Log in
E-mail
Password
Remember
Forgot password ?
Become a member for free
Sign up
Sign up
Settings
Settings
Dynamic quotes 
OFFON

MarketScreener Homepage  >  Equities  >  Nasdaq  >  TransMedics Group Inc    TMDX

TRANSMEDICS GROUP INC

(TMDX)
SummaryQuotesChartsNewsCompany 
News SummaryMost relevantAll newsOfficial PublicationsSector news

TRANSMEDICS : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

share with twitter share with LinkedIn share with facebook
share via e-mail
0
06/12/2019 | 04:48pm EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing elsewhere in this Quarterly Report on
Form 10-Q and our final prospectus for our IPO filed pursuant to Rule 424(b)(4)
under the Securities Act of 1933, as amended ( the "Securities Act"), with the
SEC, on May 2, 2019 (the "Final Prospectus"). Some of the information contained
in this discussion and analysis or set forth elsewhere in this Quarterly Report
on Form 10-Q, including information with respect to our plans and strategy for
our business, includes forward-looking statements that involve risks and
uncertainties. As a result of many factors, including those factors set forth
under "Risk Factors" in the Final Prospectus, our actual results could differ
materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis

Overview


We are a commercial-stage medical technology company transforming organ
transplant therapy for end-stage organ failure patients across multiple disease
states. We developed the OCS to replace a decades-old standard of care that we
believe is significantly limiting access to life-saving transplant therapy for
hundreds of thousands of patients worldwide. Our innovative OCS technology
replicates many aspects of the organ's natural living and functioning
environment outside of the human body. As such, the OCS represents a paradigm
shift that transforms organ preservation for transplantation from a static state
to a dynamic environment that enables new capabilities, including organ
optimization and assessment. We believe our substantial body of clinical
evidence has demonstrated the potential for the OCS to significantly increase
the number of organ transplants and improve post-transplant outcomes.

We developed the OCS to comprehensively address the major limitations of cold
storage. The OCS is a portable organ perfusion, optimization and monitoring
system that utilizes our proprietary and customized technology to replicate
near-physiologic conditions for donor organs outside of the human body. We
designed the OCS technology platform to perfuse donor organs with warm,
oxygenated, nutrient-enriched blood, while maintaining the organs in a living,
functioning state; the lung is breathing, the heart is beating and the liver is
producing bile. Because the OCS significantly reduces injurious ischemic time on
donor organs as compared to cold storage and enables the optimization and
assessment of donor organs, it has demonstrated improved clinical outcomes
relative to cold storage and offers the potential to significantly improve donor
organ utilization.

We designed the OCS to be a platform that allows us to leverage core technologies across products for multiple organs. To date, we have developed three OCS products, one for each of lung, heart and liver transplantations, making the OCS the only multi-organ technology platform.


Since our inception, we have focused substantially all of our resources on
designing, developing and building our proprietary OCS technology platform and
organ-specific OCS products; obtaining clinical evidence for the safety and
effectiveness of our OCS products through clinical trials; securing regulatory
approval; organizing and staffing our company; planning our business; raising
capital; and providing general and administrative support for these operations.
To date, we have funded our operations primarily with proceeds from sales of
preferred stock and borrowings under loan agreements.

Since our inception, we have incurred significant operating losses. Our ability
to generate net revenue sufficient to achieve profitability will depend on the
successful further development and commercialization of our products. We
generated net revenue of $4.7 million and incurred a net loss of $6.9 million
for the fiscal three months ended March 30, 2019. We generated net revenue of
$13.0 million and incurred a net loss of $23.8 million for the fiscal year ended
December 29, 2018. As of March 30, 2019, we had an accumulated deficit of
$342.8 million. We expect to continue to incur net losses for the foreseeable
future as we focus on growing commercial sales of our products in both the U.S.
and select non-U.S. markets, including growing our sales and clinical adoption
team, which will pursue increasing commercial sales and clinical adoption of our
OCS products; scaling our manufacturing operations; continuing research,
development and clinical trial efforts; and seeking regulatory clearance for new
products and product enhancements, including new indications, in both the U.S.
and select non-U.S. markets. Further, following the closing of our IPO we have
incurred and expect to continue to incur additional costs associated with
operating as a public company. As a result, we will need substantial additional
funding for expenses related to our operating activities, including selling,
general and administrative expenses and research, development and clinical
trials expenses.

On May 6, 2019, we completed our IPO, pursuant to which we issued and sold
6,543,500 shares of common stock, inclusive of 853,500 shares we sold pursuant
to the full exercise of the underwriters' option to purchase additional shares.
The aggregate net proceeds received by us from the IPO were $97.4 million, after
deducting underwriting discounts and commissions but before deducting other
offering costs.

