Sonova Reports 10 Percent Increase In Hearing Aid Sales And Resumes Cochlear Implant Shipments

Sonova Group, parent of the Phonak and Unitron hearing aid brands, issued a preliminary financial report announcing that its hearing-aid sales increased 10.1 percent in the 2010-2011 fiscal year, powered by strong market acceptance of its high-end hearing aids based on its new Spice sound processing hardware and software platform.

The Swiss holding company also announced that it is resuming sales of its cochlear implants outside the U.S. following approval by European regulators of manufacturing changes that it says solved its product quality problems with its Advanced Bionics cochlear implants following a worldwide recall after problems surfaced with several of its implants. The company also said it is filing notice of the manufacturing changes with the U.S. Food and Drug Administration (FDA) to gain approval for resuming sales in North America as well.

Sonova, which was rocked by an insider-trading scandal that resulted in the resignations of its chief executive officer and chief financial officer in April, said overall sales for the group, which includes its implant business as well as hearing protection products, grew 7.8 percent in the fiscal year. The company said it will report complete results for the fiscal year on May 24.

How Big An Impact Will Departures of Sonova CEO and CFO Have On The Company’s Hearing Aid Brands?

The resignations of Sonova Group CEO Valentin Chapero and CFO Oliver Walker following improper stock transactions was an unwelcome surprise to a hearing aid industry still struggling to revive sales growth following the global economic recession. Sonova is the world’s leading hearing aid manufacturer, owner of well-known brands including Phonak and Unitron (hearing aids), Advanced Bionics (cochlear implants), and Lyric extnded-wear hearing aids. Chapero was an industry leader known for a strategy that combined aggressive investments in new technology and expansion of sales channels as well as growth through acquisition. His abrupt departure raises obvious questions about what effect the changes will have the hearing aid brands sold by its subsidiaries.

The management shakeup came after the Sonova board of directors determined that a March 16 financial projection warning of lower than expected sales and profits should have been made earlier, and that Chapero, Walker and other insiders with knowledge of the impending lower forecast sold stock before the announcement, avoiding a loss in the value of their shares when their prices fell after the public announcement. Sonova Chairman Andy Rihs, who built the company from a family-owned hearing-aid concern to a publicly held global leader, also stepped down from his position as chairman, but he remains on the board of directors. Swiss regulatory authorities are investigating.

The Sonova board’s quick appointment of Alex Zschokke as interim CEO and Paul Thompson as interim Chief Financial Officer made it clear the company intends to continue on the course charted by Chapero. Zschokke has run Sonova’s marketing and retail operations and has been a motivating force behind the company’s drive to develop and introduce new products based on its new Spice sound processing platform. And Thompson is a long-term Sonova financial executive whose most recent position was Group Vice President of Corporate Development.

At this week’s American Academy of Audiology (AAA) AudiologyNOW conference in Chicago, Sonova brands will make multiple announcements demonstrating continued forward motion: Phonak will be introducing a new member of its Naida high-power hearing aid family based on the Spice platform, Unitron will introduce its new Era sound processing platform that shares many of the Spice platform technologies, and the company’s Sona brand will introduce another version of its field-upgradeable hearing aids.

But now the company must deal with a major unexpected change in its leadership and an insider trading investigation, even as it continues to work its way out of the problems that caused the March 16 profit warning, including a recall of its Advanced Bionics cochlear implants. When I wrote that Sonova hit a “speed bump” with its March 16 profit warning, little did I know it was also about to land in a pot-hole.

Cochlear Ltd. Sales Increase Points To Growing Global Demand For Cochlear Implants, Including Bilateral Sets

Cochlear Ltd. reported a 16 percent increase in profits for the first half of its fiscal year on a 20 percent increase in unit sales of its cochlear implants, pointing to a strong recovery from the recession as well as a growing number of patients opting for a second implant to get bilateral hearing from both ears.

Cochlear CEO Chris Roberts told The Wall Street Journal that strong growth in sales in developing markets where cochlear implants have only recently been introduced indicated acceptance of the implant technology to restore hearing has gone global, providing a positive outlook for long-term growth of Cochlear and the implant industry. He added that in North America and Europe where cochlear implants are well established, there is growing demand for bilateral implants providing stereo sound from restored hearing in both ears. Currently, fewer than 10 percent of patients have a second implant, providing another opportunity for strong growth in the industry.

