Cochlear (ASX:COH)

Diggory William Howitt
Market Cap (AUD): 12.69B
Sector: Health Care
Last Trade (AUD): 222.09 +2.24 (+1.01%)
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1. About

Cochlear is the global leader in implantable hearing solutions with products including cochlear implants, bone conduction implants, and acoustic implants. Cochlear commenced operations in 1981 as part of the Nucleus group and in 1995, listed on the Australian Securities Exchange.

Cochlear aims to support cochlear implantation becoming the standard of care for people with severe to profound hearing loss and provide bone conduction implants for patients with the conductive hearing loss, mixed hearing loss, and single-sided deafness. The Company has provided more than 550,000 implant solutions to recipients who benefit from one – or two – of the Company’s implantable devices. Whether these hearing solutions were implanted today or many years ago, Cochlear provides new technologies and innovations for all recipients. Cochlear invests more than $160 million each year in R&D and currently participates in over 100 collaborative research programs worldwide.

Cochlear’s global headquarters are on the campus of Macquarie University in Sydney, with regional headquarters in the Asia Pacific, Europe and the Americas. Cochlear has a deep geographical reach, selling in over 100 countries, with a direct presence in over 30 countries and a global workforce of over 3,500 employees.

2. Business model


The Company operates the following divisions:[1]



Revenue ($000)

% of Revenue

% of Profit (before Int & Tax)

Profit drivers[2]





Growth has been driven by new product introductions and the success of awareness building initiatives which continue to drive overall market growth rate

EMEA (Europe, Middle East and Africa)




Revenue increased by 12% (7% in CC). Unit growth in the UK was the highlight, with solid growth across many countries in Western Europe. Like the US, Western Europe is benefiting from the expanded field sales organisation and direct-to-consumer marketing which are building awareness of cochlear implants and driving demand at clinics

Asia Pacific




Revenue increased by 4% (5% in CC). Australia and Japan experienced solid unit growth, with private pay and non-tender business in Greater China growing strongly. Solid unit growth was delivered across a number of smaller countries in the region driven by a combination of tender activity, expanded indications and Cochlear’s growing presence.
Overall sales revenue at the regional level was impacted by Chinese Central Government tender units. The FY18 result includes around 1,100 Chinese Central Government tender units compared to around 1,900 in FY17

3. Strategy


Cochlear aims to support cochlear implantation becoming the standard of care for people with severe to profound hearing loss and provide bone conduction implants for patients with the conductive hearing loss, mixed hearing loss, and single-sided deafness.[3]

Cochlear’s priorities are centred on the customer with activities aimed at growing awareness and access to the industry for implant candidates. And with a growing recipient base, the Company is actively strengthening its servicing capability to provide products, programs, and services to support the lifetime relationship with recipients.

Cochlear is committed to being the technology leader in the industry by investing in R&D to improve hearing outcomes and expand the indications for implantable solutions.

Cochlear’s strategic priorities aim to:

  • A global leader in implantable hearing devices with more than 550,000 implants sold, supporting the majority of the global base of hearing implant recipients
  • Long-term market growth opportunity with a significant, unmet and addressable clinical need for implantable hearing solutions and less than 5% market penetration
  • Unrivaled commitment to product innovation, bringing innovative new products to market as well as upgrades for all generations of Cochlear’s recipient base
  • Growing annuity income stream from servicing of the expanding recipient base
  • Strong free cash flow generation provides funding for market growth activities and R&D as well as the ability to reward shareholders with a growing dividend stream

4. Markets


The Company operates in the market including:[4]



Industry Revenue (2018)

Growth rate (annual 13-18)

Medical Devices Manufacturing (US)

$40 billion


Medical and Surgical equipment manufacturing (Australia)

$4 billion

5.1% (Annual 14-19)

Audio Visual Electronic Equipment Manufacturing (Australia)

$2 billion


5. Competition


Major competitors include:[5]


  • Zimmer Holdings Inc (NYSE: ZBH)
  • CryoLife , Inc. (NYSE: CRY)
  • Smith & Nephew Inc (LON: SN)

6. History



Graeme Clark Inspired by his close relationship with his deaf father, Graeme Clark begins researching the possibilities of an electronic implantable hearing device. A young Clark (pictured in back) in Australia 1949 with his parents and younger siblings



Dr. Graeme Clark is appointed Professor and Chairman, Department of Otolaryngology, The University of Melbourne



