TransMedics Group, Inc. Q1 FY2022 Earnings Call

Good afternoon and welcome to TransMedics First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's call. As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Brian Johnston from Gilmartin Group for a few introductory comments.

Thanks, operator. Earlier today, TransMedics released financial results for the quarter ended March 31st, 2022. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that relate to expectations or predictions of future events, results, or performance are forward-looking statements. All forward-looking statements, including, without limitation, our examination of operating trends, the potential commercial opportunity for our products, and our future financial expectations, which include expectations for growth in our organization, regulatory approvals, and reimbursement, and guidance and/or expectations for revenue, gross margins, and operating expenses in 2022 are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please refer to the Risk Factors section of our annual report on Form 10-K filed with the Securities and Exchange Commission on March 1st, 2022. TransMedics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains time-sensitive information that is accurate only as of the live broadcast today, May 3rd, 2022. And with that, I'll turn the call over to Waleed Hassanein, President and Chief Executive Officer.

Thank you so much, Brian. Good afternoon everyone and welcome to TransMedics first quarter 2022 earnings call. Joining me today is Stephen Gordon, our Chief Financial Officer. As we discussed on our previous call, we believe that 2022 will be a transformative year for TransMedics' commercial adoption. Our Q1 results further validate our conviction in our strong growth potential, leveraging our three transplant technology platforms, i.e. OCS Lung, Heart and Liver, as well as leveraging our unique National OCS Program or NOP to meaningfully expand our commercial footprint throughout the year. We started the year with strong momentum and the results speak for themselves. We achieved net revenue of $15.9 million, representing 125% growth year-over-year and 64% growth over Q4 2021. U.S. revenue for Q1 was $13.6 million, representing 136% growth year-over-year and approximately 85% of total Q1 revenue. International sales were $2.3 million, representing 79% growth over the same period in 2021. Importantly, we are very encouraged by a few positive commercial trends that expand our confidence in our commercial trajectory. Let me share these trends with you. First, while our revenue growth was very strong, the bulk of Q1 revenue was driven predominantly by approximately five to seven centers in each organ market. This is important for two reasons. First, it demonstrates the potential of rapid and deep penetration of key high-volume transplant programs with the OCS technology. This has always been our focus, to go deep first then grow wider. Second, it shows that we are only scratching the surface of the commercial opportunity across our three organ markets, leaving significant opportunity to drive future growth by potentially new transplant programs being added to the OCS technology. The second trend was, as we expected, given the relative volumes of liver transplantation procedures in the U.S., U.S. liver revenue represented the largest share of our sales in Q1. As a reminder, the total U.S. liver transplant volume is nearly double the heart and lung volumes combined. The third trend was that the vast majority of Q1 revenue truly represented real-time case utilization and not stocking orders. Let me explain why. This trend is due to the high contribution of NOP to the overall revenue mix in the United States. We're excited by this trend and we are monitoring it closely due to its impact on making our business more linear and predictable. With the NOP, now revenue growth represents growth in case volume and deeper penetration into existing and new transplant programs. The last trend and perhaps the most important is our National OCS Program or NOP, which has already played a critical role in our commercial efforts, driving a significant portion of our U.S. revenue during this quarter. In Q1 approximately 70% of the overall U.S. revenue came from NOP cases rather than direct acquisition. On a per organ basis, liver was 98% NOP, lung was 78% NOP, and heart was 30% NOP. As we move forward, we expect to see the percentage of revenue from NOP continue to grow across all three organ platforms. Importantly, this early momentum with NOP enabled us to repeatedly demonstrate our ability to facilitate more transparent volume at the central level, with reduced operational friction of resources and logistics, while significantly shortening the typical sales cycle for OCS technology. Let me explain. Historically, via the direct acquisition model, it used to take us 90 to 120 days to go from initial clinical buy-in to the issuance of the first purchase order of any transplant center wanting to adopt the OCS. From there, it would take somewhere between 30 and 60 additional days waiting for installation and scheduling of training of their first team to be trained on how to operate OCS. And then once they're back, it used to take somewhere between 15 and 30 days until we see the first true revenue-generating case from this transplant program. With NOP, it's the complete opposite. We saw many centers in Q1 going live within a few days – literally a few days from initial buy-in by the clinician to the clinical and administrative leadership until they performed the first case. In fact, the quickest was literally six hours. From