Roberts also downplayed the market impact of the recent recall by Sonova Group of its Advanced Bionics (AB) subsidiary’s Hi-Res 90K cochlear implants due to a product malfunction. He told BusinessWeek that cochlear implant patients are slow to switch brands and that financial analysts overestimated the positive impact the recall may have had on Cochlear Ltd.’s sales. Sonova CEO Valentin Chapero Rueda last week indicated AB’s cochlear implants could be back on the market by April. There are only three global suppliers of cochlear implants: Cochlear Ltd. is the global leader, Advanced Bionics is the second largest player in the market, and Med-El of Austria is third.

Sonova CEO Says Recall Of Advanced Bionics Hi-Res 90K Cochlear Implant Might Be Over By April

Bloomberg News confirmed that Sonova Holding AG is working feverishly to fix the problems that spurred a global recall of the Advanced Bionics (AB)Hi-Res 90K cochlear implant and hopes to end the recall as early as April or at the latest by the autumn of this year.

Sonova CEO Valentin Chapero Rueda earlier this week indicated in an interview with the Swiss newspaper Handelszeitung that the AB cochlear implants could be back on the market by April, but a Sonova spokesperson clarified the projection in the subsequent Bloomberg story, saying “There’s also a likelihood it could be autumn. Nothing’s final.” Read more

Sonova To Cut Staff In Wake Of Advanced Bionics Cochlear Implant Recall

The Wall Street Journal reported that Sonova Holding AG, parent of worldwide hearing aid market leader Phonak and other brands of hearing-aid and hearing-implant suppliers, will speed up an ongoing reorganization and cut staff by as many as 100 employees following the decision by its subsidiary Advanced Bionics (AB) to pull its cochlear implant products off the market until product quality issues are resolved. In November, the U.S Food and Drug Administration (FDA) announced that Advanced Bionics is voluntarily recalling its HiRes 90K cochlear implant device following two instances of a malfunction that required the surgical implant’s removal after “recipients experienced severe pain, overly loud sounds and/or shocking sensations at 8-10 days after initial activation of their device.” Read more

While William Demant and GN ReSound Fought Over Otix, Sonova Widened Its Hearing-Aid Industry Market Lead

As GN ReSound and William Demant battled over who would win the battle to acquire Otix Global this fall, hearing-aid industry leader Sonova stuck to its knitting and on Nov. 16 claimed it has widened its market share lead. But at the same time, all three of the publicly traded hearing-aid manufacturers hinted they have turned the corner after several years of anemic growth in the global recession.

Sonova, parent of Phonak and other hearing-aid brands, reported more than eight percent organic growth in the first six months of its fiscal year in addition to revenue gains from the acquisitions of cochlear implant maker Advanced Bionics and InSound Medical, developer of the “invisible” Lyric hearing aid. With the growth in the global hearing aid market projected at no more than five percent in 2010, Sonova’s growth, powered by a slew of successful new products introduced over the past two years, earned it a substantial increase in market share. However, in the same report, the holding company lowered its earnings forecast for the remainder of the year, disappointing investors looking for earnings growth combined with faster revenue growth in the industry. Read more

Bidding War Breaks Out For Otix Global As William Demant And GN ReSound Vie For Market Share In Consolidating Hearing Aid Industry

A bidding war has broken out for Otix Global, maker of Sonic Innovations hearing aids and one of the world’s seven largest hearing-aid manufacturers, with William Demant Holding today matching GN ReSound’s $58 million (USD) acquisition bid. GN ReSound last week had topped William Demant’s initial $50 million bid to acquire the struggling U.S.-based company. Today’s $58 million, $10-per-share matching offer by William Demant, parent of global hearing-aid brands Oticon and Bernafon, demonstrates it remains intent on acquiring the Sonic Innovation brand to increase its share of the global hearing aid market. There was no immediate response from GN ReSound parent GN Store Nord on whether it will keep the bidding war going by responding with another higher bid. Read more

Will HearingPlanet Still Give Objective Advice About Other Hearing Aid Brands When It Is Owned By Phonak Parent Sonova?

