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KCI tops wound therapy market

KCI tops wound therapy market

SAN ANTONIO, Texas - You want dominant market share? KCI has it. Analysts at Wachovia Capital Markets estimated in August that KCI owns a whopping 89% share in the $1.2 billion market for negative pressure wound therapy (NPWT). That jibes with information HME News obtained from CMS in July. In ranking the top 100 HME providers for total Medicare allowed charges in 2006, CMS reported that KCI checked in at No. 4, with $159.3 million. (That's not chicken feed, but it's well behind Lincare, the top HME provider with $781 million in allowed charges in 2006.) For KCI, future challenges revolve around maintaining that dominant market share and preserving its earnings amidst downward reimbursement pressures. Here's Wachovia's analysis of the market for negative pressure wound therapy and KCI's place in it: 4 NPWT is an effective treatment and is gaining share in wound care. NPWT uses pressure to treat severe wounds. The vacuum created by an NPWT system both maintains pressure on the wound and removes exudate. Clinical data from at least five randomized controlled trials shows that KCI's V.A.C. system improves healing of challenging wounds. 4 Entry barriers are substantial but Smith & Nephew may be a viable competitor. Wachovia believes that Wall Street may have underestimated the significant barriers facing NPWT competitors, including clinical data that supports KCI's negative pressure products; distribution (KCI has 1,900 sales reps, 1,200 in the United States.); billing and collections (KCI has 200 billing specialists); and group purchasing organization contracts (sales to Novation were 13% of KCI's 2006 sales). That said, Smith & Nephew has entered the NPWT market with its BlueSky Medical acquisition and has a wound management sales force of 915 (172 in the United States). Medela has also entered the market. 4 Reimbursement risks are significant. For home use, KCI collects reimbursement directly from insurers; any cuts to reimbursement have a direct impact on KCI's revenue and margin. Given growth in Medicare NPWT spending (up 444% from 2001-2005 to $163 million), Wachovia believes that CMS is focused on reducing lucrative reimbursement for NPWT ($1,673 per month in 2005). The therapy has been included in the first round of national competitive bidding.

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