Coloplast's recent Q2 earnings call presented a mixed bag. While the company showcased a positive overall performance, a looming challenge emerged: a proposed Local Coverage Determination (LCD) policy change by Medicare that could significantly impact Coloplast's biologics business, Kerecis.

The LCD Bombshell: A Potential 660 Million DKK Loss?

The draft LCD policy, focusing on cost-effectiveness and robust long-term clinical data, has excluded Kerecis fish skin grafts. Coloplast, citing a recent study showcasing superior wound closure rates, believes this exclusion was an oversight and expects swift reinstatement.

However, the policy shift signals a potential roadblock. While Coloplast's Lantis study demonstrated promising short-term results, it lacks the long-term data on sustained wound closure and recurrence rates now prioritized by Medicare. This omission raises concerns about the study's efficacy beyond the initial 12 weeks.

The potential financial impact is substantial. If Kerecis achieves its targeted 30% CAGR over the next three years, reaching a revenue of 1.1 billion DKK by 2027, a continued LCD exclusion impacting 20% of its revenue could result in a cumulative loss of 660 million DKK over this period.

The Spillover Effect: A Future Dependent on Long-Term Data

The concern extends beyond the immediate outpatient market disruption. The LCD draft calls for increased scrutiny of clinical evidence across all settings, potentially impacting the currently stable inpatient market, which constitutes 80% of Kerecis' revenue. If long-term data become the gold standard for biologics reimbursement, even in acute care, Kerecis could face further challenges.

Coloplast's Response: Transparency and the Need for Long-Term Data

Coloplast, known for its social responsibility and transparency, exemplified by its consistent high scores on employee engagement surveys and its "Meet the Management" event, faces a crucial juncture. While the Lantis study provides a foundation, bolstering their argument with comprehensive long-term data is vital for securing Kerecis' place in Medicare's evolving biologics landscape.

Visualizing the Impact: Kerecis Revenue Breakdown

Coloplast's Financial Performance

While Coloplast maintains its long-term EBIT margin target of more than 30%, the Kerecis LCD exclusion and the recent 20% reduction in Kerecis' earn-out provision inject uncertainty. The dilutive effect of the acquisition, combined with potential revenue loss, could pressure margins.

Coloplast's Key Financial Data:

The Road Ahead: A Fishy Future Hangs in the Balance

Coloplast's "fishy future" hinges on their ability to adapt to Medicare's shifting biologics landscape. Providing comprehensive long-term data is crucial. Failure to do so could see their ambitious 30% CAGR target for Kerecis flounder, impacting Coloplast's projected growth.

"Fun Fact: Coloplast's commitment to transparency extends beyond financial reporting. The company's "Meet the Management" event offers investors direct access to the leadership team, fostering open dialogue and trust."