there, once the center experienced the simplicity of the NOP model, they kept coming back for more cases. Based on the above, we see NOP as the most significant growth catalyst for not only our commercial growth as it drives efficiency in case volume and center penetration, but also the overall U.S. transplant volumes starting in 2022. In addition to NOP, we also expect to benefit from two additional catalysts this year. First, the recent FDA approval of our DCD heart indication that came in ahead of schedule. This approval will allow us to expand into new centers that were not part of the original DCD trial. This will ultimately grow our OCS Heart centers in the U.S. and drive case and revenue growth for the OCS platform. Second, the expansion of the number of active OCS centers for each organ market. Our goal is to end 2022 with 10 to 12 centers per organ; lung, heart, and liver that are routinely using the OCS for their transplants as we've seen in the NOP centers in Q1. Now, let's shift to provide you an update on our progress against our operational goals for 2022, related to the actual operation. First, our goal was to buttress the NOP surgical and clinical staff, while expanding the NOP launching points or regions. In Q1, we added two new surgeons bringing our total headcount to 10 full-time surgeons supported by 12 contract surgeons in the NOP program. We expect to add additional surgeons throughout 2022. We also increased our clinical support staff from 36 at the beginning of the year to 50 at the end of Q1 across the U.S., all of whom are being cross-trained for all three OCS platforms. Finally, we expanded our NOP launch points or regions from 11 at the end of 2021 to 12 by the end of Q1 and as of today, we're at 14 active launch points in the United States, giving us broad geographical coverage. Second, our operational goal was to expand our manufacturing infrastructure and capacity. We are on track to expand our production capacity to accommodate anticipated mid and long-term demand volume by the year end of 2022. This will further mitigate our supply chain process. The last operational goal was to invest in raw material inventory to meet the growing clinical demand. We've invested in bolstering our raw material inventory to help us meet clinical demand in Q1. We plan to continue to make targeted strategic investments in raw material to minimize any negative impact of supply chain challenges on our business and our commercial execution throughout the year. We're very proud of our commercial performance in Q1 2022 and we are focused on maintaining this level of execution throughout the year, despite potential impacts from macro headwinds. Let's discuss these potential headwinds. First, the lung transplant volume remains somewhat vulnerable to further COVID waves as it was in early Q1. Although we've seen minimal or no impact from Omicron on heart and liver transplant volumes. The second potential headwind is we remain exposed to ongoing global supply chain challenges. While we have largely mitigated the impact to our revenue to date, our early rapid clinical adoption has meaningfully increased the rate of inventory usage. Despite our investments, this is an area that we cannot always control and may negatively impact us in 2022. Nonetheless, given the growing demand for the OCS technology, our strong Q1 results, and other key catalysts that I’ve just reviewed, we are increasingly confident in our near, mid, and long-term outlook. However, we need to remain prudent in our expectations given the global potential headwinds mentioned above. As such, we are raising our annual revenue guidance for the full year 2022 to a range between $59 million and $65 million. This represents a solid 95% to 115% growth over 2021. This compares to our previous guidance, which was over a range between $49 million and $55 million. Before turning the call over to Stephen, I would like to provide summary highlights from last week's annual meeting of the International Society of Heart and Lung Transplantation or ISHLT, that took place here in Boston, where the long-term results of OCS Heart and Lung trials were presented. Specifically, the results of the U.S. randomized OCS DCD Heart trial were presented by our lead investigator. The data showed that the use of OCS Heart technology resulted in high rates of 89% successful utilization of DCD donor hearts for transplantation. And importantly, with excellent post-transplant clinical results, the trial reported one and two-year survival results of 93% in the DCD or OCS, both at one year and two years, compared to 86% and 83%, respectively, in the DCD control arm of standard criteria heart transplanted using cold storage. These seminal results are going to be instrumental in significantly expanding the utilization of DCD donor hearts for transplantation in the U.S., thus providing access to more patients with heart failure to receive lifesaving heart transplant procedures. On the lung front, the five-year OCS Lung expand trial results were also presented by the lead investigator. The results showed that the use of OCS Lung in extended criteria DBD and DCD donor lungs resulted in a five-year survival of 68% compared to the U.S. national average or the U.S. five-year lung transplant outcome of 59% from routine lung transplantation based on the UNOS/OPTN national data. This is clinically powerful to show that we can expand the lung transplant volume in the U.S. from extended criteria lungs and have good post-transplant clinical outcomes that compare favorably to routine lung transplant outcomes in the U.S. With that, I will now turn the call over to Stephen.