On May 6, 2019, immediately prior to the completion of our IPO, we completed a
corporate reorganization whereby TransMedics, Inc., the direct parent of
TransMedics Group prior to the corporate reorganization, became a direct,
wholly-owned subsidiary of TransMedics Group pursuant to the merger of TMDX,
Inc., a direct, wholly-owned subsidiary of TransMedics Group prior to the
corporate reorganization, merged with and into TransMedics, Inc., with
TransMedics, Inc. as the surviving corporation. As



                                       23

--------------------------------------------------------------------------------

Table of Contents


part of the transactions, each outstanding share of capital stock of
TransMedics, Inc. was converted into shares of common stock of TransMedics
Group, each outstanding option to purchase shares of common stock of
TransMedics, Inc. was converted into an outstanding option to purchase shares of
common stock of TransMedics Group and each outstanding warrant to purchase
shares of preferred stock of TransMedics, Inc. was converted into a warrant to
purchase shares of common stock of TransMedics Group.

Because of the numerous risks and uncertainties associated with product
development and commercialization, we are unable to accurately predict the
timing or amount of increased expenses or when, or if, we will be able to
achieve or maintain profitability. Until such time, if ever, as we can generate
substantial net revenue sufficient to achieve profitability, we expect to
finance our operations through a combination of equity offerings, debt
financings and strategic alliances. We may be unable to raise additional funds
or enter into such other agreements or arrangements when needed on favorable
terms or at all. If we are unable to raise capital or enter into such agreements
as, and when, needed, we may have to significantly delay, scale back or
discontinue the further development and commercialization efforts of one or more
of our products, or may be forced to reduce or terminate our operations.

We believe that the net proceeds from our IPO completed in May 2019, together
with our existing cash and cash equivalents, will be sufficient for us to fund
our operating expenses, capital expenditure requirements and debt service
payments for at least the next 12 months. We have based this estimate on
assumptions that may prove to be wrong, and we could exhaust our available
capital resources sooner than we expect. See "-Liquidity and Capital Resources."

Components of Our Results of Operations

Net Revenue


We generate revenue primarily from sales of our single-use, organ-specific
disposable sets (i.e., our organ-specific OCS Perfusion Sets sold together with
our organ-specific OCS Solutions) used on our organ-specific OCS Consoles, each
being a component of our OCS products. To a lesser extent, we also generate
revenue from the sale of OCS Consoles to customers and from the implied rental
of OCS Consoles loaned to customers at no charge. For each new transplant
procedure, customers purchase an additional OCS disposable set for use on the
customer's existing organ-specific OCS Console.

All of our revenue has been generated by sales to transplant centers in the United States, Europe and Asia-Pacific, or, in some cases, to distributors selling to transplant centers in select countries. Substantially all of our customer arrangements are multiple-element arrangements that contain deliverables consisting of OCS Perfusion Sets and OCS Solutions. In some of those multiple-element arrangements, the deliverables also include an OCS Console, whether sold or loaned to the customer.


Some of our revenue has been generated from products sold in conjunction with
the clinical trials conducted for our OCS products, under arrangements referred
to as customer clinical trial agreements. Under most of these customer clinical
trial agreements, we place an organ-specific OCS Console at the customer site
for its use free of charge for the duration of the clinical trial, and the
customer separately purchases from us the OCS disposable sets used in each
transplant procedure during the clinical trial. When we loan the OCS Console to
the customer, we retain title to the console at all times and do not require
minimum purchase commitments from the customer related to any OCS products. In
such cases, we invoice the customer for OCS disposable sets based on customer
orders received for each new transplant procedure and the prices set forth in
the customer agreement. Over time, we typically recover the cost of the loaned
OCS Console through the customer's continued purchasing and use of additional
OCS disposable sets. For these reasons, we have determined that part of the
arrangement consideration for the disposable set is an implied rental payment
for use of the OCS Console. We intend to continue to loan OCS Consoles to some
of our customers during commercialization of our OCS products.

Because all elements of a customer order are delivered and recognized as revenue
at the same time and because revenue allocated to elements other than OCS
disposable sets, such as implied rental income and service revenue, is
insignificant, all elements of revenue from customer arrangements are classified
as a single category of revenue in our consolidated statement of operations.

For customer clinical trial agreements, we make payments to our customers for
reimbursements of clinical trial materials and for specified clinical
documentation related to their use of our OCS products. Because these payments
do not provide us with a separately identifiable benefit, we record such
payments as a reduction of revenue from the customer, resulting in our net
revenue presentation.

Prior to the fourth quarter of 2018, all of our net revenue in the United States
had been generated from sales of OCS disposable sets sold in conjunction with
clinical trials conducted for our OCS products. In March 2018, we received our
first FDA PMA approval for the OCS Lung, and we began commercial sales of this
product in the United States during the fourth quarter of 2018. Therefore,
commencing in fourth quarter of 2018, our net revenue in the United States is
derived from both clinical trial sales and commercial sales and consists
primarily of sales of OCS disposable sets and, to a much lesser extent, sales of
OCS Consoles. In May 2019, we received our second FDA PMA for the OCS Lung for
additional clinical indications. We expect to continue to have U.S. clinical
trial sales for our OCS Heart and OCS Liver products until we receive similar
FDA PMAs for those products.



