Shares of TransMedics Group (TMDX -12.34%) were tanking 14.3% lower as of 10:46 a.m. ET on Friday. The big sell-off came after activist short seller Scorpion Capital released a scathing report about TransMedics.
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 overcharges for its services, bills fraudulently, “pushes unsafe, damaged organs rejected by reputable centers,” and uses unlicensed healthcare professionals, among other accusations.
Should TransMedics investors worry about these allegations?
Any allegations as serious as the ones Scorpion is making against TransMedics should be taken seriously. However, investors shouldn’t make a rash decision about selling shares until more information is available. TransMedics Group’s management had not responded publicly to Scorpion Capital’s report at the time of this writing.
Some of Scorpion’s allegations might seem questionable to anyone who has followed TransMedics. For example, the short seller stated that TransMedics is experiencing “an accelerating customer exodus, the fastest such stampede we have ever encountered.” But TransMedics reported a 64% year-over-year revenue increase in the third quarter of 2024.
Scorpion also claimed that TransMedics’ “device has no value proposition.” Yet clinical trials revealed significant increases in the utilization of donor organs for transplants using the company’s Organ Care System (OCS). Clinical outcomes were also much better with OCS.
An opportunity for TransMedics to respond
Members of TransMedics Group’s management team are scheduled to speak at the J.P. Morgan Healthcare Conference on Monday, Jan. 13. This will allow executives to respond directly to Scorpion’s allegations if they choose to do so. I suspect they will address the allegations head-on. TransMedics shareholders and investors interested in the stock could then potentially have more information to decide their next steps.
Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends TransMedics Group. The Motley Fool has a disclosure policy.
