.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 10px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 10px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 10px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} Dear Mr. Berko:

Dear B.W.:

Kinetic Concepts Inc. (KCI-$60) is right in your lovely back yard on the 8000 block of Vantage Drive, several blocks from your office. And KCI’s new CEO, Cathy Burzik, might treat you to lunch if you give her a call. She doesn’t fit the image of a chief executive officer; her enthusiasm, intensity and relentless drive will leave you dizzy. This lady is a class act.

KCI shares went public in February 2004 at $30, when revenues were $560 million, and the stock thundered to $79 by year’s end. The driving force behind KCI’s future is its revolutionary surgical healing and tissue-repair therapy used in hospitals around the world.

This high-tech wound- and tissue-repair treatment is called vacuum-assisted closure, or VAC. The system uses nonabsorbent foam, which is applied to the surgical site or wound and covered by a transparent membrane. Air is sucked from the trauma area surrounding the foam via a vacuum, creating a “negative pressure that hastens healing, prevents infection and lessens scarring.” Though VAC costs more than old-fashioned gauze dressing by a factor of 20, studies show that the faster healing so significantly lowers costs that VAC is competitive with gauze and tape.

The wound-treatment market is growing by bounds and leaps. Casualties from the wars in the Mideast, Iraq and Afghanistan – along with diabetic skin ulcers, accidents, increased surgical procedures and the treatment of certain viral infections – are increasing dramatically. The U.S. military recently approved Kinetic’s VAC on medical evacuation flights.

KCI owns a 90 percent share of the VAC market. There’s tremendous room for growth, because 90 percent of wound care still relies on low-tech, barbaric gauze-and-tape dressing. Three surgeons I know who use this system believe that in a dozen years VAC will be used by 50 percent of the hospitals in the United States. And it should, considering that healing and closure time can be reduced by 50 percent to 75 percent.

KCI is a $1.4 billion company, and VAC products account for 75 percent of revenues, which should grow to $2.5 billion in the coming four years. Earnings in 2006 of $2.60 a share may double to $5.20 in the next four years, and current free cash flow of $4.10 a share could top $8 by 2011 or 2012. Those are mighty impressive numbers.

Meanwhile, Burzik has developed strong ties with hospitals, nursing homes and home-care providers, as well as superb relationships with health insurers, which have widely embraced the VAC product. KCI’s only competitor, Blue Sky Products, generated a dinky $55 million in 2006 revenues.

Kinetic is now looking to expand its business in China and Asia and is in the process of completing a series of clinical trials in Japan. These countries should add big numbers to KCI’s revenues and earnings per share.

The shares trade at a respectable 23 times earnings, and the company has plenty of cash with which to finance acquisitions and continue spending on research and development. Jeffries & Co. and Deutsche Securities recently upgraded KCI to a “buy.” J.P. Morgan’s Michael Weinstein gives KCI a solid five-star ranking. Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service