the impact of the Lcs heart DCB trials ending in Q3 and the current wave of Cobra cases, we expect flat to slightly down revenue in the fourth quarter of 2020.
So with that I will turn the call back over to Wally.
Thank you Stephen.
While 2020 brought in significant challenges.
It has not impacted our fundamental goal nor are out nor our ability to become the standard of care for solid organ transplants growth globally.
We are confident that we are on the right path to achieving this goal as we establish trends medix as a highly differentiated and reliable partner to major transplant centers in the U.S.
Despite the headwinds and delays over the past few months, we are continuing to make significant progress on our strategic initiatives aimed at accelerating our revenue growth and driving durable long term success.
We're looking forward to 2021, when we expect to have ft approvals and revenue contribution from the lung heart and liver indications. This.
This would put transmit Ics on the forefront of a significant growth trajectory for the next several years and allow us to deliver on our vision for detracts Medix business.
Thank you so much for joining us on this call and now we will open up the line for questions operator.
And once again, if you would like to ask a question press star one on your telephone keypad.
And we'll pause for a moment to compile the culinary roster.
And your first question comes from David Lewis from Morgan Stanley.
I will eat and Stephen this is to say on for David Thanks for taking my questions.
So I wanted to start off slowly just with lung.
Really what you've seen through Q2, and then as Q3, its progress and looking into Q4.
Just percentage cases in terms of.
Getting back to a normalized level I know their issues with long, but just kind of how you're thinking about how centers have.
We kind of focus their attention and really.
Had the ability to drive.
Drive volumes going forward.
Sure. Thank you Celia.
So from our perspective and many of the many of the trends I'm going to share with US on this call are to answer. This question are already public on the units on web page. When you look at the weekly transplant volumes first for solid organs that are published by units on the web page you will find that in Q2 or.
In transplant old solid organ transplant, when down to near zero level throughout two.
Throughout the.
The majority of Q2, we.
We've seen that this activity the covering on frankly.
Frankly, all solid organs. However, the lung remains to be the last Oregon to fully recover.
We've seen the heart as the leading order to recover I would say to 85% to 90% of the Pico with levels.
Levels and.
Followed by the liver and lung is the last Oregon to recover and it's not near that.
Five or 90%, it's still hovering between I would say roughly speaking between 60 and 70%.
The more important trend that we're seeing also from the same published data from you know sort of graphs from unions as with every major peak of corporate activity you see a significant dip in lung transplant that is not reflected in the heart or liver transplant.
Based on our knowledge of the granular level of information, we're getting from centers. The major reason for that is lung transplant acquired prolonged ventilation time window. After the transplant procedure. So it applies both to two levels of pressure on lung transplant activities one yeah.
Need to prioritize the ventilators for corporate patients too they also want to.
Make sure that.
Donors are.
No way having.
Been exposed to a co bid environment given that the coal that is impacting Mimi lung.
Tissue.
We had our first hand experience with several donors in Q3.
There are healthy.
Otherwise healthy however, they were they tested cope with positive back in May and they were rejected outright for transplant. So that's.
That's why when we saw this dynamic and we saw these results. We believe that this lung phenomena will continue with us throughout this cobot pandemic.
Let me shift and answer the second part of the question is as we look forward.
Are we going to see the lung continuing to be lagging behind.
I'm over.
Overall.
I think we cannot.
Sure I expect in Q4, Tc different dynamic, where we can see we could potentially see the lung becoming the predominant.
Generator of our revenue, but overall from a transplant activity. We continue to we will we will continue to see loan volumes lagging behind heart and liver at least in that in that in the near future, but we certainly.
We certainly expect that revenue with with lung will contribute to lower revenue for transmitting even during the cobot crisis.
Great. Thank you and then if I could just turn to heart.
Can you just talk a little bit about the dynamics you saw in the quarter with the accelerated DCD heart enrollment I really what you're hearing some centers the new centers that you called out and just kind of excitement I guess I had a PMA approval for initial indication and then this expanded opportunity. Thank you.
Thank you. Thank you Celia.
I mean, the the momentum speaks for itself on the heart the momentum in the D. C D and the heart indication and general speaks for itself. We finished 172 patient randomized trial in less than nine months or a or about nine months.
We have 25 centers that are signed up to be a part of this program even before the first pmeight indications approved.
We we expect when we see that level of momentum clinically we expect to see.
Results that are.
You know in sync with that type of momentum. So thats number one number two we are working very diligently and as evidenced by our ability to secure a cap approval.
Within less than 30 days from finishing the original trial to maintain that clinical momentum. Our number one priority is to continue to allow access to the Lcs lifesaving tick.
Technology to patients in the us while we're working with the FDA throughout that bear credit process of review and approval and everything else.
And that's what we've done and you know our partners at the FDA have have been.
I mean, the understanding and be helped us achieve that goal. So that's what we're planning to continue until we achieve the first PMA indication for the heart.
