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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 001-38891

 

TransMedics Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

Massachusetts

83-2181531

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

 

200 Minuteman Road

Andover, Massachusetts

01810

(Address of principal executive offices)

(Zip code)

 

(978) 552-0900

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class 

 

Trading Symbol(s) 

 

Name of each exchange on which registered 

Common Stock, No Par Value

 

TMDX

 

The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 29, 2022, the registrant had 27,980,839 shares of common stock, no par value per share, outstanding.

 

 

 

 


 

 

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements with respect to, among other things, our operations and financial performance. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “should,” “could,” “target,” “predict,” “seek” and similar expressions are intended to identify forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those referenced in the section titled “Risk Factors,” which could cause actual results to differ materially. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in or implied by any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this report. You should not rely upon forward-looking statements as predictions of future events. We cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to actual results or reflect interim developments.

Some of the key factors that could cause actual results to differ include:

 

that we continue to incur losses;

 

our need to raise additional funding;

 

our existing and any future indebtedness, including our ability to comply with affirmative and negative covenants under our credit agreement to which we will remain subject until maturity, and our ability to obtain additional financing on favorable terms or at all;

 

our ability to attract and retain key personnel;

 

the fluctuation of our financial results from quarter to quarter;

 

our ability to use net operating losses and research and development credit carryforwards;

 

our dependence on the success of the Organ Care System, or OCS;

 

our ability to expand access to the OCS through our National OCS Program;

 

the rate and degree of market acceptance of the OCS;

 

our ability to educate patients, surgeons, transplant centers and private and public payors on the benefits offered by the OCS;

 

our ability to improve the OCS platform;

 

our dependence on a limited number of customers for a significant portion of our net revenue;

 

our ability to maintain regulatory approvals or clearances for our OCS products;

 

our ability to adequately respond to the Food and Drug Administration, or FDA, follow-up inquiries in a timely manner;

 

the timing and our ability to commercialize and market our OCS products;

 

the performance of our third-party suppliers and manufacturers;

 

price increases of the components of our products;

 

the timing or results of post-approval studies and any clinical trials for the OCS;

i


 

 

 

our manufacturing, sales, marketing and clinical support capabilities and strategy;

 

attacks against our information technology infrastructure;

 

the economic, political and other risks associated with our foreign operations;

 

the impact of the outbreak of the novel strain of coronavirus, or COVID-19, including variants of the virus and associated containment, remediation and vaccination efforts;

 

our ability to protect, defend, maintain and enforce our intellectual property rights relating to the OCS and avoid allegations that our products infringe, misappropriate or otherwise violate the intellectual property rights of third parties;

 

the pricing of the OCS, as well as the reimbursement coverage for the OCS in the United States and internationally;

 

regulatory developments in the United States, European Union and other jurisdictions;

 

the extent and success of competing products that are or may become available;

 

the impact of any product recalls or improper use of our products; and

 

our estimates regarding revenue, expenses and needs for additional financing.

ii


 

 

TransMedics Group, Inc.

Table of Contents

 

 

 

 

Page

 

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

1

 

Consolidated Balance Sheets

 

1

 

Consolidated Statements of Operations

 

2

 

Consolidated Statements of Comprehensive Loss

 

3

 

Consolidated Statements of Stockholders’ Equity

 

4

 

Consolidated Statements of Cash Flows

 

5

 

Notes to Unaudited Consolidated Financial Statements

 

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

24

Item 4.

Controls and Procedures

 

25

 

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

26

Item 1A.

Risk Factors

 

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

Item 6.

Exhibits

 

27

Signatures

 

28

 

 

 

iii


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

TRANSMEDICS GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,897

 

 

$

25,580

 

Marketable securities

 

 

54,104

 

 

 

66,872

 

Accounts receivable

 

 

11,724

 

 

 

5,934

 

Inventory

 

 

16,714

 

 

 

14,859

 

Prepaid expenses and other current assets

 

 

5,356

 

 

 

5,460

 

Total current assets

 

 

105,795

 

 

 

118,705

 

Property and equipment, net

 

 

12,044

 

 

 

9,841

 

Restricted cash

 

 

500

 

 

 

500

 

Operating lease right-of-use assets

 

 

5,669

 

 

 

5,847

 

Total assets

 

$

124,008

 

 

$

134,893

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,934

 

 

$

6,651

 

Accrued expenses and other current liabilities

 

 

15,738

 

 

 

16,337

 

Deferred revenue

 

 

247

 

 

 

250

 

Operating lease liabilities

 

 

1,337

 

 

 

 

Total current liabilities

 

 

20,256

 

 

 

23,238

 

Long-term debt, net of discount and current portion

 

 

35,334

 

 

 

35,197

 

Operating lease liabilities, net of current portion

 

 

8,508

 

 

 

8,604

 

Total liabilities

 

 

64,098

 

 

 

67,039

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Preferred stock, no par value; 25,000,000 shares authorized; no shares

   issued or outstanding

 

 

 

 

 

 

Common stock, no par value; 150,000,000 shares authorized; 27,968,583

   shares and 27,791,615 shares issued and outstanding at March 31, 2022

   and December 31, 2021, respectively

 

 

513,203

 

 

 

510,488

 

Accumulated other comprehensive loss

 

 

(285

)

 

 

(188

)

Accumulated deficit

 

 

(453,008

)

 

 

(442,446

)

Total stockholders' equity

 

 

59,910

 

 

 

67,854

 

Total liabilities and stockholders' equity

 

$

124,008

 

 

$

134,893

 

 

The accompanying notes are an integral part of these consolidated financial statements.

1


 

TRANSMEDICS GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net revenue

 

$

15,880

 

 

$

7,053

 

Cost of revenue

 

 

3,776

 

 

 

2,242

 

Gross profit

 

 

12,104

 

 

 

4,811

 

Operating expenses:

 

 

 

 

 

 

 

 

Research, development and clinical trials

 

 

7,534

 

 

 

4,532

 

Selling, general and administrative

 

 

13,939

 

 

 

6,786

 

Total operating expenses

 

 

21,473

 

 

 

11,318

 

Loss from operations

 

 

(9,369

)

 

 

(6,507

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest expense

 

 

(960

)

 

 

(952

)

Other expense, net

 

 

(227

)

 

 

(454

)

Total other expense, net

 

 

(1,187

)

 

 

(1,406

)

Loss before income taxes

 

 

(10,556

)

 

 

(7,913

)

Provision for income taxes

 

 

(6

)

 

 

(4

)

Net loss

 

$

(10,562

)

 

$

(7,917

)

Net loss per share attributable to common stockholders,

   basic and diluted

 

$

(0.38

)

 

$

(0.29

)

Weighted average common shares outstanding,

   basic and diluted

 

 

27,950,330

 

 

 

27,368,090

 

 

The accompanying notes are an integral part of these consolidated financial statements.

2


 

TRANSMEDICS GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Net loss

 

$

(10,562

)

 

$

(7,917

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(24

)

 

 

(2

)

Unrealized gains (losses) on marketable securities,

   net of tax of $0

 

 

(73

)

 

 

8

 

Total other comprehensive income (loss)

 

 

(97

)

 

 

6

 

Comprehensive loss

 

$

(10,659

)

 

$

(7,911

)

 

The accompanying notes are an integral part of these consolidated financial statements.

3


 

TRANSMEDICS GROUP, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Comprehen-

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

sive Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2021

 

 

27,791,615

 

 

$

510,488

 

 

$

(188

)

 

$

(442,446

)

 

$

67,854

 

Issuance of common stock upon the

   exercise of common stock options

 

 

164,503

 

 

 

202

 

 

 

 

 

 

 

 

 

202

 

Issuance of common stock in

   connection with employee stock

   purchase plan

 

 

12,465

 

 

 

203

 

 

 

 

 

 

 

 

 

203

 

Stock-based compensation expense

 

 

 

 

 

2,310

 

 

 

 

 

 

 

 

 

2,310

 

Foreign currency translation

   adjustment

 

 

 

 

 

 

 

 

(24

)

 

 

 

 

 

(24

)

Unrealized losses on marketable

   securities

 

 

 

 

 

 

 

 

(73

)

 

 

 

 

 

(73

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(10,562

)

 

 

(10,562

)

Balances at March 31, 2022

 

 

27,968,583

 

 

$

513,203

 

 

$

(285

)