                                       24

--------------------------------------------------------------------------------

Table of Contents


Historically, our net revenue in the United States fluctuated from period to
period as a result of the timing of patient enrollment in our clinical trials.
Our net revenue during periods of patient enrollment has been higher due to the
sale of OCS disposable sets for use during these clinical trials, as compared to
periods during which our clinical trials were not actively enrolled. Our OCS
Lung EXPAND Trial began patient enrollment in January 2014 and completed patient
enrollment in October 2016. Our OCS Heart EXPAND Trial began patient enrollment
in September 2015 and completed patient enrollment in March 2018. Our Liver
PROTECT Trial began enrollment in January 2016 and is currently enrolling
patients. Our OCS Lung EXPAND II Trial began patient enrollment in March 2018
and is currently enrolling patients. Our net revenue may continue to fluctuate
from period to period as a result of the timing of ongoing clinical trials in
which our OCS products are used.

Through March 30, 2019, all of our sales outside of the United States have been
commercial sales (unrelated to any clinical trials) and our net revenue has been
generated primarily from sales of OCS disposable sets and, to a much lesser
extent, sales of OCS Consoles. Commercial sales of OCS disposable sets generally
have a higher average selling price than clinical trial sales of OCS disposable
sets.

We expect that our net revenue will increase in the future as a result of
receiving our first two FDA PMA approvals for the OCS Lung in the United States
in March 2018 and May 2019 and any potential future FDA approvals in the United
States for OCS Heart and OCS Liver. We also expect that our net revenue will
increase as a result of anticipated growth in non-U.S. sales if national
healthcare systems begin to reimburse transplant centers for the use of the OCS,
if transplant centers utilize the OCS in more transplant cases, and if more
transplant centers adopt the OCS in their programs.

Our consolidated financial results for the fiscal three months ended March 30,
2019 reflect our adoption of ASC 606, as of December 30, 2018, applied using the
modified retrospective method. Under this method, (i) the new guidance is
applied to customer contracts that are not yet completed as of December 29,
2018, with the cumulative effect of initially applying the new guidance recorded
as an adjustment to accumulated deficit on the effective date of adoption, and
(ii) our historical results for all periods prior to December 30, 2018,
including for the fiscal three months ended March 31, 2018, are not adjusted.
The impact of the adoption of ASC 606 on our consolidated financial statements
is described in Note 2 to our consolidated financial statements included
elsewhere in this Quarterly Report on Form 10-Q. Revenue recognition of our OCS
products remained substantially unchanged and the adoption of ASC 606 did not
have a material impact on our consolidated financial statements.

Cost of Revenue, Gross Profit and Gross Margin


Cost of revenue consists primarily of costs of components of our OCS Consoles
and disposable sets, costs of direct materials, labor and the manufacturing
overhead that directly supports production, and costs related to the
depreciation of OCS Consoles loaned to customers. When we loan an OCS Console to
a customer for its use free of charge, we capitalize as property and equipment
the cost of our OCS Console and depreciate these assets over the five-year
estimated useful life of the console.

Included in the cost of OCS disposable sets are the costs of our OCS Lung, OCS
Heart and OCS Liver Solutions. In each reported period through December 29,
2018, we did not meet our obligation to purchase minimum quantities annually
from our supplier of OCS Lung Solution, we were obligated to pay a premium equal
to the order shortfall multiplied by a specified price. We capitalized any
estimated premium we expected to pay at the end of each year as an adjustment to
the inventory cost of OCS Lung Solution ordered during that year. The
capitalized inventory adjustment is recognized as a component of cost of revenue
when related OCS disposable sets are sold.

We expect that cost of revenue will increase in absolute dollars primarily as, and to the extent that, our net revenue increases.


Gross profit is the amount by which our net revenue exceeds our cost of revenue
in each reporting period. We calculate gross margin as gross profit divided by
net revenue. Our gross margin has been and will continue to be affected by a
variety of factors, primarily production volumes, the cost of components and
direct materials, manufacturing costs, headcount, the selling price of our OCS
products and fluctuations in amounts paid by us to customers related to
reimbursements of their clinical trial expenses, where such payments are not
distinct within the context of the contract.

We expect that cost of revenue as a percentage of net revenue will decrease and
gross margin and gross profit will increase over the long term as our sales and
production volumes increase and our cost per unit of our OCS disposable sets
decreases due to efficiencies of scale. We intend to use our design, engineering
and manufacturing capabilities to further advance and improve the efficiency of
our manufacturing processes, which we believe will reduce costs and increase our
gross margin. As utilization by customers of our OCS products increases, we
expect that a greater number of OCS disposable sets will be used per year on the
same OCS Console, thereby driving overall gross margin improvement. Because we
expect that the number of OCS disposable sets sold over time will be
significantly greater than the number of OCS Consoles sold or loaned to
customers over that same period, we expect that our gross margin improvement
will not be significantly affected by the number of OCS Consoles that we sell or
loan to customers. While we expect gross margin to increase over the long term,
it will likely fluctuate from quarter to quarter.



                                       25

--------------------------------------------------------------------------------

Table of Contents

Operating Expenses

Research, Development and Clinical Trials Expenses


Research, development and clinical trials expenses consist primarily of costs
incurred for our research activities, product development, hardware and software
engineering, clinical trials to develop clinical evidence of our products'
safety and effectiveness, regulatory expenses, testing, consultant services and
other costs associated with our OCS technology platform and OCS products, which
include:



     •   employee-related expenses, including salaries, related benefits and

stock-based compensation expense for employees engaged in research,

         hardware and software development, regulatory and clinical trial
         functions;



• expenses incurred in connection with the clinical trials of our products,

including under agreements with third parties, such as consultants,

         contractors and data management organizations;



• the cost of maintaining and improving our product designs, including the

         testing of materials and parts used in our products;




  •   laboratory supplies and research materials; and



• facilities, depreciation and other expenses, which include direct and

allocated expenses for rent and maintenance of facilities and insurance.



We expense research, development and clinical trials costs as incurred. In the
future, we expect that research, development and clinical trials expenses will
increase due to ongoing product development and regulatory approval efforts. We
expect to continue to perform activities related to obtaining regulatory
approvals for all of our OCS Products in the United States and to developing the
next generation of our OCS technology platform.

Selling, General and Administrative Expenses


Selling, general and administrative expenses consist primarily of salaries and
related costs, including stock-based compensation, for personnel in our sales
and clinical adoption team and personnel in executive, marketing, finance and
administrative functions. Selling, general and administrative expenses also
include direct and allocated facility-related costs, promotional activities,
marketing, conferences and trade shows as well as professional fees for legal,
patent, consulting, investor and public relations, accounting and audit
services. We expect to continue to increase headcount in our sales and clinical
adoption team and increase marketing efforts as we continue to grow commercial
sales of our OCS products in both U.S. and select non-U.S. markets.

We expect that our selling, general and administrative expenses will increase as
we increase our headcount to support the expected continued sales growth of our
OCS products. We also anticipate that we will incur increased accounting, audit,
legal, regulatory, compliance and director and officer insurance costs as well
as investor and public relations expenses associated with operating as a public
company.

Other Income (Expense)

Interest Expense

Interest expense consists of interest expense associated with outstanding
borrowings under our existing Credit Agreement with Orbimed and our prior loan
and security agreement, as amended, with Hercules Technology Growth Capital
("Hercules") as well as the amortization of debt discount associated with such
agreements. We expect that our interest expense will increase in fiscal 2019
compared to fiscal 2018 as a result of having increased our total debt by
$28.3 million in June 2018.

Change in Fair Value of Preferred Stock Warrant Liability


In connection with our prior loan and security agreement, as amended, with
Hercules, we issued warrants to purchase preferred stock. We classified these
warrants as a liability on our consolidated balance sheet that we remeasured to
fair value at each reporting date, and we recognized changes in the fair value
of the warrant liability as a component of other income (expense) in our
consolidated statements of operations.

On May 6, 2019, immediately prior to the closing of our IPO, the warrants to
purchase preferred stock were converted into warrants to purchase common stock,
and the fair value of the warrant liability at that time was reclassified to
common stock. As a result, subsequent to the closing of our IPO, we will no
longer remeasure the fair value of the warrant liability at each reporting date.



                                       26

--------------------------------------------------------------------------------

Table of Contents

Other Income (Expense), Net

Other income (expense), net includes interest income, foreign currency transaction gains and losses and other non-operating income and expense items unrelated to our core operations.


Interest income consists of interest earned on our invested cash balances. We
expect our interest income to increase as we invest the net proceeds from our
IPO. Foreign currency transaction gains and losses result from intercompany
transactions of a short-term nature as well as transactions with customers or
vendors denominated in currencies other than the functional currency of the
legal entity in which the transaction is recorded.

Provision for Income Taxes


Since our inception, we have not recorded any U.S. federal or state income tax
benefits for the net operating losses we have incurred in each year or for the
research and development tax credits we generated in the United States, as we
believe, based upon the weight of available evidence, that it is more likely
than not that all of our net operating loss carryforwards and tax credits will
not be realized. In reporting periods subsequent to 2016, we have recorded
provisions for foreign income taxes of an insignificant amount related to the
operations of one of our foreign subsidiaries.

As of December 29, 2018, we had U.S. federal and state net operating loss
carryforwards of $246.6 million and $179.1 million, respectively, which may be
available to offset future taxable income, of which $215.2 million and
$179.1 million begin to expire in 2019 and 2030, respectively, and of which
$31.4 million related to U.S. federal income taxes do not expire. As of
December 29, 2018, we also had U.S. federal and state research and development
tax credit carryforwards of $6.4 million and $4.3 million, respectively, which
may be available to offset future tax liabilities and begin to expire in 2020
and 2024, respectively. As of December 29, 2018, we had no foreign net operating
loss carryforwards. We have recorded a full valuation allowance against our net
deferred tax assets at each balance sheet date.

Results of Operations


Our fiscal year ends on the last Saturday in December, and we report fiscal
years using a 52/53-week convention. Under this convention, certain fiscal years
contain 53 weeks. Each fiscal year is typically composed of four 13-week fiscal
quarters, but in years with 53 weeks, the fourth quarter is a 14-week period.
Our fiscal year ended December 29, 2018 included 52 weeks and our fiscal year
ending December 28, 2019 includes 52 weeks.

Comparison of the Fiscal Three Months Ended March 30, 2019 and March 31, 2018

The following table summarizes our results of operations for the fiscal three months ended March 30, 2019 and March 31, 2018:



                                                   Fiscal Three Months Ended
                                            March 30, 2019            March 31, 2018           Change
                                                                      (in thousands)
Net revenue                                $          4,676          $          2,519         $  2,157
Cost of revenue                                       2,103                     1,595              508

Gross profit                                          2,573                       924            1,649

Operating expenses:
Research, development and clinical
trials                                                3,882                     3,465              417
Selling, general and administrative                   4,653                     2,240            2,413

Total operating expenses                              8,535                     5,705            2,830

Loss from operations                                 (5,962 )                  (4,781 )         (1,181 )

Other income (expense):
Interest expense                                     (1,093 )                    (258 )           (835 )
Change in fair value of preferred
stock warrant liability                                 273                       (30 )            303
Other income (expense), net                            (103 )                     175             (278 )

Total other expense, net                               (923 )                    (113 )           (810 )

Loss before income taxes                             (6,885 )                  (4,894 )         (1,991 )
Provision for income taxes                              (10 )                      (7 )             (3 )

Net loss                                   $         (6,895 )        $         (4,901 )       $ (1,994 )





                                       27

--------------------------------------------------------------------------------

Table of Contents

Net Revenue, Cost of Revenue and Gross Profit




                                   Fiscal Three Months Ended
                             March 30, 2019         March 31, 2018      Change
                                                    (in thousands)
          Net revenue       $          4,676       $          2,519     $ 2,157
          Cost of revenue              2,103                  1,595         508

          Gross profit      $          2,573       $            924     $ 1,649



Net Revenue



                                         Fiscal Three Months Ended
                                   March 30, 2019         March 31, 2018      Change
                                                          (in thousands)
    Net revenue by geography:
    United States                 $          2,953       $            821     $ 2,132
    Outside the U.S.                         1,723                  1,698          25

    Total net revenue             $          4,676       $          2,519     $ 2,157

    Net revenue by OCS product:
    OCS Lung net revenue          $          1,412       $            709     $   703
    OCS Heart net revenue                    1,922                  1,633         289
    OCS Liver net revenue                    1,342                    177       1,165

    Total net revenue             $          4,676       $          2,519     $ 2,157



Net revenue increased by $2.2 million in the fiscal three months ended March 30,
2019 compared to the fiscal three months ended March 31, 2018 primarily as a
result of an increase in the number of OCS disposable sets sold to customers in
the United States and outside the U.S.

Net revenue from customers in the United States was $3.0 million in the fiscal
three months ended March 30, 2019 and increased by $2.1 million in the fiscal
three months ended March 30, 2019 compared to the fiscal three months ended
March 31, 2018. The increase in net revenue from customers in the United States
was primarily due to commercial sales of OCS Lung products and sales of OCS
disposable sets to customers for use in our OCS Liver PROTECT Trial. Net revenue
from sales of OCS Lung products in the United States increased from $0.5 million
in the fiscal three months ended March 31, 2018 to $1.3 million in the fiscal
three months ended March 30, 2019. Net revenue from OCS Liver disposable sets
sold to customers for use in our OCS Liver PROTECT Trial increased from
$0.2 million in the fiscal three months ended March 31, 2018 to $1.3 million in
the fiscal three months ended March 30, 2019. In addition, the U.S. selling
price of OCS disposable sets sold in the first quarter of fiscal 2019 was
approximately 11% higher than the U.S. selling prices of OCS disposable sets
sold in the same period in fiscal 2018, which accounted for $0.4 million of the
overall $2.1 million increase in net revenue in the United States from the first
quarter of fiscal 2018 to the same period in fiscal 2019.

Net revenue from customers outside the U.S. was $1.7 million in each of the fiscal three months ended March 30, 2019 and March 31, 2018 and was primarily generated from OCS Heart disposable sets in both periods.

Cost of Revenue, Gross Profit and Gross Margin


Cost of revenue increased by $0.5 million in the fiscal three months ended
March 30, 2019 compared to the fiscal three months ended March 31, 2018. Gross
profit increased by $1.6 million in the fiscal three months ended March 30, 2019
compared to the fiscal three months ended March 31, 2018. Gross margin was 55%
and 37% for the fiscal three months ended March 30, 2019 and March 31, 2018,
respectively. Gross profit and gross margin increased primarily as a result of a
higher average selling price of OCS Lung disposable sets sold in the United
States in the first quarter of fiscal 2019 relative to the average selling price
of OCS disposable sets in the comparable period of fiscal 2018 and overall
higher sales, which improved efficiency in production and reduced the impact of
fixed costs in our manufacturing operation.



