The problem with investing in binary outcomes is that they sometimes come up "zero."
That could prove to be the case for Kinetic Concepts
In a trial in U.S. District Court, a jury found that Kinetic Concepts' patents were valid and enforceable but that BlueSky's Versatile 1 product did not infringe them. As you might expect, Kinetic Concepts is going to appeal this decision. The process could take a long time, and investors should assume that the company has a steep hill to climb.
This ruling could have a pretty scary impact on results. BlueSky is almost certainly going to continue positioning itself as a lower-cost alternative to Kinetic Concepts' vacuum-assisted wound-closure products, and that could lead to competitive -- meaning "lower" -- bidding with Medicare. Moreover, any number of companies might see this as a possible invitation to develop their own products and enter the market. If a company like Hospira
Kinetic isn't helpless, though. It has longstanding relationships with managed-care groups, as well as clinical data on efficacy that BlueSky's product doesn't have. By the same token, while Kinetic management is right when saying that clinical outcomes matter, it's equally true that the cost of therapy also matters. And if potential users deem the BlueSky product "good enough," that's a problem.
Keep in mind, too, that Kinetic wasn't exactly lighting things up recently with its own performance and that this wound-healing technology represents about three-quarters of the business. Suffice it to say, then, that the outlook for the company has gotten a lot murkier in just the past 24 hours. Perhaps there's money to be made here going against the panic selling, but I'm not sure that's a bet I'd take when there are other options, such as St. Jude
For more Foolish thoughts on med-tech:
- Kinetic Concepts Approaches a Binary Outcome
- Zimmer Providers Quarterly Information, and More
- Taking St. Jude's Pulse
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).