 

$

(453,008

)

 

$

59,910

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Comprehen-

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

sive Loss

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2020

 

 

27,175,305

 

 

$

502,217

 

 

$

(95

)

 

$

(398,231

)

 

$

103,891

 

Issuance of common stock upon the

   exercise of common stock options

 

 

287,705

 

 

 

372

 

 

 

 

 

 

 

 

 

372

 

Issuance of common stock in

   connection with employee stock

   purchase plan

 

 

14,951

 

 

 

211

 

 

 

 

 

 

 

 

 

211

 

Stock-based compensation expense

 

 

 

 

 

1,112

 

 

 

 

 

 

 

 

 

1,112

 

Foreign currency translation

   adjustment

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Unrealized gains on marketable

   securities

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

8

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,917

)

 

 

(7,917

)

Balances at March 31, 2021

 

 

27,477,961

 

 

$

503,912

 

 

$

(89

)

 

$

(406,148

)

 

$

97,675

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4


 

 

TRANSMEDICS GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(10,562

)

 

$

(7,917

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

507

 

 

 

445

 

Stock-based compensation expense

 

 

2,310

 

 

 

1,112

 

Non-cash interest expense and end of term accretion expense

 

 

137

 

 

 

130

 

Non-cash lease expense

 

 

178

 

 

 

 

Net amortization of premiums on marketable securities

 

 

228

 

 

 

391

 

Unrealized foreign currency transaction losses

 

 

214

 

 

 

484

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(5,804

)

 

 

(583

)

Inventory

 

 

(2,926

)

 

 

(381

)

Prepaid expenses and other current assets

 

 

88

 

 

 

(908

)

Accounts payable

 

 

(4,013

)

 

 

(82

)

Accrued expenses and other current liabilities

 

 

(4

)

 

 

(180

)

Deferred revenue

 

 

 

 

 

182

 

Operating lease liabilities

 

 

1,241

 

 

 

 

Deferred rent

 

 

 

 

 

(23

)

Net cash used in operating activities

 

 

(18,406

)

 

 

(7,330

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,953

)

 

 

(20

)

Purchases of marketable securities

 

 

(2,033

)

 

 

(11,708

)

Proceeds from sales and maturities of marketable securities

 

 

14,500

 

 

 

21,000

 

Net cash provided by investing activities

 

 

10,514

 

 

 

9,272

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

202

 

 

 

372

 

Proceeds from issuance of common stock in connection with employee stock

   purchase plan

 

 

203

 

 

 

211

 

Net cash provided by financing activities

 

 

405

 

 

 

583

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(196

)

 

 

(379

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(7,683

)

 

 

2,146

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

26,080

 

 

 

25,081

 

Cash, cash equivalents and restricted cash, end of period

 

$

18,397

 

 

$

27,227

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Transfers of inventory to property and equipment

 

$

1,030

 

 

$

429

 

Purchases of property and equipment included in accounts payable and accrued expenses

 

$

939

 

 

$

7

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

17,897

 

 

$

26,727

 

Restricted cash

 

 

500

 

 

 

500

 

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

 

$

18,397

 

 

$

27,227

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

TRANSMEDICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of the Business and Basis of Presentation

TransMedics Group, Inc. (“TransMedics Group” and, together with its consolidated subsidiaries, the “Company”) was incorporated in the Commonwealth of Massachusetts in October 2018. TransMedics, Inc. (“TransMedics”), an operating company and wholly owned subsidiary of TransMedics Group, was incorporated in the State of Delaware in August 1998. The Company is a commercial-stage medical technology company transforming organ transplant therapy for end-stage organ failure patients across multiple disease states. The Company developed the Organ Care System (“OCS”) to replace a decades-old standard of care. 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. The Company’s OCS technology replicates many aspects of the organ’s natural living and functioning environment outside of the human body.

The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has incurred recurring losses since inception, including net losses of $10.6 million for the three months ended March 31, 2022 and $44.2 million for the year ended December 31, 2021. As of March 31, 2022, the Company had an accumulated deficit of $453.0 million. The Company expects to continue to generate operating losses in the foreseeable future.