Mona Andersson is the first recipient of a bone conduction hearing implant (Baha) in Gothenburg, Sweden. “I remember how excited I felt after the first fitting,” Mona recalls, “because for the first time since childhood I could actually hear the birds singing"



Professor Graeme Clark receives research grant for "The Development of a Hearing Prosthesis". Professor Clark, determined to discover a way to get the electrode placed securely in the inner ear– finds a solution by experimenting with a blade of grass and a small turban shell on the Minnamurra Beach in New South Wales, Australia. He also discovers the importance of a graded stiffness in the design of the electrode



Engineers Jim Patrick (left) and Ian Forster (right) present the circuit diagram for the Mastermos silicon chip designed to provide circuitry for one of the ten stimulus channels of the first bionic ear. Today Jim Patrick is a Senior Vice President and the Chief Scientist for Cochlear Ltd.



Rod Saunders was the world's first cochlear implant recipient to show the benefit of multi-channel stimulation. After his sound processor was turned on, Rod excitedly jumped up and saluted, indicating that he could hear "God Save the Queen" being played to him. It works! Clinical data from Rod's implant helps drive the cochlear implant industry



Rod Saunders uses a portable speech processor: (PSP) and handheld microphone with Richard Dowell, who is the current Head of the Department of Otolaryngology at the University of Melbourne



A medical device group, Nucleus, becomes interested in the potential of Professor Clark’s work. Eventually, Nucleus and Cochlear (the company was officially formed later during the early 1980’s) and the Australian Government would partner to develop a commercially available implant and bring it to market. We know it today as the Nucleus® multi-channel cochlear implant



Portable speech processor with magnet-less headset is created. George Watson, sthe econd recipient, spends time in programming with Joe Tong



Paul Trainor is given AU$4million to start commercial development of the multi-channel cochlear implant. Trainor was the owner of the Nucleus group, which included Telectronics, an Australian heart pacemaker firm. Trainor directed the team of expert bio-engineers that would ultimately bring the Nucleus multi-channel cochlear implant to commercial market. Cochlear global headquarters established in Sydney, Australia



The first commercial Nucleus implant (the Nucleus CI22) was implanted at the University of Melbourne. The recipient was Graham Carrick, aged 37 years. The ability to hear again marked a life-changing moment for Graham, providing him with confidence and hope. “Giving people hearing is giving them life,” he said



In 1982, three years after receiving his cochlear implant, Rod Saunders receives a new wearable speech processor (WSP)



A small team establishes the Americas office outside Denver, Colorado             



Nucleus established as the first multi-channel cochlear implant system to obtain clearance from the FDA for use by profoundly deaf adults 18 and over. The Nucleus Mini22 implant with the WSP (Wearable Speech Processor) was the first multi-channel device to receive FDA pre-market application approval. First Nucleus cochlear implant surgery takes place in Japan



The first two research pediatric cochlear implant procedures take place at the Royal Victorian Eye and Ear Hospital. Professor Clark keeps company with the first two pediatric cochlear implant recipients; Scott Smith on right (10 years) - first child - and Bryn Davies (five years) on left-- second child 1985. Clinical trials for cochlear implant for children begin in the US



The Bionic Ear Stamp release by the Australian Postal Service. European Cochlear Office established in Basel, Switzerland in 1987 with four employees. Currently, there are approximately 115 Cochlear employees in the Europe region



Holly McDonell, at the age of four, is the first pediatric recipient of a commercial Nucleus cochlear implant. She still has her original implant and has had five sound processor upgrades. With my cochlear implant, I was able to happily attend mainstream schools and successfully achieve my own personal and career goals,” said Holly at age 26



Nucleus 22 recipients are upgraded from their original WSP to the smaller mini speech processor (MSP). The new processor is much smaller and lighter than the WSP; it has the MPEAK speech coding strategy, providing improved performance; and the smaller size makes it more suitable for children



Cochlear opens offices in Tokyo, Japan. A few years later, in 1991, Nucleus is established as first cochlear implant system to receive approval in Japan



The US FDA approves the Nucleus Cochlear Implant System for children aged 2 to 17 years, the first cochlear implant to be approved by a regulatory body for use in children. This milestone makes Nucleus the most widely accepted system with recipients in more than 70 countries worldwide



One of the first pediatric cochlear implant recipients Pia Jeffrey is featured on the Sydney Telephone Directory. Her picture was taken by a local newspaper and captured the moment when she first heard sound – “her face lit up!” Cochlear celebrates the 5,000th Nucleus recipient



Cochlear celebrates the 10,000th Nucleus recipient. Spectra processor upgrade for Nucleus 22 users. This utilizes SPEAK, an improved speech coding strategy providing fuller, richer, more natural sound



Cochlear becomes successfully listed on the Australian Stock Exchange (ASX). Cochlear Ltd continues to be one of the most high profile companies in Australia


1997 – 1998   

The first implant capable of performing Neural Response Telemetry (NRT™), used to provide an objective measurement of the hearing nerve’s response to electrical stimulation (NRT). This allows medical professionals to test the hearing nerve to make sure it is functioning properly. NRT also facilitates programming of infants who are not able to provide subjective responses needed when adjusting the implant system


1997 – 1998   

SPrint – the powerful bodyworn speech processor is introduced. SPrint™ technology is based on a powerful Digital Signal Processor (DSP). The first MRI-safe implant up to 1.5 tesla is introduced



The first multi-channel BTE processor introduced – the ESPrit. A speech processor worn entirely behind the ear, freeing recipients from long cables and extra components. This innovation eventually benefits the first cochlear implant recipients, giving them option of the smaller behind the ear model



Nucleus 24 cochlear implant released. The new implant offers technical advancements including an electrode designed to provide more direct stimulation. Also includes the removable magnet for MRI and the Nucleus standard titanium casing. 20,000th person receives a Nucleus cochlear implant


1999 – 2000   

Nucleus ACE speech coding strategy is developed and introduced by the engineers at Cochlear. ACE is designed to customise sounds by combining the benefits of pitch information of the SPEAK strategy, with the higher rates of stimulation offered by the CIS strategy. The result is an advanced strategy that can be customised to meet each person's hearing needs



The Nucleus 24 Contour perimodiolar electrode array is introduced and receives the Australian Design Award.. Judges said it was "an outstanding example of innovative design and development which makes a major contribution to improving people's quality of life around the world”



The fourth upgrade for Nucleus 22 recipients. Sets industry standard of a Lifetime Commitment in providing a BTE option for recipients implanted many years before



Queen Elizabeth II and the Duke of Edinburgh make a visit to the Bionic Ear Institute in Melbourne Australia. Her Majesty is interested in learning about the cochlear implants, and is introduced to several recipients, including Bryn Davies, who was the second paediatric recipient in 1986



Marije Meijer, at age four months, was one of the first Baha Softband recipients. The Baha Softband received FDA approval in 2002. Marije’s parents are so happy with her progress and explain, “We have seen a huge difference in the way Marije responds to us and to her surroundings since she has been wearing the Baha Softband”



Cochlear celebrates their 30,000th Nucleus recipient. BJ Perez of San Antonio, Texas at the Houston Ear Research Foundation. Cochlear was honored for the outstanding design of the Nucleus® 24 Contour™ cochlear implant. The award was presented to Cochlear at the prestigious 2001 Medical Design Excellence Awards in New York City



Nucleus® 24 Contour Advance™ is introduced. Unique Softip feature designed to protect the delicate cochlea structures. The Softip takes the science behind the Contour to the next level. The Contour Advance is Cochlear’s premier implant and continues to be introduced worldwide



ESPrit 3G introduced as part of the new Nucleus 3 system. The new behind-the-ear speech processor is compatible with the Nucleus 24 and Contour implants. ESPrit 3G is the first speech processor with an in-built telecoil, making phone use more accessible



“Baha makes it effortless to hear at work” says Anne-Marie. “Now, since I have no ‘bad side’ I’m able to be more active and involved in discussions. And I never miss a joke!”



Heather Whitestone McCallum becomes a Nucleus recipient. She is the first woman with a disability to be crowned Miss America (1995). In 2004 she visited with students at the Mount View State School in Victoria, Australia who like herself have a Nucleus cochlear implant



The Graeme Clark Scholarship aims to support cochlear implant recipients who wish to further their education with university studies. The first winner in Australia was Holly McDonnell, who is 1987 at the age of four was the first pediatric recipient of the commercial Nucleus cochlear implant



Professor Clark becomes an Honorary Fellow of the Royal Society of Medicine. He takes his place among other scientists including Sigmund Freud, Charles Darwin, and Louis Pasteur



New ESPrit 3G for Nucleus 22 gives the earliest recipients to the latest speech processor technology. This processor is the fifth upgrade for the earliest Nucleus recipients. Cochlear reaches more than 60,000 Nucleus recipients worldwide - more than any other cochlear implant manufacturer



