PERTH, Australia – Sydney-based Cochlear Ltd. reported its first loss in 25 years due to the COVID-19 pandemic and a patent battle loss in the U.S.

For fiscal year 2020, which ended June 30, Cochlear reported a AU$238 million (US$170 million) loss in sales, down 186% from last year’s profit of AU$276 million.

Cochlear had a strong start to fiscal year 2020, Cochlear CEO Dig Howitt told analysts, with first half sales revenue up 9% and the second half saw sales spiral down 22%. Underlying net profit declined 42% due to the rapid drop in the second half from surgeries cancelled due to the COVID-19 pandemic.

“We are seeing recovery in surgeries but given the uncertainty, we’re not providing guidance for 2021 and will suspend dividends until we see trading conditions improve,” Howitt said.

As surgeries have started up again, Cochlear is gaining ground, particularly on the back of the launch of the Nucleus Profile Plus series cochlear implant in major markets. Sales of the new implant were growing 13% in the first half of the year but hit a wall in March as health care systems diverted resources to meet the demands of managing the pandemic, the CEO said.

“We are seeing variability across countries. We still have quite a way to go before we can confidently say the surgery market is recovered and we’re back to where we were,” Howitt said.

Sales in emerging markets started strong in the first half, with sales growing 20%, but emerging markets were down 50% at year-end compared to the previous year.

Dig Howitt, CEO of Cochlear Ltd.

"Surgeries in China are growing quickly, and we remain committed to continuing to invest in further growth," the CEO said, noting that Cochlear completed construction on a manufacturing facility in Chengdu, China.

"In other markets, including India and Latin America, surgeries have remained very low as COVID-19 cases continue to grow."

Cochlear implants make up 61% of Cochlear’s revenue, service accounts for 29% of revenue, and acoustics account for 10% of revenue.

In April, cochlear implant unit sales across the developed market declined by around 80% compared to the previous year.

“The U.S. and Germany are the biggest Cochlear implant markets, and without good performance there, we wouldn’t be in the place we are,” Howitt said.

Uncertainty over second wave

There is uncertainty around second waves of infection, he said, pointing to a recent drop in surgeries in Victoria due to a second spike in virus cases in Melbourne.

While the resumption of surgeries in the U.S., Germany, Japan and northern Europe has been quite rapid, there are still a number of markets with lower levels of surgery activity including the U.K., Italy and Spain.

“We don’t expect a nice linear recovery,” the CEO said. “We wanted to continue to invest in R&D, because we think there is more opportunity to strengthen our competitive positioning,” Howitt said, adding that the company also placed a high priority to keep its workforce intact.

“Our strategy remains unchanged,” he said. “We’ve had to adapt our strategy but we do want to retain market leadership. The strength of our field teams around the world put us in a strong position, and we need to continue to expand access,” he said.

To accomplish those goals, the company embarked on a AU$1.1 billion capital raise and $225 million in debt facilities to strengthen its balance sheet.

The funds raised helped the company support its normal business activities and R&D during the COVID-19 pandemic. It also gave the company needed cash in the face of a patent battle loss of $268 million.

In March, the U.S. Court of Appeals for the Federal Circuit Court affirmed a district court decision awarding patent infringement damages in a lawsuit brought by the Alfred E. Mann Foundation for Scientific Research (AMF) and Advanced Bionics LLC (AB).

“This case relates to two patents that are long expired,” said Howitt. “The court invalidated the first patent and the remaining patent was much narrower in scope. We believe the amount of damages awarded is out of proportion with the limited application of the patented feature.

Cochlear will seek an en banc review by the full court in a petition for a rehearing. That process is expected to take a few months, Howitt said in a conference call with analysts.

Although that decision is pending, a $75 million settlement was reached for prejudgment interest and attorneys’ fees, Howitt said.

Cochlear was able to keep its workforce intact, and its senior staff took pay cuts to battle the storm.

“We’re trying to use this year to strengthen our competitive position and invest in R&D to extend our product portfolio leadership,” the CEO said.

For example, Cochlear was able to make its programs more virtual and conducted training around its products, which strengthened relationships with customers and kept the company on track for growth once surgeries resumed, he said.

Cochlear had seven important approvals this year, and the timing was spot on to roll out its remote care solutions, including connectivity of the Nucleus 7 sound processor to the cloud, and the rollout of its Remote Check.

The U.S. FDA granted expedited approval for the Remote Check solution for cochlear implant users following increased demand for remote care due to the COVID-19 pandemic.

The system is the first telehealth patient assessment tool to provide performance data to clinicians. It aims to enable health care providers to quickly identify patients in need of audiological care during the pandemic.

“With many people around the world practicing social distancing, Remote Check provides recipients with the ability to continue to access a level of care at a time when many clinics are closed to in-person visits. The FDA’s expedited approval of Remote Check during the COVID-19 crisis underscores the importance of remote hearing care solutions – now more than ever,” the CEO said.

No Comments