Scorpion Capital, on Friday, disclosed a short seller report on TransMedics Group Inc (NASDAQ:TMDX), accusing the organ transplant technology company of fraudulent practices, including kickbacks, billing fraud and unreported device failures.
Scorpion alleges that TransMedics engages in “mafia-style” practices, including coercion, billing fraud, and the manipulation of organ allocation, operating under the guise of a legitimate medical device company.
The report sets a price target of $0.
The company said the allegations are inaccurate and misleading.
“We strongly believe that the claims made in the Scorpion Capital report have no merits and were primarily intended to manipulate the market for financial gains,” TransMedics said in a statement.
Also Read: TransMedics Ushers In New CFO, Tightens 2024 Revenue Goals
The report said TransMedics operates like an airline with a medical device component, trading at an expensive valuation of seven times its last 12 months’ revenue.
By a more relevant metric, enterprise value to product sales, the ratio is 10 times – which Scorpion Capital describes as extraordinarily high, especially as sales are declining.
This makes TransMedics the most expensive mid-cap medtech company in the U.S. and the third-highest overall, behind Intuitive Surgical Inc (NASDAQ:ISRG) and Glaukos Corporation (NYSE:GKOS), according to Scorpion Capital.
Even at a more reasonable multiple of 5 times product sales, TransMedics’ stock would drop to the $30 range.
The company has no free cash flow and only recently turned slightly profitable, a trend likely to reverse with declining sales.
Scorpion stated in its report, “TransMedics is the most extreme and grotesque healthcare fraud we have encountered, not only for its scale, but because it is predicated on the exploitation of the most vulnerable patients — the terminally ill, desperate for an organ.”
The short seller alleged that TransMedics “pushes unsafe, damaged organs rejected by reputable centers, as an unplaced organ means loss of device and aircraft fees, with TransMedics allegedly concealing adverse organ information.”
Scorpion Capital announced plans to file a Citizen Petition with the FDA, requesting the suspension of Premarket Approval (PMA) for TransMedics’ Organ Care System (OCS). The short seller also said it intends to send a public letter to members of Congress probing abuses in the U.S. organ transplant system.
In April, the FDA granted PMA to the OCS Heart System for use with organs from donors after circulatory death, following a PMA approval of the System after brain death received in September 2021.
Price Action: TMDX stock is down 12.6% at $60.10 at last check Monday.
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