Thank you, Waleed. I will now provide some additional detail on the Q1 results and other financial information for the quarter. For the first quarter of 2022, our net revenue was $15.9 million. This was an increase of 125% from the first quarter of 2021, and a sequential increase of 64% from last quarter. In the U.S., net revenue was $13.6 million, a 136% growth over the first quarter of 2021. The organ breakdown is as follows: in the U.S., net revenue was $7.9 million in OCS for Liver; $3.7 million in OCS Heart; and $2 million of OCS Lung. Revenue outside the U.S. was $2.3 million, which is up 79% from Q1 of 2021 and included $2 million of OCS Heart and $0.3 million of OCS Lung. The key driver of Q1 revenue performance was the acceleration of OCS Liver and OCS Heart utilization after the recent FDA PMA approvals in 2021. We began the commercial launch of these products in Q4 of 2021, but really saw the impact especially of OCS Liver sales in the first quarter of 2022. In addition, the positive impact of our National OCS Program was apparent in these results with 98% of our liver sales involved in national program cases. Gross margin for the first quarter of 2022 was 76%, that's up from 68% in the first quarter of 2021 and improved from 72% reported in Q4 2021. The higher gross margin is a result of the higher revenue and fully commercial revenue in the United States. Total operating expenses were $21.5 million in Q1 2022, a 90% increase over Q1 of 2021 operating expenses. The significant increase in expenses was primarily driven by the growth in our commercialization efforts in the U.S. and our NOP in particular. This represents our continued investment in our regional resources and infrastructure to allow us access to more national program transplant cases across all organs and all regions. We also saw significant growth in R&D expense as we made important progress on our next generation OCS program. However, while national program spending will continue to grow, this R&D investment in Q1 2022 included some non-recurring project costs and I expect next quarter's R&D spend to be more in line with what we saw in Q4 of 2021. Our operating loss was $9.4 million in the first quarter of 2022 compared to $6.5 million in the first quarter of 2021 and our net loss for the first quarter of 2022 was $10.6 million compared to $7.9 million in the first quarter of 2021. Finally, cash, cash equivalents, and marketable securities were $72 million as of March 31st, 2022, which equates to a reduction of $20.5 million from the balance at the end of Q4 2021. This cash burn rate was higher than typical and was reflective of the timing of several large impact items in the quarter. The most significant area impacting our cash was our investment related to inventory and capacity, ensuring that we are prepared for significant growth in 2022. We also saw the non-recurring investments in next-gen platform that I mentioned earlier, the growth in the national program, as well as other working capital related uses of cash. Looking forward, I do expect our cash burn to be at a more typical run rate of approximately $10 million to $11 million per quarter. Our weighted average common shares outstanding for the quarter were 27.95 million shares and as a result of our strong commercial start and as Waleed mentioned, we are raising our annual revenue guidance to $59 million to $65 million for the fiscal year 2022, which represents 95% to 115% growth over 2021. Now, I would like to turn the call back to Waleed for closing comments.

Thank you, Stephen. In summary, we're proud of our Q1 commercial performance. However, we don't plan to stop here or be satisfied with that. We are now focused on driving continued growth throughout 2022 and beyond. The National OCS Program, NOP, has shown its potential to drive significant growth for transplants through driving clinical efficiency and adoption by transplant centers in the U.S. The addition of the FDA DCD Heart approval uniquely positions TransMedics as the trusted partner to any U.S. heart transplant program interested in growing their volumes from DCD Heart transplants. We look forward to maintaining our momentum as we continue to leverage all three OCS platforms to deliver more and better organs for transplantation to those patients in need. With that, I will now turn the call to the operator for Q&A. Operator?