Audiology Online published an intriguing interview yesterday with a senior executive of the The Sonova Group, parent of the Phonak, Lyric and Unitron hearing-aid brands, among others, on why Sonova acquired HearingPlanet, the popular web site that provides detailed information on multiple hearing-aid brands for potential customers. In the AudiologyOnline Q&A, Sonova Group Vice President Alexander Zschokke says the acquisition will enable Sonova to “provide more leads” to the audiologists and other hearing health care professionals who dispense Sonova’s hearing aids. But the one question the interview doesn’t ask is, “Will HearingPlanet still give objective advice about other hearing aid brands when it is owned by Phonak’s parent company?”

HearingPlanet’s success for more than a decade has been based on its ability to offer objective advice to potential purchasers of hearing aids who may be confused about the many choices among different manufacturers’ brands, form factors, product types, and prices. On its web site, HearingPlanet notes that with “numerous brands and styles available,” hearing-aid buyers should “compare prices and technology across brands” and “choose a hearing care provider which offers multiple brands and models so that you can find the right hearing aid for your needs.” It goes on to provide a wealth of information that will help you research the various choices in the market, including a fact-filled comparison chart on 18 different hearing-aid brands that includes major features and pricing.

So there seems to be a potential built-in conflict between Sonova’s stated desire to use HearingPlanet to send more buyers to dispensers of Sonova-owned hearing aid brands, and HearingPlanet’s traditional mission to provide objective advice about multiple brands so customers will find the product that suits them best, regardless of the brand. Of course, this is the real world of commerce, where conflicts of interest abound (see: Goldman Sachs), and it would be self defeating for HearingPlanet to change its winning formula for one that favored one manufacturers’ brands over all others. As of today, the only possible sign of favoritism is the fact that Phonak is the first brand name on the HearingPlanet comparison chart, but that’s not a big deal — anyone who doesn’t look past the first entry on a comparison chart isn’t really looking for comparative information anyway. Otherwise HearingPlanet looks much the same, and we will see if the site changes at all over time.

The acquisition is an interesting example of the consolidation trend in the hearing-aid industry. Phonak’s CEO Valentin Chapero several years ago unsuccessfully attempted to reduce the number of hearing-aid manufacturers with global reach by making a bid to acquire GN ReSound (the acquisition was thwarted by a German antitrust court ruling, which, though later overturned, ended the acquisition bid for good). Since then, financial analysts have said the global hearing aid industry might consolidate through other mergers, through the leading manufacturers increasing their market share, and through the major players acquiring their distribution channels to capture more revenue and gain leverage from vertical integration.

HearingPlanet is a spectacularly successful generator of highly qualified leads to audiologists — in the interview, Sonova’s Zschokke notes that even though most of the people who go to HearingPlanet have never worn a hearing aid before, more than fifty percent of the patients HearingPlanet refers to a hearing health professional in its network go on to purchase hearing aids. So Sonova is smart to want to own HearingPlanet to make sure the leads keep coming to Phonak and its other brands. But let’s hope Sonova doesn’t kill this golden goose by undermining HearingPlanet’s traditional objectivity, depth of information, and excellent advice in any way.

Race To Acquire Siemens Hearing Aids Heats Up As Cochlear Ltd. And Synthes Join Fray

Reuters quotes sources saying Cochlear Ltd., one of three global suppliers of cochlear implant devices as well as a leader in bone-anchored hearing aids, intends to join two private equity firms in making a multi-billion dollar bid for Siemens Hearing Instruments, which is being spun off by its parent company. The report also says Synthes, a global medical equipment manufacturer, also will join the bidding.

This is a huge story for the hearing aid industry, which is going through a wave of consolidation as the leading global players try to simultaneously gain market share by broadening their distribution at the low end of the market while building war chests for a new generation of R&D-led innovation at the high end of the market. Putting the very high end digital technologies required for cochlear implants under the same roof as mainstream digital hearing aids will give a shot of much-needed energy into high-end hearing-aid innovation. Read more

Six Bidders Compete To Acquire Siemens Hearing Instruments

Siemens has narrowed down the list of potential acquirers in its auction of the Siemens Hearing Instruments business to five private equity firms plus one strategic acquirer. Siemens is among the top five hearing aid companies worldwide but, according to news reports, its shrinking sales and profit margins lagged industry leaders Sonova and William Demant in 2009. News reports put the value of the unit at more than 2 billion euros ($2.88 billion US). The winning bidder is expected to be picked by the end of February. I can’t wait to see whether the newly independent entity will inject a shot of investment and growth into a hearing-aid industry that’s badly in need of new competitive energy.

Next Page »