The Company believes that its existing cash, cash equivalents, and marketable securities of $72.0 million as of March 31, 2022 will be sufficient to fund its operations, capital expenditures, and debt service payments for at least the next 12 months following the filing of this Quarterly Report on Form 10-Q. The Company may need to seek additional funding through equity financings, debt financings or strategic alliances. The Company may not be able to obtain financing on acceptable terms, or at all, and the terms of any financing may adversely affect the holdings or the rights of the Company’s shareholders. If the Company is unable to obtain funding, the Company will be required to delay, reduce or eliminate some or all of its research and development programs, product expansion or commercialization efforts, or the Company may be unable to continue operations.

The Company is subject to risks and uncertainties common to companies in the medical device industry and of similar size, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, uncertainty of market acceptance of products, and the need to obtain additional financing to fund operations. Potential risks and uncertainties also include, without limitation, uncertainties regarding the duration and magnitude of the impact of the COVID-19 pandemic on the Company’s business and the economy generally. Products currently under development will require additional research and development efforts, including additional clinical testing and regulatory approval, prior to commercialization. These efforts require additional capital, adequate personnel, infrastructure and extensive compliance-reporting capabilities. The Company’s research and development may not be successfully completed, adequate protection for the Company’s technology may not be obtained, the Company may not obtain necessary government regulatory approval on its expected timeline or at all, and approved products may not prove commercially viable. The Company operates in an environment of rapid change in technology and competition.

The impact of the COVID-19 pandemic has been and may continue to be extensive in many aspects of society, which has resulted in and may continue to result in significant disruptions to the global economy, as well as businesses and capital markets around the world. Impacts to the Company’s business as a result of COVID-19 have included the temporary disruption of transplant procedures at many of the organ transplant centers that purchase OCS products; customer delays or reductions in customer capital expenditures and operating budgets and the related impact on its product sales; disruptions to the Company’s manufacturing operations and supply chain caused by facility closures, reductions in operating hours, staggered shifts and other social distancing efforts; labor shortages; decreased productivity and unavailability of materials or components; delays of reviews and approvals by the Food and Drug Administration (“FDA”) and other health authorities; delays in the Company’s clinical trial enrollment; limitations on its employees’ and customers’ ability to travel, and delays in product installations, trainings or shipments to and from other affected countries and within the United States.

6


 

In response to the pandemic, healthcare providers have, and may need to further, reallocate resources, such as physicians, staff, hospital beds and intensive care unit facilities, and these actions significantly delay the provision of other medical care such as organ transplantation and reduce the number of transplant procedures that are performed, which negatively impacts the Company’s revenue and cash flows. While the Company maintains an inventory of finished products and raw materials used in its OCS products, a prolonged pandemic could lead to shortages in the raw materials necessary to manufacture its products. The COVID-19 pandemic also has impacted operations at the FDA and other health authorities, resulting in delays of reviews and approvals, and may affect other potential Pre-Market Approval (“PMA”) applications. 

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited interim financial statements and related notes have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2022 and results of operations for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021 have been made. The Company’s results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2022.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, revenue recognition, the valuation of inventory and the valuation of stock-based awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including sales, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Company has made estimates of the impact of COVID-19 within its financial statements and there may be changes to those estimates in future periods. As of the date of issuance of these unaudited consolidated financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update estimates, judgments or revise the carrying value of any assets or liabilities. Actual results may differ from those estimates or assumptions.

Risk of Concentrations of Credit, Significant Customers and Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketable securities, and accounts receivable. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. As of March 31, 2022 and December 31, 2021, the Company had no allowance for credit losses.

Significant customers are those that accounted for 10% or more of the Company’s net revenue or accounts receivable. For the three months ended March 31, 2022, three customers accounted for 16%, 15% and 12% of net revenue, respectively.

7


 

For the three months ended March 31, 2021, two customers each accounted for 12% of net revenue. As of March 31, 2022, four customers accounted for 14%, 12%, 12% and 10% of accounts receivable, respectively. As of December 31, 2021, two customers accounted for 21% and 15% of accounts receivable, respectively.

Certain of the components and subassemblies included in the Company’s products are obtained from a sole source, a single source or a limited group of suppliers. Although the Company seeks to reduce dependence on those limited sources of suppliers and manufacturers, the partial or complete loss of certain of these sources could have a material adverse effect on the Company’s operating results, financial condition and cash flows and damage its customer relationships.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

Level 1—Quoted prices in active markets for identical assets or liabilities.

