As we broke the news yesterday that Sonova’s (symbol: SOON:VX) Phonak division will be selling premium hearing aids for $1349 at Costco “big box” stores in North America, a price that is about what dealers pay, it not only will badly damage sales of Phonak and Unitron hearing aids to independent hearing aid providers, but also to audiology clinics. However, in a case of “The Dog That Didn’t Bark” it’s also going to hurt Sonova’s Advanced Bionics division, which is only now just recovering from their devastating November 2010 implant recall, their fifth in a decade.
What analysts in Zurich (and Sydney and Copenhagen) need to bear in mind when looking at the potential sales dollar volume that Costco will provide is that not only will many independent dispensers and audiologists stop dispensing Phonak and Unitron hearing aids — Which are sold at a much higher price — but that virtually all of AB’s 200+ US CI also dispense Phonak hearing aids, which in the age of ObamaCare, are barely keeping their speech & hearing programs afloat (and in some cases, the entire hospital outpatient clinic afloat) by selling hearing aids as their sole profit center, barely breaking even if not losing money on the rest of the departmental services. These speech and hearing programs not only sell hearing aids, but also the CI audiologists &/or surgeons also recommend which of the three brands to implant. Given that the list price for a HiRes 90k surgical kit and two processor kit is $31k, with typical centers paying a discounted price of $24k, it doesn’t take too many lost AB implant sales, which will be hidden, to more than offset any gains in low-margin volume Phonak hearing aid sales to Costco, hence “The Dog That Didn’t Bark” applies to our analysis of lost Sonova profits.
► The winners: Cochlear (symbol: COH:AU), privately held Med-El, and Wm Demant (symbol: WDH:DC), which purchased French CI maker Neurelec last year, and is already busily designing an all-new 16-electrode implant with fully independent bipolar current sources similar to the HiRes 90k, to be sold under the Oticon label, including in the large US market.
► Oh, And By The Way, watch for market leader Cochlear to make a bid for GN ReSound, from which they already license & are in production with ReSound’s 2.45 gHz wireless & Bluetooth technology, even though last week the Dusseldorf Appeals Court threw out GN’s $1.5 billion lawsuit against the German Cartel Office for improperly nixing the 2006 sale of ReSound to Sonova; and Cochlear’s aborted attempt to buy Siemens’ hearing aid division in 2009. However, we also wonder if Cochlear’s board had considered ReSound’s Costco sales as having a potential negative impact on their CI400 cash cow, and hence decided to not touch the Danish hearing aid manufacturer~
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