Nucleus® Freedom® system released. Offers input processing technologies designed to emulate natural hearing and is the industry’s first water resistant sound processor



Advanced digital sound processing and built-in directional microphone for focused listening



Advanced digital signal processing, extra power, and reduced size



Freedom is compatible with all previous Nucleus generation implants, giving recipients access to the latest hearing innovations

Combines both a cochlear implant and hearing aid technologies to overcome high-frequency loss. High-frequency sounds are sent to the cochlea via the implant. Simultaneously, low-frequency sounds are amplified and sent through the ear canal via the acoustic (hearing aid) component

Specifically designed for sufferers of high-frequency hearing loss. The Hybrid implant bypasses damaged hair cells in the high-frequency hearing zone to provide recipients access to high-frequency sounds which are vital for understanding speech



Latest cochlear implant system, introducing the CP810 sound processor and the first ever remote  assistant

Baha BP100 Sound Processor more than 25% improved speech understanding in noise compared to previous Baha sound processors



In 1991, at age 83, Jack Walley received his Nucleus® 22 implant at the University Hospital Birmingham, UK. Jack’s daughter Pat says: “The cochlear implant changed his life completely. Dad has always been keen on music and electronics – mending televisions and radios was his hobby. Once he found out about cochlear implants, there was no stopping him from having one”



First bone conduction implant to utilise an advanced surface technology (TiOblast™), which can reduce the time it takes for the implant to bond with bone. This allows the recipient to access sound sooner



Cochlear to launch Nucleus Profile Implant Series in Europe



Cochlear to expand global capacity



Cochlear gifts USD 10 million to Johns Hopkins Bloomberg School to fund hearing loss and public health research

7. Team


Board of Directors[7]


Rick Holliday-Smith – Chairman

Dig Howitt – CEO & President

Yasmin Allen – Non-Executive Director

Andrew Denver – Non-Executive Director

Donal O'Dwyer – Non-Executive Director

Glen Boreham, AM – Non-Executive Director

Alison Deans – Non-Executive Director

Prof Bruce Robinson, AM – Non-Executive Director

Abbas Hussain – Non-Executive Director


Management Team


Dig Howitt – CEO & President

Brent Cubis – Chief Financial Officer

Jennifer Hornery – Senior Vice President People & Culture

Dr. David N. Cade – Chief Medical Officer

Greg Bodkin – Senior Vice President, Manufacturing & Logistics

David Hackshall – Chief Information Officer

Jan Janssen – Chief Technology Officer

Rom Mendel – President Acoustics

Dean Phizacklea – Senior Vice President of Global Marketing

Stuart Sayers – President Services

Anthony Bishop – President Asia Pacific

Richard Brook – President, European Region

Tony Manna – President, North America

Ray Jarman – Company Secretary[8]

read more

8. Financials


2018 Full Year Results Presentation


Financial Year 2017/18 (ended 30 June)[9]



Revenue ($’000)

% Change

Profit (before Int & Tax) ($’000)

% Change






EMEA (Europe, Middle East and Africa)





Asia Pacific










9. Risk


Major risks include:[10]


Product innovation and competition

Cochlear is exposed to the risk of failing to develop and produce innovative products for customers. Increased competition exposes Cochlear to the risk of losing market share as well as a decrease in average selling prices in the industry. Cochlear is also exposed to the risk of medical, biological and/or technological advancement by third parties where alternative products or treatments are developed and commercialised that render Cochlear’s products obsolete for future candidates. This could result in a loss of new business


Infringement litigation

Cochlear operates in an industry that has substantial intellectual property and patents, designs and trademarks protecting that intellectual property. Cochlear is exposed to the risk of litigation for alleged infringement. This could result in Cochlear paying royalties to be able to continue to manufacture product, or paying damages and/or receiving injunctions preventing Cochlear selling products it had developed


Misappropriation of know-how and intellectual property

Cochlear is exposed to the risk of its know-how and intellectual property being misappropriated either through hacking of its systems or by employees, consultants and third parties who from time to time have access to Cochlear’s know-how and intellectual property. This could result in competitors using this information and increasing their competitiveness. Cochlear could lose market share as a result


Medical device and Regulation

Cochlear operates in a highly regulated industry. Medical devices are subject to strict regulations, including data security, of regulatory bodies in the US, Europe, Asia, and Australia as well as many other local bodies in countries where Cochlear’s products are sold. Regulatory bodies periodically perform audits at Cochlear’s manufacturing sites. If Cochlear or a third-party supplier fails to satisfy regulatory requirements or the regulations change and modifications are not made, this could result in the imposition of sanctions or Cochlear’s products being subject to recall and/or the loss of sales and reputational harm. Changes to medical device regulations or delays in achieving regulatory approval can impact Cochlear’s ability to sell its latest technology..



