Medical science is like the left field for me. I am an engineer, and decades ago, after 10th grade, I shunned biology and went all in on the dark web of AI, semiconductors, and assembly programming.

It was a choice I made as a young boy and I don’t regret it. However, medical science does intrigue me as it touches our daily lives. I have to deal with doctors regularly as I have parents in their 80s. I don’t have to boast, I have good genes and even in my 50s, I look like I am 20. Only my white stubble gives away my age. Young women still hit me up when I am clean-shaven at Stone Street bars.

I have been ranting a lot recently, so let’s get down to business. Currently, when somebody needs an organ transplant, the organ comes in an ice box.

Yup, that is how organs are preserved. The transplantation process is again something I don’t qualify to comment on, but is bereft of wastage and mostly bad outcomes. Even with willing donors, most organs go unused, and needy people wait for years to even get a transplant. Don’t believe me? Here is the data. Argue against this.

There are two glaring issues here:

1. Preservation of organs outside the human body.

2. Logistics to get the organs to those who need them.

Is anybody addressing the issue or gap in the market? Yes, TMDX is. Let’s value this company.

TMDX Valuation

Since I am not a doctor over even know anything about that stuff, I look at it from an outcome perspective.

1. Does it improve the current system?

2. Does it help better the organ transplantation system?

3. Does it improve the quality of lives of Doctors?

The stats are out there and the answer to all those questions; is an unequivocal, YES.

Given that, it is a two-step dance here. One is what TMDX projects into 2028 and then there is the beyond.

I believe TMDX is being conservative. That is the two-step dance in this valuation game. Assumptions? Yeah, but it's realistic.

TMDX makes machines that preserve organs outside the human body and even provides cleaning solutions. The majority of its revenues come from throw-away organ preservation packages and cleaning solutions, the revenue from the machines is the creme on the top. Leased or sold, it just adds up.

You might wonder, this all sounds good but has TMDX revolutionized the organ translation industry? Judge for yourself.

Now comes the hard part, valuing TMDX. TMDX hopes to get to 10,000 transplants by the end of 2028 and has given guidance to that effect. I believe that is beyond conservative. The limiting factor in transplants is that the organ is not available. The Street rained on TMDX cause they did CAPEX to build a whole FEDEX of organ airlines for efficient organ logistics. There are experts and there is Wall Street.

Essentially what TMDX has done is to control its logistics by buying an aircraft fleet and not be beholden to the randomness of a charter fleet. I looked up the background of the logistics guy at TMDX and asked around; Nick got the thumbs up.

Now the limiting factor for TMDX is the donors in the US. That is the first step of the valuation dance. Apart from addressing inherent inefficiencies, the limiting factor is the number of donors.

Ranting aside, what are the inputs for the valuation model?

• 1,200 million in revenues by 2028 from US operations.

• Possibly 240 million in revenue from non-US operations if the EU countries decide to cover TMDX under their healthcare system.

• The expected growth rate over the next decade - mid-point - 8.50%. The optimistic view is about 12% CAGR.

• End state ROIC - 12.5%

• Incremental revenue for every dollar reinvested - $2 (US average)

• Tax rate 21%

• Risk-free rate - 10-year bond

• Beyond 2029 - FDA approval for Kidney and overseas expansion.

Verdict

I am not gonna show the math on this one. Fair value without considering efficiencies, the kidney market, and overseas expansion: 85.45. If the company goes gangbusters, it should be valued at 101.28.

Buy all dips and accumulate, but remember the limiting factor is the number of donors. It will never be a superstar company as the upside in the number of donors is capped, giving TMDX pricing power.

Until next time. Have fun!!!