                                       28

--------------------------------------------------------------------------------

Table of Contents

Operating Expenses

Research, Development and Clinical Trials Expenses



                                                   Fiscal Three Months Ended
                                            March 30, 2019           March 31, 2018         Change
                                                                     (in thousands)
Personnel related (including
stock-based compensation expense)          $          1,412         $          1,664        $  (252 )
Clinical trials costs                                 1,003                      465            538
Consulting and third-party testing                      324                      576           (252 )
Laboratory supplies and research
materials                                               524                      220            304
Facility related and other                              619                      540             79

Total research, development and
clinical trials Expenses                   $          3,882         $          3,465        $   417



Total research, development and clinical trials expenses increased by
$0.4 million from $3.5 million in the fiscal three months ended March 31, 2018
to $3.9 million in the fiscal three months ended March 30, 2019. Clinical trials
costs increased by $0.5 million, primarily due to clinical trial activity in our
active clinical trials; the OCS Liver PROTECT Trial and the OCS Lung EXPAND II
Trial. These increases were partially offset by decreased costs in our clinical
trials that have completed enrollment. Laboratory supplies and research
materials costs increased by $0.3 million due primarily to the increased
laboratory usage of OCS disposable sets. Personnel-related costs and consulting
costs each decreased by $0.3 million primarily as we transitioned from
consultants to employees and shifted clinical resources to support the
commercialization of our OCS Lung product in the United States.

Selling, General and Administrative Expenses



                                                   Fiscal Three Months Ended
                                            March 30, 2019           March 31, 2018         Change
                                                                     (in thousands)
Personnel related (including
stock-based compensation expense)          $          1,842         $            890        $   952
Professional and consultant fees                      1,256                      515            741
Tradeshows and conferences                              507                      311            196
Facility related and other                            1,048                      524            524

Total selling, general and
administrative expenses                    $          4,653         $          2,240        $ 2,413



Total selling, general and administrative expenses increased by $2.4 million
from $2.2 million in the fiscal three months ended March 31, 2018 to
$4.7 million in the fiscal three months ended March 30, 2019 primarily due to
increases in personnel-related costs and professional and consultant fees as we
hired additional resources and engaged consultants to support commercial sales
of our OCS Lung product in the United States after receipt of our PMA approval
in March 2018 and to support our preparation to operate as a public company.
Facility related and other costs also increased by $0.5 million primarily as a
result of increased travel and recruiting costs.

Other Income (Expense)

Interest Expense

Interest expense increased by $0.8 million in the fiscal three months ended March 30, 2019 compared to the fiscal three months ended March 31, 2018 primarily as a result of a $28.3 million increase in our total outstanding borrowings in June 2018.

Change in Fair Value of Preferred Stock Warrant Liability


The change in the fair value of our preferred stock warrant liability in the
fiscal three months ended March 30, 2019 and March 31, 2018 was due primarily to
the changes in the fair value of our preferred stock during those periods.

Other Income (Expense), Net


Other income (expense), net for the fiscal three months ended March 30, 2019 and
March 31, 2018 included $0.2 million of foreign currency transaction losses and
$0.1 million of foreign currency transaction gains, respectively.



                                       29

--------------------------------------------------------------------------------

Table of Contents

Liquidity and Capital Resources


Since our inception, we have incurred significant operating losses. Prior to our
IPO, we had funded our operations primarily with proceeds from sales of
preferred stock and borrowings under loan agreements. As of March 30, 2019, we
had cash and cash equivalents of $12.2 million.

On May 6, 2019, we completed our IPO, pursuant to which we issued and sold
6,543,500 shares of common stock, inclusive of 853,500 shares we sold pursuant
to the full exercise of the underwriters' option to purchase additional shares.
The aggregate net proceeds received by us from the IPO were $97.4 million, after
deducting underwriting discounts and commissions but before deducting other
offering costs.

Cash Flows


The following table summarizes our sources and uses of cash for each of the
fiscal periods presented:



                                                           Fiscal Three Months Ended
                                                   March 30, 2019             March 31, 2018
                                                                (in thousands)
Cash used in operating activities                 $         (7,266 )         $         (6,331 )
Cash provided by (used in) investing
activities                                                      (3 )                    4,960
Cash used in financing activities                             (697 )                     (880 )
Effect of exchange rate changes on cash,
cash equivalents and restricted cash                           (60 )                      114

Net decrease in cash, cash equivalents and
restricted cash                                   $         (8,026 )         $         (2,137 )



Operating Activities

During the fiscal three months ended March 30, 2019, operating activities used
$7.3 million of cash, primarily resulting from our net loss of $6.9 million and
net cash used by changes in our operating assets and liabilities of
$0.7 million, partially offset by net non-cash charges of $0.3 million. Net cash
used by changes in our operating assets and liabilities for the fiscal three
months ended March 30, 2019 consisted primarily of a $2.5 million increase in
inventory and a $1.7 million increase in accounts receivable, both partially
offset by a $3.2 million increase in accounts payable and accrued expenses and
other current liabilities.