The majority of Cochlear’s customers rely on a level of reimbursement from insurers and government health authorities to fund their purchases. There is increasing pressure on healthcare budgets globally which may lead to pressure on reimbursed prices. Cochlear may also be subject to healthcare related taxes imposed by government agencies and this could negatively impact the ability of candidates to access Cochlear’s products.


Product liability

The manufacturing, testing, marketing and sale of Cochlear’s products involve product liability risk. As the developer, manufacturer, marketer and distributor of certain products, Cochlear may be held liable for damages arising from the use of its products during development or after the product has been approved for sale..


Interruption to product supply

Cochlear relies on third-party suppliers for the supply of key materials and services. This carries the risk of delays and disruptions in supplies. Certain materials are available from a single source only and regulatory requirements make substitution costly, time-consuming or commercially unviable. Cochlear manufactures its latest generation products across five sites globally. There is the potential risk of disruption to sales should a manufacturing facility be unable to operate. Any new manufacturing facility will require regulatory approval prior to being able to produce and sell a product made at this facility. This approval could take many months.


Political, economic or social instability

Cochlear sells in over 100 countries. Several of the emerging markets are heavily biased toward tender sales, including the Chinese Central Government tenders. The future outcome of tender sales is uncertain. Regional political, economic or social instability could negatively impact sales and the receipt of payment for sales


Foreign exchange rates

Cochlear is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currencies of the legal entities. The currencies in which these transactions primarily are denominated are Australian dollars (AUD), US dollars (USD), Euros (EUR), Japanese yen (JPY), Sterling (GBP), Swedish kroner (SEK) and Swiss francs (CHF). Over 90% of Cochlear’s revenues and over 50% of costs are denominated in currencies other than AUD.



Cochlear’s exposure to credit risk is influenced by the geographical location and characteristics of individual customers. Cochlear does not have a significant concentration of credit risk with a single customer. The majority of significant debtors are governments, government-supported universities, and clinics or major hospital chains


Interest rates

Cochlear is exposed to interest rate risks in Australia.



Operational risk is the risk of direct and indirect loss arising from a wide variety of causes associated with Cochlear’s processes, personnel (including executive transitions), technology and infrastructure and generally accepted standards of corporate behaviour. Operational risks arise from all of Cochlear’s operations. These risks could result in the loss of sales and reputational harm


Information security

Cochlear handles and stores personal information, including health information, for its customers and employees. With expanding information privacy and security regulations, and an increasingly hostile cyber environment, Cochlear recognises information privacy and cybersecurity as an increasing risk.


Talent management

Cochlear operates in a very competitive environment, particularly in relation to attracting scientific talent into the group.


Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, and equity prices will affect Cochlear’s net profit or the value of its holdings of financial instruments.

Currency risk

Cochlear is exposed to currencies other than the respective functional currencies of the controlled entities, primarily AUD, USD, EUR, GBP, Swedish kroner (SEK), (JPY) and Swiss francs (CHF).
Over 90% of Cochlear’s revenues and over 50% of costs are denominated in currencies other than AUD. Currency risk is hedged in accordance with the treasury risk policy. Risk resulting from the translation of assets and liabilities of foreign operations into Cochlear’s reporting currency is not hedged.

Interest rate risk

Cochlear is exposed to interest rate risks in Australia and Japan


Credit risk

Credit risk is the risk of financial loss to Cochlear if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Cochlear is exposed to credit risk from its operating activities (primarily from trade and other receivables) and from financing activities, including deposits with financial institutions and foreign exchange contracts. The carrying amounts of these financial assets at year-end represent Cochlear’s maximum exposure to credit risk.


Liquidity risk

Liquidity risk is the risk that Cochlear will not be able to meet its financial obligations as they fall due. Cochlear manages liquidity risk by ensuring, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due.


  1. ^ Annual Report 2018 P.69
  2. ^ Annual Report 2018 P. 20
  3. ^ Annual Report 2018 P. 8 - 11
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  9. ^ Annual Report 2018 P.69
  10. ^ Annual Report 2018 P. 25 - 28, 92 - 95