Kinetic Concepts Verdict's Competitive Effects

With the legal stance on negative-pressure wound therapy patents reversed, competition with companies such as Smith & Nephew may continue unabated

Julie Stralow, CFA 20 October, 2010 | 9:49AM
Facebook Twitter LinkedIn

Late Monday, Kinetic Concepts (KCI) reported that the US District Court for the Western District of Texas decided the patent claims licensed by KCI from Wake Forest University were invalid, effectively reversing the jury verdict from March. While this is somewhat surprising, we've long held that KCI would continue seeing more competition for its top product set, V.A.C., from companies such as Smith & Nephew (SN.). We've seen the effects of increasing V.A.C. competition on KCI's results for the past couple of years, which has primarily decelerated growth. If this decision stands, that competition may continue unabated. While we've been relatively cautious about the benefits KCI could receive from the jury's verdict last spring, this decision may cause us to re-evaluate our fair value estimates for KCI and Smith & Nephew. We'll dig in further and could make adjustments to our cash-flow assumptions for the next couple of years. However, since our valuations are based on long-term cash-flow assumptions, which already adjust for the changing competitive landscape in the V.A.C. product set, we don't expect to make big valuation adjustments, if at all.

Read Morningstar’s full research report on Smith & Nephew.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Smith & Nephew PLC1,179.50 GBX-0.88Rating

About Author

Julie Stralow, CFA  Julie Stralow, CFA, is a senior securities analyst with Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures