A key European conference for Cochlear implants returned after a 5-year absence, providing valuable insights into the next-generation products. COH has two near to medium-term launch opportunities, the first being trials of a platform with both implanted and external processors, where simultaneous stimulation through multiple sources is key to facilitating new and innovative speech coding strategies. The second is a Totally Implantable Cochlear Implant (TICI) with initial trial data showing positive results.
TICI development has been underway for 2 decades, however, we expect that launch could be within the next few years. COH has acquired and developed the 4 key components needed for a fully implantable device, the chassis, processor, battery and microphone. The largest challenge is implanting a microphone capable of eliminating body noises; however, the acquisition of Carina provides implanted microphone and valuable software capabilities. Initial data presented at the conference showed positive sound quality results.
TICI alleviates patient concerns surrounding the inconvenience and aesthetic factors by removing external components, however, this presents issues with commercialisation as it lacks processor upgrades at 5-year intervals throughout a patient’s lifespan, unlike current products. There may be offsets to this through some routine replacements of lower-cost external microphones, or fees for software upgrades. In our view, the initial commercial model may just simply be a significant upfront cost which is not uncommon for new technology but makes reimbursement challenging as regulators don’t often pay for vanity. We are anticipating a launch date in CY25 which would help cement COH’s technical lead over its competitors.
No material competitor updates were presented at the conference. The general perception of MED-EL is that ‘electrodes’ are its core strength, and Advanced Bionics focuses on ‘connectivity’ with its parent Sonova. COH has competing products in both areas, with reliability and other intangible factors key to its competitive advantage.
Investment View
COH’s continued market leadership should see it retain and grow its market share. Key product innovation will sustain earnings upgrade momentum for COH. Whilst it is expensive at ~45x PER, we consider COH a long-term holding and we retain our Buy recommendation.
Figure 1: We expect continued earnings momentum driven by elective surgery volume recovery and new product launches supported by the rolling buy-back program
Risks to Investment View
Any further implementation of Covid restrictions would impact elective surgery volumes. There is always the presence of technology risk in this industry, so COH must maintain high standards in its product development.
Recommendation
We have retained our Buy recommendation.