During the fiscal three months ended March 31, 2018, operating activities used
$6.3 million of cash, primarily resulting from our net loss of $4.9 million and
net cash used by changes in our operating assets and liabilities of
$1.6 million. Net cash used by changes in our operating assets and liabilities
for the fiscal three months ended March 31, 2018 consisted primarily of a
$1.2 million increase in inventory and a $1.0 million increase in accounts
receivable, both partially offset by a $0.8 million increase in accounts payable
and accrued expenses and other current liabilities.

Changes in accounts receivable, inventory, accounts payable, and accrued expenses and other current liabilities in each reporting period are generally due to growth in our business, including the growth in sales, expenses and employee headcount.

Investing Activities

During the fiscal three months ended March 31, 2018, net cash provided by investing activities of $5.0 million consisted of maturities and sales of marketable securities.

Financing Activities


During the fiscal three months ended March 30, 2019, net cash used in financing
activities of $0.7 million consisted of the payment of offering costs related to
our IPO that closed in May 2019. During the fiscal three months ended March 31,
2018, net cash used in financing activities of $0.9 million consisted of
principal repayments of our previously outstanding borrowings under our loan and
security agreement with Hercules.

Long-Term Debt

In June 2018, TransMedics entered into the Credit Agreement with OrbiMed, pursuant to which it borrowed $35.0 million.


Borrowings under the Credit Agreement bear interest at an annual rate equal to
LIBOR, subject to a minimum of 1.0% and a maximum of 4.0%, plus 8.5%, which is
the Applicable Margin, subject in the aggregate to a maximum interest rate of
11.5%. In addition, borrowings under the Credit Agreement bear PIK interest, at
an annual rate equal to the amount by which LIBOR plus the Applicable Margin
exceeds 11.5%, but not to exceed 12.5%. The PIK interest is added to the
principal amount of the borrowings outstanding at the end of each quarter until
the maturity date of the Credit Agreement in June 2023. Borrowings under the
Credit Agreement are repayable in quarterly interest-only payments until the
maturity date, at which time all principal and accrued interest is due and
payable. At our



                                       30

--------------------------------------------------------------------------------

Table of Contents


option, we may prepay outstanding borrowings under the Credit Agreement, subject
to a prepayment premium of 9.0% of the principal amount of any prepayment within
the first three years, which percentage decreases annually until it reaches zero
at the end of three years. We are also required to make a final payment in an
amount equal to 3.0% of the principal amount of any prepayment or repayment,
which we are accreting to interest expense over the term of the Credit Agreement
using the effective interest method.

All obligations under the Credit Agreement are guaranteed by us and each of our
material subsidiaries. All obligations of us and each guarantor are secured by
substantially all of our and each guarantor's assets, including their
intellectual property, subject to certain exceptions, including a perfected
security interest in substantially all tangible and intangible assets of us and
each guarantor. Under the Credit Agreement, we have agreed to certain
affirmative and negative covenants to which we will remain subject until
maturity. The covenants include maintaining a minimum liquidity amount of
$3.0 million; the requirement, on an annual basis, to deliver to OrbiMed annual
audited financial statements with an unqualified audit opinion from our
independent registered public accounting firm; and restrictions on our
activities, including limitations on dispositions, mergers or acquisitions;
encumbering our intellectual property; incurring indebtedness or liens; paying
dividends; making certain investments; and engaging in certain other business
transactions. The obligations under the Credit Agreement are subject to
acceleration upon the occurrence of specified events of default, including
payment default, change in control, bankruptcy, insolvency, certain defaults
under other material debt, certain events with respect to governmental approvals
(if such events could cause a material adverse change in our business), failure
to comply with certain covenants, including the minimum liquidity and
unqualified audit opinion covenants, and a material adverse change in our
business, operations or other financial condition. With respect to our
consolidated financial statements for the fiscal year ended December 29, 2018,
we received a waiver of the covenant requiring delivery to OrbiMed of audited
financial statements with an unqualified audit opinion. As of March 30, 2019,
2018, we were in compliance with all of the other covenants under the Credit
Agreement.

Upon the occurrence of an event of default and until such event of default is no
longer continuing, the Applicable Margin will increase by 4.0% per annum. If an
event of default (other than certain events of bankruptcy or insolvency) occurs
and is continuing, OrbiMed may declare all or any portion of the outstanding
principal amount of the borrowings plus accrued and unpaid interest to be due
and payable. Upon the occurrence of certain events of bankruptcy or insolvency,
all of the outstanding principal amount of the borrowings plus accrued and
unpaid interest will automatically become due and payable. In addition, we may
be required to prepay outstanding borrowings, subject to certain exceptions,
with portions of net cash proceeds of certain asset sales and certain casualty
and condemnation events.

In June 2018, we repaid all amounts due under our 2015 loan and security agreement with Hercules and the loan and security agreement was terminated.