Certainly. The first question is from Bill Plovanic with Canaccord. Please proceed.

Yes, great. Thanks. Good evening. I have a couple of questions. My first question is about guidance. Reflecting on the quarter, it was extremely strong. With $15.9 million annualizing, we project reaching $64 million, which is close to the upper range of that guidance. I'm trying to understand if there was any stocking during the quarter or if there’s certainty around the system, especially since much of this is NOP. I'm just looking to clarify the guidance for flat sequential quarters based on the outlook provided.

Is that it, Bill, or is there another question?

That's my first question. That's my first one.

Okay, great. So, thank you for the question. It's an important question. So, I want to clarify one thing. Our guidance reflects exactly what we discussed on the call, which is we have to be prudent. We only have two full commercial quarters under our belt. We're just getting started. There are macro headwinds that could, if any of them get activated, could dramatically impact our ability to execute. The NOP in and of itself, we're ramping up resources, we're adding new people, and we need to be prudent. We need to not lean too far forward off our skips, we need to stay in our lane. And we think this is a significant growth and we would rather be prudent and cautious in our building our commercial credibility, and we will reassess as we see Q2 and Q3 results. So, that's really what's driving that, Bill, it has nothing to do with stocking orders. In fact, this is why I specifically commented on where the Q1 revenue came from. This is primarily from NOP, guys, there's no stocking order here. And with NOP, every case is revenue, and every revenue is a case and then there's another case that would generate another revenue.

Thank you. My second question is about the liver performance, which significantly exceeded expectations. I would like to understand the reasons behind the quick uptake of liver with NOP. Additionally, I noticed that U.S. Heart remained flat sequentially, which was unexpected, possibly explaining its lack of growth. We recently received very positive DCD data, so any insights would be appreciated. I also want to know if there's a concern about sustainability or repeat usage with NOP, which might explain the cautious approach—people might have used it and then paused. Is there anything else we should be aware of? Thank you.

Thank you, Bill. Liver transplants are expected to lead the way, as we've indicated in our previous discussions. There are two key reasons for this. First, liver transplant volumes are almost double that of heart and lung transplants combined in the U.S., which is significant. Second, the high-volume liver transplant programs are used to having others procure and deliver the livers for them. They are also working on increasing their liver procedures with their limited staff, and our NOP can address both of these needs. We can assure them that we’ll deliver livers, supported by our clinical staff, allowing their teams to be well-rested and prepared for the procedures, often scheduling them in the morning. That's why we anticipated liver transplantation to lead and we expect it to continue for these reasons. However, we also believe that heart and lung transplants will gain momentum throughout 2022. Our NOP model, as long as there are no quality issues, has proven to be one of the most sustainable revenue generators in TransMedics' history. We are being prudent and conservative with our guidance, intending to assess the results for Q2 and Q3 before making further evaluations. We believe this guidance indicates notable growth, and we aim to continue achieving results without any hidden concerns. The NOP is a reliable source of repeatable cases and is expanding. We haven't yet highlighted one of the key advantages of the OCS related to the NOP, which is reducing learning curves, and many centers are excited about this development. We expect the NOP to make significant contributions to our revenue throughout 2022, and our guidance reflects a conservative approach.

Thanks for taking my questions.

Thank you, Mr. Plovanic. The next question is from a line of Cecilia Furlong with Morgan Stanley. Please proceed.

Thank you for answering the questions and congratulations on a successful quarter. I wanted to discuss your outlook for 2022 in detail, particularly focusing on NOP's contributions, the revival and acceleration of lung volumes following COVID, and your expectations as the year comes to a close. Additionally, I am interested in your perspective on the focus on higher volume centers and how you anticipate contributions from key areas at the end of the year compared to what we experienced in the first quarter.