Great. Thank you.
And our next question comes from the line of Robbie Marcus from.
JP Morgan.
Hey, guys. This is actually Alan on for Ravi I, just want to say congrats on the first quarter to start off.
I know you Didnt provide guidance for fourth quarter, but as you look for it to that kind of flat slightly down target that you pointed to I just want to double check is that year over year or quarter over quarter, and what does that kind of assume for the continued trend of COVID-19, given as you highlighted we've seen these kind of flare up.
And Sears or at a potential kind of second or third way forever you want to call. It.
Well this is Steven so I would consider that Q4 20 over Q4 19.
The flattish to down slightly down.
And what it means for for coal that is is exactly kind of what what Lee was just discussing but we are seeing.
A lot of corporate activity.
It is going to cause some impact.
Same time, though we do see some.
Some recovery and we're we're seeing low recovery as well as mentioned.
Our trials are ongoing so.
So we feel like we've got a reasonable pathway there.
And Alan I'd like to add to what Steven said that.
We will.
No one knows what the the second or third wave is going to look like from a from a disruption to the transmission activities. However, what I can describe is what we know that we that is different today than we were in two in Q2.
One.
Many of the key transplant programs are highly sensitive sensitized to the fact that were in Q4 and they are trying very aggressively to recover the transplant volume that was lost in Q2. So the established protocols to enable them to continue to do transplant, even within a second or third wave is that going.
Materialize, we would have to wait and see that's number one number two in Q2, we had not real.
Really fully initiated.
The service activities and it was only limited to be probably beginning in one.
OPO and we really was just getting started today every lung transplant program in the United States is familiar with our activities and you know.
That is extending beyond one appeal.
Is that going to help in a in a big in a big pandemic. We hope it will have an impact how visible that impact will be remain to be seen.
So with.
The last point I want to make is the strength of Transmix as have always said that the strength.
The Transmix business is the fact, we know we're not relying on a single product of a single indication. So we saw in Q3.
Had a great quarter.
Given given the circumstances. However, it was driven mainly by the heart, we expect that the heart to be maybe slightly quieter in Q4 because of the transitioning to the cap, but we expect the lung in the liver to pick up so again with even if a covert.
The covert will have an impact across all key organs, but if it if if we see this hitting the long in a disproportionate.
Level, the heart and the live or should it should help us kind of balance that impact a little bit better.
Got it and then just a quick follow up given the pandemic and the kind of financial constraints that its put on kind of hospitals.
How easy is it for your sales or apps to kind of get back on the offensive with having that conversation. When it comes to you know and train new accounts and kind of getting primed for.
A full launch so to speak of your portfolio next year like our centers and hospitals are really willing to have that conversation right now or are they still encountering some challenges on that front. Thank you guys.
Thanks Alan.
On them listen I'm, not exaggerating or I hope that.
That nothing would change to to change. This this phenomena, we're not seeing any.
Back pressure on our offensive we've never been on the defensive except during the peak of the cobot and it wasn't a defensive its more of everybody shutting down and nobody is going to the hospital.
You know.
The opposite is true we're seeing people understanding the importance of having access to the service model.
To give them freedom and give them better management of the logistics even during the pandemic.
We have not seen push back on.
On on that front and listen we are also working very hard to make sure that we are not we are.
Well, we're we're keeping our eyes and ears open wide. During this time to make sure that we come out of this a lot stronger in and build a strong relationship with these institutions net net we have not seen any impact of covert to our ability to be an offensive in the commercial front and what we saw what we've seen is actually the opposite.
We've seen is this cold with pandemic has actually initiated a lot more interest in the service model, giving the logistical implications of having the organs delivered to the institutions versus sending their teams during the covert endemic to do that outside of the region.
And we hope we hope to continue to see that mature throughout the next several quarters and it's going to reflect itself in revenue growth.
Operator.
And your next question comes from the line of.
So Raj Kalia from Oppenheimer and company.
Hey, Steven.
Okay.
Yes, we can hear you trust.
Congrats on a nice quarter.
No.
Well leave forgive me, it's just been jumping around and between closed digital indicate the stocking order for parts in the quarter.
We mentioned that there were eight new institutions that were initiated in Q3.
Got it.
For obviously the delay of Ft at heart panel was disappointing I'm sure that a valid reasons for that.
And I also don't expect to you to discuss any specifics but.
Out of curiosity could we be asked by clients a lot and best what'd be any reason for DVD Hearts.
The utilization rate to be lower with Rcs or in fact heart speed laws with efficient logically be any reason why.
Yes would be different from.
From a.
Just cold storage.
So on thrush, let me make sure I understood. The question correctly, so I can address it appropriately.
The current utilization rate of donor hearts using cold storage is about 30%.
Yes.
