By Bill Alpert

The business of harvesting organs for transplant has come in for scrutiny in a Tuesday hearing in Congress and recent articles in the New York Times. Concerns about transplants have also racked the stock of the leading transporter of donated organs, the Andover, Mass.-based TransMedics.

Shares in TransMedics soared tenfold in the last three years, as the company's aircraft and organ-transport devices helped boost the nation's volumes of liver, lung, and heart transplants. But the stock plunged from a peak of $177 last year, to $55 in January -- as volumes stalled in the fall, a short seller released a hard-hitting critique, and news reports raised alarms about the nation's transplant harvesting practices.

TransMedics stock recovered to a recent $111, as transplant volumes bounced back in the March quarter and the company responded to its critics. After the close of trading on July 30, it will report June quarter results. Investors will be looking for continued growth and reassurance that the growth won't be disrupted by competition or federal regulators.

Organs for those needing a transplant have always been scarce -- limited by the number of healthy donors that tragedy supplies, and by the challenge of transporting organs to recipients.

In 2018, TransMedics got approval for a device that runs warm, oxygenated blood through livers to keep them alive for longer journeys. Devices for hearts and lungs followed in 2021. The company even has surgeons and pilots that can cut organs from donors and deliver them to the accepting surgeon. It says it has delivered over 7,000 organs.

For those services, TransMedics charges upward of $100,000 per case. Revenue soared from $30 million in 2021, to $425 million in 2024, when Transmedics earned $29 million, or $2.23 a share (ignoring some substantial noncash expenses).

But growth slowed abruptly in 2024's September quarter, and the stock toppled from a peak where it had been trading at 100 times earnings. Then on Jan. 10 of this year, a scathing 340-page report appeared from Scorpion Capital, a hedge fund firm run by the tech stock veteran Kir Kahlon.

Citing customers at leading transplant centers, the Scorpion report challenged the qualifications of TransMedics' medical staff, alleged that its devices were used off-label for livers from older donors, and warned that hospitals were pushing back against the company's steep prices.

That's when TransMedics stock bottomed out at $55. The company disputed Scorpion's report as inaccurate and misleading, saying in a Jan. 13 press release that "the claims made in the Scorpion Capital report have no merits, and were primarily intended to manipulate the market for financial gains."

Neither Scorpion nor TransMedics immediately responded to Barron's requests for comment.

The company hired the law firm Covington & Burling to dispute a petition by Scorpion that had called on the U.S. Food and Drug Administration to suspend approval of TransMedics devices. On June 3, Scorpion posted on the social-media platform X an FDA letter, in which the agency said the petition raised issues that require "further review and analysis".

Sales rebounded in the March quarter, growing 18% sequentially from the December quarter. Since accounts receivable jumped 45% sequentially, TransMedics hadn't yet got paid by quarter's end on a good portion of those accrued revenues.

Then this week, the U.S. House Energy & Commerce Committee held a hearing on organ transplant procurement, continuing a series of earlier hearings. Short sellers anticipated more bad publicity for TransMedics.

As it turned out, the hearing focused on improvements needed in the country's transplant system -- especially in a troubled Kentucky network.

"The recent short approach of raising numerous and potentially misleading arguments to take down [TransMedics] is exhausting," lamented Oppenheimer analysts Suraj Kalia, in a note Wednesday morning. He rates the stock a Buy, with a $150 price target.

This debate isn't over.

Write to Bill Alpert at william.alpert@barrons.com

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July 23, 2025 17:42 ET (21:42 GMT)

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