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Kinetic Concepts (KCI) |
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WIKI ANALYSIS
Kinetic Concepts, Inc. (NASDAQ: KCI) is a medical technology company that makes V.A.C.® Therapy, a bedside instrument that uses sub-atmospheric, or "negative" pressure, to promote wound healing. This platform constitutes 80% of the company's sales and makes KCI the second largest in the advanced wound care market (by market share).[1]
KCI also has the largest market share in the therapeutic support and regenerative medicine markets.[2] The company's therapeutic support systems are designed to address pulmonary complications associated with immobility, to reduce skin breakdown in hospitalized patients, and assist caregivers in the handling of obese patients
KCI has increased its market share in wound care through both geographic and market expansion. Advanced wound care sales rose after KCI obtained Medicare reimbursement for V.A.C. Therapy for home use in addition to acute hospital care. In addition, KCI has several wound care pipeline products for treating severe and surgical wounds due in 2010. Currently based mostly in North America, KCI has announced plans to expand its products into the Eastern European and Asian markets.[2]
Corporate Overview
Major Product Segments[3]
- Active Healing Solutions (70.6% of net sales) - the primary product in this category is the V.A.C.® Therapy is a bedside instrument that uses sub-atmospheric, or "negative" pressure, to promote wound healing.[4] The clinical effectiveness of V.A.C.® Therapy has been shown in published studies that reach back to beyond 10 years ago,[5] and several studies have shown that lower hospital stays and complication rates are associated with use of V.A.C.® Therapy compared to rival systems.[6] It is KCI's major platform for the $4.5 billion Advanced Wound Care market, in which KCI has the #1 market position. KCI sells V.A.C.® Therapy systems in the U.S., where its systems address approximately 3 million patients worldwide, and in the European Union, where its systems address approximately 13% of the 2 million acute wounds annually. KCI's strategy to increase revenue centers around increasing market share in these current markets, expanding into Asian markets (around 1.25 million wound market), and expanding the V.A.C.® Therapy market to treat lower acuity wounds (4.5 million) and surgical incision wounds (5.2 million).
Systems in Pipeline In 2010, KCI plans to release its next line of Negative Pressure Wound Therapy (NPWT) products. The Futura system is marketed for low acuity wounds that require some, but not all of the functions of the current V.A.C.® Therapy, while the VING system is marketed for wounds that require additional therapy in addition to V.A.C.®. Also in 2010, KCI plans to release the TE-Wound and TE-Ortho for soft and hard tissue regeneration, respectively.
- Regenerative Medicine (14.3% of net sales) - the Regenerative Medicine business unit, operated by the company's wholly-owned subsidiary LifeCell Corporation, or LifeCell, develops, processes and markets novel biological soft tissue repair products made from human or animal sources that have been uniquely designed to harness the body’s natural healing processes to promote remodeling and regeneration of lost or damaged tissue while restoring function and well-being. Products include allograft-based regenerative tissue matrix products (AlloDerm Regenerative Tissue Matrix and Cymetra among other brands) and xenograft-based reconstructive tissue matrix prodcuts (Strattice Reconstructive Tissue Matrix and Conexa Reconstructive Tissue Matrix).
- Therapeutic Support Systems (15.1% of net sales) - KCI offers a wide array of Therapeutic Support Systems (TSS), which are essentially medical care beds that provide vital medical support for patients. These TSSs are designed for the wound care, bariatrics, and critical care markets. These TSSs provide therapy for treatment of pressure sores, ulcers, and other skin conditions that develop in immobilized and hospitalized patients.
KCI's wound care TSSs include the KinAir and TheraPulse systems, which provide pressure reduction and relief, pulsation, alternating pressure, and continuous turning at a minimum of 20 degrees. KCI's bariatric TSSs are designed for obese patients who weigh up to 850 pounds. These systems, including the BariAir, AirMaxxis, and BariMaxx, come with patient lifts and transfer systems that ease the necessity to assist these patients. KCI's critical care TSSs, including the Kinetic Therapy and Prone Therapy products are designed for Intensive Care Unite (ICU) patients. These systems help prevent pulmonary complications in ICU patients and rotate them properly as needed for therapy. KCI has plans to expand its TSS systems geographically into Canada and the European Union for its bariatric line and Eastern Europe for all product lines.
Business Growth
FY 2009 (ended December 31, 2009)[7]
- Net revenue increased 6% to $1.99 billion. Sales from the active healing solutions and regenerative medicine segments increased by 0.9% and 82.3% respectively. This was offset by an 8.2% decline in revenue from the company's TSS segment. Sales in North America increased by 8.3% while international sales fell by 0.9%.
- Net income increased 37% to $229 million.
Trends and Forces
KCI's revenue model is affected by the new medicare competitive bidding program
The Centers for Medicare and Medicaid Services (CMS) has rules to establish a Competitive Bidding Medical Reimbursement program for a class of medical devices that includes KCI's products. These rules split geographic regions into ten competitive bidding areas (CBAs), in which medical device companies must bid separately for coverage. The rules aim to decrease the tendency of single suppliers to gain nation-wide reimbursement, and enable smaller suppliers to competitively bid the price down in their regions of focus.[8]
The demand for KCI's products is highly dependent on reimbursement from third party payers such as medicare. If reimbursement prices are lowered by this new policy, either KCI's margins will be decreased or demand for their products will decrease by pushing more of the price burden onto patients.[9]
Geographic expansion of KCI's products affects its valuation
Much of KCI's strategy for increasing revenue revolves around expanding the market for its products to areas such as Eastern Europe and Asia. Such an expansion poses both marketing and regulatory risks for KCI. Successful marketing of its products to these new areas, requires overcoming cultural barriers as well as geographic barriers and challenges of setting up new sales forces. In addition, KCI's products must be approved by the regulatory agencies of each country before they are marketed. Whether KCI is able to successfully expand into these regions and attain market share affects its valuation.
The success of KCI's new V.A.C.® products affects its valuation
KCI has several new V.A.C.® products in its pipeline that are due for release in the coming years. In order to be cleared for marketing, these products must receive clearance from the Food and Drug Administration (FDA) that they are safe and effective enough to use in clinical care. If approval is granted, KCI will face further hurdles in establishing its new products in markets that are currently not covered by its sales force (surgical wound repair and non-acute wounds). KCI's ability to get its new products approved for marketing and establish these products in their new markets impacts its valuation and its revenue because V.A.C products represent a majority of the company's revenue.
Competition
Advanced Wound Care and Therapeutic Support Systems
KCI's V.A.C.® Therapy systems compete with wound care dressings, skin substitutes, and other medical devices that promote wound healing. The entire wound care market is estimated to be around $13 billion. Key competitors to KCI include Johnson & Johnson (JNJ), Hill-Rom, Covidien Ltd. (COV), Smith & Nephew SNATS (SNN), and ConvaTec.
References
- ↑ KCI: NPWT and V.A.C.® Therapy
- ↑ 2.0 2.1 KCI 2009 10-K "Corporate Strategy" pg. 4-5
- ↑ KCI 2009 10-K "Information Related To Business Unites" pg. 7-23
- ↑ KCI: NPWT and V.A.C.® Therapy
- ↑ V.A.C.® Therapy Clinical Journal Abstracts Page
- ↑ V.A.C.® Therapy: Economic Value
- ↑ KCI 2009 10-K "Selected Financial Data" pg. 49
- ↑ CMS: FINAL RULE (CMS 1270-F)
- ↑ KCI 2009 10-K pg. 31
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