Dig Howitt, Cochlear’s incoming CEO, talks about the innovations in hearing implants, including a world first Made-for-iPhone cochlear implant sound processor.
Introduction: The worlds first made for iPhone cochlear implant sound processor
Ross Greenwood: One of Australia’s great companies, every Australian understands the technology and the smarts behind the business of Cochlear. Of course, the bionic ear, we all hear about that, the cochlear implant. This is the key to a company that is not only significant here in Australia but also overseas as well. Now, do bear in mind the Cochlear from really, an infant company. Something that was actually created, formatted here that right now, it is an international company that’s expecting a profit over the next 12 months of between 240 and 250 million dollars. Think of the tax, think of the employees, think of the tax they pay. That always comes from ingenuity here in Australia.
Remember, that goes all the way back into the 1970s. And then over time, not only is that cochlear implant improved significantly over the years, so that a person whose got genuine hearing problems, can now start to hear and distinguish sound that we played sometimes on the program, just the way in which its developed over the years. But also on top of this is the latest Nucleus 7 Sound Processor, is described as the first made for iPhone Cochlear implant and sound processor. It really is quite something.
So this is either profits are there, the science is there. This is the type of company that almost is the poster child for what business should be in the future here in Australia. Well, there is a new president at Cochlear taking over from Chris Smith as Chief Executive, Dig Howitt is on the line right now. Many thanks for your time, Dig.
Interview with Dig Howitt, CEO Cochlear (ASX:COH)
Dig Howitt: Thanks, Ross. Happy to be talking to you.
Ross Greenwood: You must have been, in some ways getting this job, you’d have been kind of blessed to think that this is the sort of business, the sort of science, even the sort of goodwill towards the business that’s out there in the community and really around the world.
Dig Howitt: Yes, Ross. Look, it’s a real privilege to be given the opportunity to lead Cochlear. It is, as you said, the kind of amazing Australian company built on Australian technology and continued investment in Australia. We’re very proud of our heritage and very proud of our success.
Ross Greenwood: Okay. Implant sales over the last year grew by 8% or if you exclude, say, for example, Chinese government tenders, you spoke about that today, and explain that to me, by 14%. Just explain what is the volatility when it comes to the Chinese government.
Dig Howitt: Yes, the Chinese government is one of the biggest buyers of Cochlear implants in the world. They run a tender system. Over time, we’ve done very well in most tenders but this year, part the timing and part because we missed out on a tender, our tender sales to China fell from last year. Actually, last year was a record for us from sales to China. So that does provide volatility to the underlying business when we take that out. That 14% is very strong rush.
Ross Greenwood: So in regards to China being such a big consumer of the product and given the fact that it’s such a large market, because of its growing middle class, is it now a case where the healthcare system means that it really could be long term, your most important client?
Dig Howitt: Yes, we see that China, it’s now the second biggest market for Cochlear implants in the world by volume. It will continue– we believe that the China market will continue to grow over the very long term and therefore, it’s a very important market for us. The government there and the people there, see the benefits of Cochlear implantation, particularly the children, who can grow up with normal speech, go to a normal school, get a great education, and then participate fully in the world and in all of the opportunities that they can have with a great education.
Ross Greenwood: The brilliance of the company right now is that I mentioned the profit and the strength of that profit 223 million dollars this year, you’re forecasting between 240 and 250 million dollars next year, is you’ve now got the financial strength to be able to try and fill in some of the gaps to really make yourselves long term, far more sustainable. So that you are not as subject to competition in what has been in the past, a relatively competitive market place. I’m referring here to the acquisition you made back in May, the company Sycle. Just explain exactly why that is so important to filling the gaps in terms of making certain that more people can potentially be cochlear customers.
Dig Howitt: It’s a great point. It’s very important for us to continue to reinvest in the business, given there is so much opportunity and Sycle is a good example. Sycle is the market leader in hearing aid practice management software in the US. That software, that hearing aid seldom was used to manage appointments, to keep records, and so on. For us, one of the big opportunities is people as they age lose their hearing and to many of those people, they get to a certain point where hearing aids still give them sound but don’t give them real understanding. And at that point, they would be better with the Cochlear implant.
Our acquisition of Sycle helps us understand that hearing aid channel and give us the opportunity to educate people who sell hearing aids on the benefits of a Cochlear implant. It’s one of our biggest challenges that while we are well known in Australia, there are still people who don’t know us in Australia, but around the world, there’s enormous opportunity for us to be better known, in particularly for the benefits of getting a Cochlear implant when you reach a certain level of hearing loss. How significant a benefit it is and how life-changing it is, and for people of any age.
Ross Greenwood: So that’s an old thing, isn’t it? In other words, you’ve almost had to go backwards with technology to go to something such as Sycle, which is a pretty basic hearing aid, to go forward in terms of gaining the customers that you require to sell more Cochlear implants.
Dig Howitt: Yes. Yes, that’s right, but there are many, many people in the world who have a hearing aid and do very well. There are many who have a hearing aid and who are really struggling to hear and who, for example, couldn’t use the telephone, would struggle to listen to the TV unless the volume was on full. The vast majority of those people, if they got a Cochlear implant, would be able to use the phone, would be able to listen to the TV within a normal volume, would be able to hear their grandchildren talking to them.
Ross Greenwood: Well, could I tell you, there’s a couple of presenters at this radio station that I think qualify for exactly that. Because when you walk into the studio, they’ll have the volume on about 12, when I generally have it on about four, so that gives you some ideas as to how profoundly that I think they are anyway.
Just another aspect of this also, one thing about the Cochlear implant that I’ve always noticed, when you see someone with an implant, you obviously see on the side of their head there’s the button there, if you like, that is obviously going into the skull. But what you’re now trying to do is to make that less intrusive for the individual because it is quite obvious, especially in the older model. Just explain how that also works as well.
Dig Howitt: Yes, there’s two things that we’ve done here. The first one is last year we launched the product called Kanso. Kanso actually just use a small button processor, that for people with hair can hide it under their hair, and is actually then invisible. What we’ve done with Nucleus 7 is make it 25% smaller than our previous processors, and that one does sit behind the ear, so it is more visible, but the smaller we make it, the less visible it is. And look, we realized that’s very important. Many people want their hearing aid or their Cochlear implant to be discreet.
Ross Greenwood: There’s no doubt. That’s where personal pride, vanity, confidence, all of that comes from there as well and you don’t want it to be a barrier for somebody not making that purchase and remaining deaf, simply because of the vanity issue. I’ll tell you what, it is such a good story and such an interesting one as well. As I said, really understanding it comes from a piece of technology devised here in Australia. The Cochlear share price today was up by $9.84. $152.60 at a close, so that’s the best part of 6.9%. Pretty good day for the company, there is no doubt about that. The new incoming president at Cochlear, Dig Howitt. I appreciate your time here on the program today.
Dig Howitt: Thanks very much, Ross. It’s been great to talk to you.