Thank you, Cecilia. So, as far as the first part is how do we think about the cadence kind of exiting the year? I think when we start the year with a 70% blended mix, if you remember on the last call, we were hoping to end the year with 30% NOP contribution. So, what we expect to see is we at least maintain 70% or even higher NOP cases exiting the year. As I've stated in response to the second part of your question about the contribution of NOP to recover in the lung commercialization effort, and expanding the heart, this is exactly why we did the NOP, Cecilia, and we are confident that the NOP will play a key role that once the COVID issue kind of settles down, the NOP will be there to pick up lung cases and accelerate the lung contribution to our overall growth going forward and we expect to see that for the heart. I think the community was waiting for the DCD approval, so our presence at the ISHLT. There was a palpable buzz around the OCS Heart and Lung and NOP when people would stop me at the conference and talk to me about NOP with literally the NOP acronym. It was very exciting. So, we are focused on ensuring that we end the year with a very large contribution of our revenue, the vast majority of our revenue to be NOP. We expect NOP to help the lung recover and help expand the heart volume, as well as continue to drive liver adoption across more centers. And that’s the beauty of NOP. We have to make sure we continue to beef up staffing and surgical expertise, but that's something we are committed to doing anyway.

Great. And if I could follow up specifically on heart and just kind of the physicians, cardiothoracic surgeons maybe being a little less kind of willing to adopt versus liver transplant, but just as you think about the volume going through NOP going forward, as well as the next really between DCD, DBD, I'd love your just longer-term outlook, if you think about both of those drivers going forward? And thank you.

Thank you. I think we are very familiar with the mindset of the cardiothoracic users of OCS. And we believe that we will be best positioned to convert that into successful adoption and utilization of our OCS platform in both DBD and DCD and predominantly through the NOP. Let me repeat a point I made to Bill's earlier question. One of the key elements of NOP that we highlighted heavily at the ISHLT is now every heart transplant program wants to do DCD heart transplants or extend into DBD heart transplants using OCS. The learning curves that would have been associated with that expansion would have been huge, and it could have actually negatively impacted the rate of adoption of OCS. Now having the NOP will buffer against that, and what we're witnessing is that the transplant surgeons themselves are welcoming this NOP to minimize the learning curve because they know that their outcomes are important. And they're looking for us to best manage these organs for them on OCS accounts. So we are confident that heart will be utilized for both DBD and DCD and we expect the mix to be 60/40 or 50/50 throughout 2022.

Great. Thank you for taking the questions.

Thank you, Ms. Furlong. The next question is from the line of Josh Jennings with Cowen. Please proceed.

Hi, good evening. Thank you for the question. It's encouraging to see such a strong start to the year. I wanted to ask about the buzz surrounding the DCD data presented at ISHLT. You mentioned earlier that there would be increased interest from centers that hadn't engaged in heart or other trials. Could you elaborate on that buzz? Additionally, how do you see this data encouraging more non-trial centers to adopt OCS and potentially embrace the NOP channel? Lastly, do you believe that the DCD and non-trial centers will speed up NOP adoption for both DCD Heart and DBD Heart?

Thank you, Josh. So, let me clarify one point. The buzz that was generated at the ISHLT regarding heart was actually multi-factorial. The buzz was across both heart and lung. And for the heart specifically, it wasn't just about the DCD data or the DCD approval, but also the long-term results of the EXPAND DBD extended criteria hearts, which a lot of people came to this meeting anxiously waiting to see the results because that was the first of its kind trial. So the buzz is multi-factorial; all three elements DCD, NOP, and the DBD heart pieces of the story contribute to that buzz. Now, do we expect many non-trial centers to jump to use this heart technology? Absolutely. I think the primary driver for any heart transplant program today in this country is to do DCD and expand their volume because they know that CMS is going to be coming looking at their transplant volumes very soon. So we expect that to happen. Now, the NOP will become the catalyst for the facilitator, because with the NOP it streamlines the process. It also protects them from the learning curves. It also protects them from the resource constraints that each transplant program is operating under. And it allows them much better leverage on controlling their schedules. A lot of side conversations at the ISHLT were between some of our users and some of the new centers talking to each other about how now they can schedule the heart or lung transplant procedure to be an early morning procedure rather than the middle of the night. This conference is afforded to them by the OCS. You can see the excitement and momentum. It's early days. This is why we have to be prudent. And we have to continue to watch this dynamic. But we believe wholeheartedly that NOP will be the largest catalyst to increasing the number of transplant centers using the OCS, increasing the volume of successful transplants at these institutions, and secondarily, increasing the overall transplant volume in the United States.

Thank you for pointing out that it wasn't an easy question. Building on that response, Waleed, I'm considering how this data could make an impact. I want to focus on the heart, as you have demonstrated the strongest utilization of OCS in heart indications. How do you think this data will influence OUS revenue growth? Have you received any feedback from international heart transplant surgeons? How do you see this facilitating the process?

Absolutely, absolutely. We hosted our annual user's dinner at the ISHLT, which had the highest number of guests we've ever had: nearly 180 guests, many of whom were international users. So they see the momentum, they see the data. And we expect that momentum to pick up. However, international revenue is always going to be plagued with the lack of reimbursement until we secure national reimbursement in each of these geographies. That being said, I have to also highlight one positive outcome that came from one of the least expected geographies: representatives of the UK transplant community, an NHS representative, came to us and wanted to invite us to go and discuss seriously with NHS the possibility of replicating the NOP in the UK transplant community. So again, this is some secondary positive momentum from highlighting the NOP or exposing the NOP publicly. And we expect to continue to see that; we've already seen countries like the Netherlands trying to implement the NOP with DCD hearts and successfully so throughout 2021. So we're excited about where we are, Josh, we’re excited about where this is going. Our goal is just to continue to have a steady hand and keep focusing on the fundamentals to ensure we are driving positive change and momentum while maintaining the highest quality results. I hope that makes sense.

Yes. That was very helpful. Thanks for the answers.

Thank you, Mr. Jennings. The next question is from the line of Allen Gong with JPMorgan. Please proceed.

Hey, guys, congratulations on a really great start to the year. I just had a few quick ones. Just looking at the performance you had in the quarter and looking at your original guidance, apart from Omicron maybe being a little bit less of a headwind than you might have contemplated initially, what you said already wasn't really a challenge to heart and liver. What really ended up being so much better than expected? Was it just much faster adoption of the NOP? Was there anything else that really drove this kind of outside performance relative to your own expectations?

The rapid adoption of NOP combined with the high volume of liver cases significantly contributed to the quarter's results. Additionally, early in Q1, Omicron may have had a negative impact on lung cases if it weren't for NOP, which helped improve the situation through February and March. Ultimately, it is the combination of NOP and the nearly doubled number of liver transplant cases compared to heart and lung that has driven the positive performance. Stephen, do you have a different perspective?

Yes, Waleed, and thanks Allen, I would just agree. It's really the acceleration of liver, in particular, especially at some pretty large liver centers, they're able to do a lot of cases in a very short amount of time. So once they experienced NOP and realized that it was going to work for them, they continued to use it throughout the quarter and that was above expectations, I would say, for Q1.

If you don't mind, I’d like to add an important point to what Stephen mentioned by sharing a story from the quarter. The largest liver transplant center in the United States, part of a major health system based in Rochester, Minnesota, had never participated in any of our trials for liver, heart, or lung using OCS. However, they became one of the top users of OCS Liver NOP in the first quarter. They are currently scheduling and staggering their liver transplant procedures, often performing two transplants simultaneously on two different OCS devices from different regions of the country through NOP. They arrange these so that they can carry them out first thing in the morning. This is a significant positive development. We aim to build on such stories and expand them. Additionally, one of the key centers involved in some competing technology trials has also emerged as a prominent user of OCS Liver technology in NOP during the first quarter, and we anticipate their continued growth with us throughout 2022.

Got it. I have a quick follow-up regarding Lung. Omicron has clearly posed significant challenges for Lung, which is why, despite being the first order and having the longest presence in the NOP, it continues to face difficulties. However, it's challenging to predict when the pandemic will officially conclude. What indicators should we be watching for that would suggest a turnaround in trends? Are there any changing guidelines that might help propel Lung to progress at the same pace as Liver and Heart? Thank you very much.

