News: Cochlear ready to launch game-changing devi

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Transcription of Finance News Network Interview with Cochlear CEO, Doctor Chris Roberts



Donna Sawyer: Hello I’m Donna Sawyer from the Finance News Network and joining me from hearing implant manufacturer Cochlear is CEO, Dr Chris Roberts. Chris welcome to FNN.



Dr Chris Roberts: Thank you very much Donna.



Donna Sawyer: You had record Cochlear implant unit sales of more than 26,500, but you say second half sales were somewhat stalled. Why was that?



Dr Chris Roberts: Well in the second half, we made some announcements about the next generation sound processor, Nucleus 6 and so it was the upgrade sales that stalled. So these are situations where people already have an implant, already have an external processor and they’re looking to replace that with a next generation device. But as we announced Nucleus 6, then the impact of that is to slow those sales. So our upgrade sales were down $24 million for Fiscal 13, compared to Fiscal 12. But those sales just moved to another accounting period, because those people will buy those upgrades when the new products are released.



Donna Sawyer: That leads me to my next question. Tell me about your Nucleus 6 product, is it a game changer?



Dr Chris Roberts: Yes Nucleus 6 as a sound processor is absolutely a game changer. We’ve been working for five plus years on the next generation of custom integrated circuits, that are going to drive the electronics of this system. And the extra computational power allows us to do a whole range of things. For example, it allows us to add to our pre-processing of the sound and automate that. So the program seamlessly glides from one program to another program, depending on the auditory environment in which the recipient is in. We’ve had the experience with the pre-processing strategies, this is our third generation but the previous generations, the recipients had to manually change the program. Now the device does it automatically.



We’re able to add extensive data log in. We’re also able to add an acoustic component to amplify the lower frequencies, in conjunction with the electrical stimulation for higher frequencies, for recipients with residual hearing. And the fact that every single Nucleus 6 sound processor can be converted very inexpensively, to have an acoustic component and people can try to see, what they can get out of this combination of electrical and acoustic stimulation. And there’s other features as well, this Nucleus 6 will support streaming digital audios and wireless accessories.  And it’s all packaged together in the smallest sound processor ever.



Donna Sawyer: Cochlear has reiterated its commitment to investing in research and development. Can you put a figure on that investment and what are you hoping to achieve from it?



Dr Chris Roberts: So you’re quite right; we’ve invested significantly into research and development. And last year $120/$130 million worth of investments were made into research and development, all of which were expensed. But we’re doing that because we fundamentally believe that technologic innovation is what’s going to drive this market. Technologic innovation allows us to improve outcomes – hearing outcomes and lifestyle outcomes of our recipients, and allows us to broaden indications. And it allows us to introduce new products that help scale what the healthcare professionals can do; simplification, automaticity, remote conoctivity and the like, to increase patient access.

And what we’re doing in this year Fiscal 14, is releasing a whole slew of products that come out of our product portfolio. Not only Nucleus 6, but we have other products like our next generation sound processor for our Baha system, the Baha 4. And we’re introducing a transcutaneous Baha system, the Baha Attract that complements our third cutaneous system, our Baha Connect. We recently received a CE Mark for a Codecs product which is an acoustic implant. So there’s a whole range of products that we’ve really brought to market, because of our significant investments in research and development.



Donna Sawyer: Asia Pacific sales were up 20 per cent, supported by the Chinese tender sale of about 2,800 units. China is clearly an important market for you, but it seems there is increasing competition there with Sonova also winning a Chinese government tender, as well as the recently announced Chinese rival Neurotron product approval. Are you concerned about competition in China?



Dr Chris Roberts: So think that China’s one market in many markets and maybe just some comments about competition in general. I think that this is not a zero sum game. I think that there’s huge opportunity to continue to grow this market. And so to have a number of competitors helping to grow the market, makes a lot of sense. In terms of China – China is an important market, because we’re seeing a rise in growing middleclass and that’s the real opportunity in China today, but in particular down the track.



Now how the Chinese healthcare system will evolve is a little bit uncertain. It will evolve, the Chinese central government made an announcement they would buy some Cochlear implants centrally for a number of years, but only as a transition. There was a period of transition over four years, only as a transition to a more developed healthcare environment in China. So I think it’s important to think about how the Chinese market will look in a number of years’ time and also to understand, even today, there are multiple tiers. There’s a private pay market, there’s a donation market, there’re tenders come from provincial governments, there’s tenders from the central government. So I think that China’s story is a lot more than only the central government tender.



We did actually supply something like 2,800 Cochlear implants into China as part of a major central government tender, in Fiscal 13. And that certainly was a contributor to our Cochlear implant unit growth in Fiscal 13. But you know Asia Pacific consists of many countries, not only China and Asia Pacific is still only 20 per cent of our global business.



Donna Sawyer: More broadly speaking, how do you plan to compete as more players enter the field?



Dr Chris Roberts: What we need to do is keep our foot on the accelerator of technologic innovation. What we can do to work with healthcare professionals globally, to sort of see the future clinically, of how they want to be managing their patients. And what we can do with technology, to develop products that are very relevant to how they want to manage patients. Nobody is out-innovating Cochlear, in terms of the breadth of products and the impactful nature of the products that we’re developing.



Donna Sawyer: So what are you telling investors in terms of your growth strategy going forward?



Dr Chris Roberts: Yes as I mentioned, we’re doing a lot of work around technologic innovation and broadening our suite of products, but it’s not only about that. We’re making significant investments in market growth initiatives, working with our healthcare professionals and recipients globally to figure out what’s the best way, or what services we have to develop. And what’s the best way to keep communicating these messages, given that awareness is one of the single biggest barriers to this market growth.

So it’s about developing our online presence for example, our online strategy. Strategy round our entire customer experience to help people, to encourage them to entice them to come into healthcare professionals and discuss their situation – make sure they get engagement with that. And then really come down with us, with this journey for their life of implantable devices to help them with their hearing. But it’s also doing this across the globe, so it’s our global presence. So it’s sort of a mixture of technologic innovation, of broad product suite, coupled with our market growth initiatives, taken to the market with a global footprint perspective.



Donna Sawyer: Finally Chris, what are some of the key things Cochlear is hoping to achieve in Fiscal 2014?



Dr Chris Roberts: Yeah Fiscal 14 is a very, very busy year; we have a range of products that we’re rolling out. Fiscal 14 is characterised by finally getting the products into the market that we’ve been investing in from our research and development, to spend over the five plus years. That includes Nucleus 6 and we now have launched Nucleus 6 in Europe. That occurred in September and indeed, in September - the end of September, in the United States. We also have recently received regulatory approval in Australia for Nucleus 6, and that product will be rolling out in Australia shortly.



We also have regulatory approval for Baha 4 Sound Processor in Europe and the USA and that product will be launching in November. We also have regulatory approval in Europe for Baha Attract, which is our transcutaneous bone conduction system. And we’re in a control market release in a number of markets, primarily Europe, but also other markets like Australia. We recently received the CE mark for our Codecs device, our acoustic Cochlear implant device in Europe. So we’re sort of starting our control market release with that product as well.

And we have other scalability products. When I say scalability, I mean products that help the audiologist either test the device inter-operatively or program the recipient, either activation or post activation. There’s sort of a range of products, so it’s a really, really very busy year for Cochlear in Fiscal 14.



Donna Sawyer: Dr Chris Roberts thanks for the update on Cochlear.



Dr Chris Roberts: Thanks very much Donna.



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