Funding Requirements


As we continue to pursue and increase commercial sales of our OCS products, we
expect our costs and expenses to increase in the future, particularly as we
expand our sales and clinical adoption team, scale our manufacturing operation,
continue research, development and clinical trial efforts, and seek regulatory
clearance for new products and product enhancements, including new indications,
both in the United States and in select non-U.S. markets. In addition, following
the closing of our IPO, we have incurred and expect to continue to incur
additional costs associated with operating as a public company. The timing and
amount of our operating and capital expenditures will depend on many factors,
including:


• the amount of net revenue generated by sales of our OCS Consoles, OCS

         disposable sets and other products that may be approved in the United
         States and select non-U.S. markets;




     •   the costs and expenses of expanding our U.S. and non-U.S. sales and
         marketing infrastructure and our manufacturing operations;



• the extent to which our OCS products are adopted by the transplant

         community;




     •   the ability of our customers to obtain adequate reimbursement from
         third-party payors for procedures performed using the OCS products;




     •   the degree of success we experience in commercializing our OCS products
         for additional indications;




     •   the costs, timing and outcomes of any future clinical studies and
         regulatory reviews, including to seek and obtain approvals for new
         indications for our OCS products;




  •   the emergence of competing or complementary technologies;




• the number and types of future products we develop and commercialize;

• the costs of preparing, filing and prosecuting patent applications and

maintaining, enforcing and defending intellectual property-related claims;

         and




  •   the level of our selling, general and administrative expenses.




                                       31

--------------------------------------------------------------------------------

Table of Contents


See "Risk Factors-Risks Related to Our Financial Position and Need for
Additional Capital-We may need to raise additional funding, which might not be
available on favorable terms or at all. Raising additional capital may cause
dilution to our shareholders" in the Final Prospectus.

Contractual Obligations and Commitments


During the fiscal three months ended March 30, 2019, there were no material
changes to our contractual obligations and commitments from those described
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Contractual Obligations and Commitments" in the Final
Prospectus.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition or results of operations.

Critical Accounting Policies and Significant Judgments and Estimates


Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States. The preparation of our
consolidated financial statements and related disclosures requires us to make
estimates, assumptions and judgments that affect the reported amounts of assets,
liabilities, revenue, costs and expenses, and related disclosures. We evaluate
our estimates on an ongoing basis. Our actual results may differ from these
estimates under different assumptions or conditions. We believe that of our
critical accounting policies described under the heading "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Critical Accounting Policies and Significant Judgments and Estimates"
in the Final Prospectus, the following involve the most judgment and complexity:



  •   revenue recognition;




  •   stock-based compensation;




  •   valuation of warrants to purchase preferred stock; and




  •   valuation of inventory.


Accordingly, we believe the policies set forth above are critical to fully
understanding and evaluating our financial condition and results of operations.
If actual results or events differ materially from the estimates, judgments and
assumptions used by us in applying these policies, our reported financial
condition and results of operations could be materially affected. Other than the
adoption of ASC 606 on December 30, 2018 as described in more detail in Note 2
to our consolidated financial statements included elsewhere in this Quarterly
Report on Form 10-Q, there have been no significant changes to our critical
accounting policies from those described in the Final Prospectus.

Off-Balance Sheet Arrangements


We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
SEC.

Recently Issued Accounting Pronouncements


A description of recently issued accounting pronouncements that may potentially
impact our financial position and results of operations is disclosed in Note 2
to our consolidated financial statements appearing elsewhere in this Quarterly
Report.

Emerging Growth Company Status


The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth
company" such as us to take advantage of an extended transition period to comply
with new or revised accounting standards applicable to public companies until
those standards would otherwise apply to private companies. We have elected not
to "opt out" of such extended transition period, which means that when a
standard is issued or revised and it has different application dates for public
or private companies, we will adopt the new or revised standard at the time
private companies adopt the new or revised standard and will do so until such
time that we either (i) irrevocably elect to "opt out" of such extended
transition period or (ii) no longer qualify as an emerging growth company.



                                       32

--------------------------------------------------------------------------------

Table of Contents

© Edgar Online, source Glimpses

share with twitter share with LinkedIn share with facebook
share via e-mail
0
Latest news on TRANSMEDICS GROUP INC
06/12TRANSMEDICS : Management's Discussion and Analysis of Financial Condition and Re..
AQ
06/11TRANSMEDICS GROUP, INC. : Results of Operations and Financial Condition, Financi..
AQ
06/11TransMedics Reports First Quarter 2019 Financial Results
GL
06/04TRANSMEDICS GROUP, INC. : Regulation FD Disclosure, Financial Statements and Exh..
AQ
06/03TransMedics Announces the Second FDA PMA Approval for its OCS Lung System, Al..
GL
05/30TransMedics to Report First Quarter 2019 Financial Results on June 11, 2019
GL
05/06TRANSMEDICS GROUP, INC. : Entry into a Material Definitive Agreement, Creation o..
AQ
05/06TRANSMEDICS : Announces Closing of its Initial Public Offering and Full Exercise..
AQ
05/02TRAS GROU : TransMedics Announces Pricing of Upsized Initial Public Offering
AQ
More news