Cochlear: keeping an ear to the ground
Further to our previous posts on possible advances being made by Cochlear’s competitors, we were pleased recently to gain some insight from a call hosted by Deutsche Bank with a large implant clinic in the US.
Some of the main points that emerged include:
• For that clinic, Cochlear remains the dominant choice for patients, but market share has slipped slightly to 65-70% from 70-75% 12 months ago.
• This is thought to be due to competitors having launched good products recently. Interestingly, the clinic did not think much of it was due to patients waiting for Cochlear’s Nucleus 6 device (as previously indicated by Cochlear).
• Med-El has been the main beneficiary of Cochlear’s market share decline, moving to 20-25% from 15-20%. More recently, the latest launch from Sonova/Advanced Bionics has impressed practitioners, and is expected to be well received by patients.
• Offsetting this, it is expected that any market share gains and losses will occur slowly, given Cochlear’s large installed base. In making a choice, users seek feedback from other users, and Cochlear has a large number of satisfied customers.
• Some mild pricing pressure is apparent, with hospitals pushing for standardisation on a single brand to extract volume-based discounts. This is a feature of the US healthcare sector generally.
Overall, this feedback supports the hypothesis that competitors are closing the technology gap on Cochlear, but also highlights the advantage that Cochlear has built over the years in the form of a large installed base and strong reputation.
It’s possible that Cochlear may experience some short term share price weakness on the back of market share losses and a softer US market, but longer term, it may be a mistake to underestimate Cochlear’s ability to reassert its market dominance.
Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Grant van Rij
:
What is a reasonable downside valuation risk for Cochlear? For instance, if you assumed that it’s competitive advantage was being chipped away and expected it’s market share to reduce by say 15% over the next 10 years, what would the business be worth?
Roger Montgomery
:
Thats exactly what the analysis should look like.
eoin.cuinn
:
It will be interesting to see what the outcome of the upcoming tender in China will be. If Nurotron Biotechnology can prove they have a good product, we could see more pressure on Cochlear in years to come.