 

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The Company’s cash equivalents and marketable securities are carried at fair value, determined according to the fair value hierarchy described above (see Note 4). The carrying values of the Company’s accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities. The carrying value of the Company’s long-term debt approximates its fair value (a level 2 measurement) at each balance sheet date due to its variable interest rate, which approximates a market interest rate.

Segment Information

The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company is developing and commercializing a proprietary system to preserve human organs for transplant in a near-physiologic condition to address the limitations of cold storage organ preservation. Operating segments are defined as components of an enterprise for which separate financial information is regularly evaluated by the Company’s chief operating decision maker, or decision-making group, in deciding how to allocate resources and assess performance. The Company has determined that its chief operating decision maker is its Chief Executive Officer. The Company’s chief operating decision maker reviews the Company’s financial information on a consolidated basis for purposes of allocating resources and assessing financial performance.

Net Income (Loss) per Share

Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock awards. For periods in which the Company reports a net loss, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common stockholders for each of the three months ended March 31, 2022 and 2021.

8


 

The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated above because including them would have had an anti-dilutive effect:

 

 

 

As of March 31,

 

 

 

2022

 

 

2021

 

Warrants to purchase common stock

 

 

64,440

 

 

 

64,440

 

Options to purchase common stock

 

 

3,484,914

 

 

 

2,764,876

 

Employee stock purchase plan

 

 

5,794

 

 

 

5,882

 

 

 

 

3,555,148

 

 

 

2,835,198

 

 

3. Marketable Securities

Marketable securities by security type consisted of the following (in thousands):

 

 

 

March 31, 2022

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

U.S. Treasury securities (due within one year)

 

$

51,212

 

 

$

 

 

$

(102

)

 

$

51,110

 

U.S. government agency bonds (due within one year)

 

 

3,001

 

 

 

 

 

 

(7

)

 

 

2,994

 

 

 

$

54,213

 

 

$

 

 

$

(109

)

 

$

54,104

 

 

 

 

December 31, 2021

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

U.S. Treasury securities (due within one year)

 

$

63,907

 

 

$

 

 

$

(33

)

 

$

63,874

 

U.S. government agency bonds (due within one year)

 

 

3,001

 

 

 

 

 

 

(3

)

 

 

2,998

 

 

 

$

66,908

 

 

$

 

 

$

(36

)

 

$

66,872

 

 

 

4. Fair Value of Financial Assets and Liabilities

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

Fair Value Measurements at March 31, 2022 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

2,847

 

 

$

 

 

$

 

 

$

2,847

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

51,110

 

 

 

 

 

 

51,110

 

U.S. government agency bonds

 

 

 

 

 

2,994

 

 

 

 

 

 

2,994

 

 

 

$

2,847

 

 

$

54,104

 

 

$

 

 

$

56,951

 

9


 

 

 

 

 

Fair Value Measurements at December 31, 2021 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

11,169

 

 

$

 

 

$

 

 

$

11,169

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

 

 

 

63,874

 

 

 

 

 

 

63,874

 

U.S. government agency bonds

 

 

 

 

 

2,998

 

 

 

 

 

 

2,998

 

 

 

$

11,169

 

 

$

66,872

 

 

$

 

 

$

78,041

 

 

Money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy. U.S. Treasury securities and U.S. government agency bonds were valued by the Company using quoted prices in active markets for similar securities, which represent a Level 2 measurement within the fair value hierarchy.

5. Inventory

Inventory consisted of the following (in thousands):

 

 

 

March 31, 2022

 

 

December 31, 2021

 

Raw materials

 

$

8,322

 

 

$

7,274

 

Work-in-process

 

 

2,501

 

 

 

1,932

 

Finished goods

 

 

5,891

 

 

 

5,653

 

 

 

$

16,714

 

 

$

14,859

 

 

During the three months ended March 31, 2022 and 2021, the Company made non-cash transfers of OCS Consoles from inventory to property and equipment (OCS Consoles loaned to customers) of $1.0 million and $0.4 million, respectively.

6. Accrued Expenses and Other Current Liabilities