The Lcs is not resulting in any lower utilization rate. The opposite is true the data clearly shows that the Lcs resulted in utilization rate of north of 82% in.
In the expand and meet higher even in the expand cap so utilization rate in Lcs arm is significantly higher than cold storage. So this.
I don't know if that addresses your question.
This is not a topic.
Go ahead.
Okay, what I was looking forward well, it's because it's some of these questions surprised us and everyone is just trying to figure out why the delay.
Absolutely. Okay, you might have talked about this how do you see some of the long term organ damage to can you see the cove. It what are the implications for transmitting X X years down the line how do you see the opportunity if at all.
Craig will play or you would say it's that there is a lot of speculation right. Yes. Thank you for taking my question.
Thank you, Sir as well no no one and certainly we don't like or ever want to be in a position to wish Ella ill on anybody, but I think end organ damage.
Results from Cove. It is now, it's becoming clearer and frankly.
Clinically justified we know that there's.
Indeed, PDL damage, we know that there is a lung damage for sure.
The Big open question his heart damage and liver damage.
You know.
If that were to pan out.
Certainly we expect it will be higher rate of patients you need for lung transplant.
The only open question now and we've seen in Q3, several patients who are excluded patients that their.
The loan was completely damaged by covert that they required a lung transplant I think thats up publicly and nationally.
Covered the news.
What we what remains to be seen as how the impact of these endothelial damage translates into heart failure and liver failure.
If that pans out that will result in probably an uptake of younger healthier.
Potential patients, who need for heart and liver transplant.
You know again, we don't wish that on to be the case I think we have a robust business opportunity in a market potential without that cohort of patients, but certainly.
From a clinical and.
Pathophysiological.
Certainly covered will have an impact and it will potentially increase the number of healthier potential patients you need for an organ transplant.
And your next question comes from the line of Josh Jennings from Cowen.
Hi, This is Brian here for Josh. Thank you for taking my questions to start I have two questions on the DCD Heart program. The first is can you just confirm that the longest duration endpoint in this study.
Is the six month survival endpoint and does that mean, we may see the data from the trial sometime around the middle of next year and then secondly can you share if your plan for the D. C. D. Filing is to include data from the cap as well as the study data.
Thank you Brian.
So the the longest.
The primary end point that we have to meet to file the pmeight six months outcome.
So that is the longest endpoint that we are we have to meet to file. The pms. However, we're following all the CD heart patients.
For up to one year post transplant, maybe even longer but that's in the hopefully in the post market setting that's not going to dictate the timing of the PMIC for.
Finally.
The second part of the question, Yes, we expect to see the final results.
Sometime in the first half of 2021 and we.
We are driving our team an internal resources to be able to submit that pmeight.
Towards the towards day sort of middle of the year just to to give time for everything to match and the six months data to be.
Verified and.
And.
Ready for submission to FDA.
To answer the third part of the question.
The P.M. May we'll go in with the original study depending on the timing of the review and remember this is a breakthrough indication. We hope it will have a much more streamlined and frankly more expedited timeline than a traditional PML, but we would have to wait and see depending on the timing.
If that timing is.
Extended to normal timing of 12 to 14 months, there will be additional data submitted for supplemental data for the form the cap, but if it is a more streamlined timeline.
We may not need to submit cap, but.
You know, it's it's not it's not a requirement for that Pmeight to go in or requirements for the final approval. It all depends on the timing and how many patients are accumulated in the cap.
Okay. Thank you that's helpful and can you talk about the company's readiness for either a U.S. launch in liver.
Ahead of potentially ahead of us launch and the expanded criteria heart or two simultaneous launches I guess my question is really are there are constraints, we should be mindful of with respect to say manufacturing or commercial support should these launch timelines overlap next year.
We know that lunch.
Launch timelines will overlap we wanted to overlap we've been hoping to.
Two to be in this position for a long time Brian.
From where we sit today, we don't expect any headwinds relating to logistics inventory or even.
Clinical organization in fact, we are working very hard in parallel.
When we're streamlining our national program to have the.
Plug ins for additional indications once FDA approvals in hand, so this actually what we've been doing for the long and we've we've said that before this is not news that what we're doing.
For the service program in the lung is foundational and fundamental nature that we will be able to leverage all this work that tamra and his team have been doing for the last.
Nine months in the launch of the heart and the liver and it will frankly accelerate the ramp.
You know.
And a lot faster pace than what we've experienced with the long.
And there are no further questions at this time.
Great. Thank you operator.
I'll now turn the call. Thank you and over to the leaders for any final remarks.
Thank you everybody for your time have a wonderful evening and I look forward to speaking again in our next earnings call.
Thank you for joining today's conference call you may now disconnect.
And I have the leaders lines Bakken does have conference.
Brian.
Hi, Brian lineup.
Probably disconnected [laughter], okay, great. Thank you so much have a wonderful evening.
You're welcome.
Thank you bye bye.