Thank you, Allen. That's a very important question. I don't believe you had the chance to attend ISHLT, but we announced a significant national initiative there aimed at doubling heart and lung transplant volumes in the U.S. over the next few years. We received an early positive response from leading lung transplant programs and large academic institutions in the country. We are organizing this movement, and we anticipate that by the end of 2022, specifically in Q4, we will see tangible growth in lung volume on OCS primarily through the NOP. We are closely monitoring the lung situation. We are not abandoning our focus on lung transplants; on the contrary, we believe the future for lung is promising. The NOP will facilitate a quicker recovery for lung transplants. By the end of this year, we hope to present clear evidence of how lung transplants are making a positive recovery in the U.S.

Thank you, Mr. Gong. The next question is from the line of Mike Ott with Oppenheimer. Please proceed.

Good afternoon, Waleed and Stephen. I'm on for Suraj tonight. Congrats on a strong start to the year and thanks for taking our questions. First one on the DCD Heart data last week. Was the greater proportion of moderate and severe primary graft dysfunction in the OCS group versus control. I think, you know, 20% versus about 9.1. Just that OCS had sicker patients and you have achieved the better survival we saw?

Thank you, Michael. The numbers were about 17% versus not about 10%. Actually, it's 15% versus 10%. PGD in DCD heart transplant has always been reported to be higher than DBD heart transplant. Remember, these are not normal hearts; these are hearts that cease to function. They stop beating, clinically dead hearts subjected to warm ischemic injury in the body of the donor until they were procured, chilled, and instrumented in OCS. That being said, whatever early hit that they took was recovered by OCS and resulted in excellent post-transplant outcomes. The PGD that we saw in DCD heart transplant didn't translate into survival outcomes. And that's not just in our randomized control trial; the data that was published from single-center and multicenter cohorts from the U.K. and Australia showed exactly the same numbers. In fact, the early data from Australia had a PGD rate of 40% and 45%. Yet the long-term survival outcome mirrored what we've experienced here in the U.S. randomized trials. So, I think this specific point was discussed when the data was presented and there seems to be a clear clinical consensus that PGD in DCD means something different. And it's not the PGD that we experienced with DBD heart transplants that has correlation to short and long-term survival. We will continue to look into this particular question throughout our post-market performance and it's an exciting time. The field is being transformed thanks to TransMedics technology and NOP programs. We plan to continue to collect post-market evidence and data to address all these important questions going forward, and hopefully, that will translate into clinical guidance updates and practice updates.

Okay. Thanks for that helpful and detailed explanation, Waleed. And then any rough estimates as to how many incremental DCD hearts could ultimately be transplanted here in the U.S.? One, 2000? Any estimates you could share at this stage?

That is a very difficult question to answer for several reasons. This topic was also raised during discussions after the data was presented. There is significant under-reporting of DCD donors in this country because they have primarily been used for kidney transplants and a few for liver. Therefore, estimating is quite challenging. However, based on the 2021 data, there were 3,000 DCD donors who donated a single organ in the United States that year. This DCD donor cohort experienced the highest year-over-year increase, approximately 30%, among all deceased donor rates in the country. Even if you reduce that number by half and apply an 89% utilization rate, there is a substantial opportunity to increase heart transplant volumes in the United States from DCD donors. We expect growth will continue as we can now use their organs for heart, lung, liver, and, of course, kidneys. The contribution from DCD donors will be significant, but the contribution from DBD donors will be even greater. We know that approximately 8,000 to 8,500 hearts go unused every year among DBD donors. With the OCS, we have shown that we can successfully transplant 85% of those hearts placed in OCS. Together, these factors give us strong confidence that we can double the rate of heart and lung transplants in the U.S. using DBD organs. Each year, the contributions from DCD will be an additional benefit.

Great. Thank you so much, Waleed, for answering our questions.

Thank you, Mr. Ott. There are no additional questions waiting at this time. So, I will now turn the call over to Waleed for closing remarks.

Thank you, operator. Thank you all very much for taking the time to be on our call and we're looking forward to speaking again after Q2 results. Thank you. Have a great evening.

That concludes today's call. Thank you for your participation. You may now disconnect your line.