* Nucleus 5 implant likely to be off the market for months -
analysts* CEO says impact on market share has been minimal* Shares fall as much as 5.5 pctBy Victoria ThiebergerMELBOURNE, Oct 18 (Reuters) - Shares in Australia’s Cochlear
Ltd fell more than 5 percent on Tuesday after the
world’s biggest maker of hearing implants failed to give an
indication on how long its top-selling implant will be off the
market after a recall.The recall of the Nucleus 5 implant will cost up to A$150
million ($153 million), more than 18 percent of the company’s
last fiscal year sales, executives said at an annual
shareholders’ meeting.”It is still the fact they haven’t given guidance on when
the product will be back in the market,” said Karara Capital
portfolio manager Akshay Chopra.”The longer the issue drags on then the risk of market share
loss becomes higher,” said Chopra.The shares have lost over a quarter of their value since
Cochlear voluntarily recalled the entire range of unimplanted
Nucleus 5 implants last month, after an increase in the failure
rate.They fell to a low of A$51.52 on Tuesday, before recovering
to close down 1.8 percent at A$53.54. The shares were above $72
before the recall.The Nucleus CI 500 line accounted for about 70 percent of
sales in fiscal 2011, and Cochlear dominates the global market
for hearing implants with a 65 percent share.Analysts say the implant is likely to be off the market for
at least six months.Even after the cause for the failure is determined, Cochlear
will need to run clinical tests and win regulatory approval to
return to market.The U.S. Food and Drug Administration can take up to 180
days to review data.Chief Executive Chris Roberts told Reuters the recall has
had little impact on Cochlear’s market share, because the
company was able to substitute the recalled Nucleus 5 with the
implant component from the previous Freedom range.Roberts said the company was in no rush to conclude an
investigation into the cause of the failures, which relates to
moisture in the devices that can cause a malfunction in one or
more diodes.”Because of the architecture of the system where we can mix
and match the components, we have got the luxury that we can do
all the investigations we like,” Roberts said in a telephone
interview.There are 28,000 users of the Nucleus CI 500 range, and
Cochlear is not recalling units that have been implanted. If
failure occurs, the unit shuts down without injury.The implant helps correct hearing loss by converting sounds
to electrical energy, which is transmitted to hearing nerves.TRIPLING PRODUCTIONCochlear was formed in the early 1980s to partner with the
Australian government to develop and market a bionic ear implant
invented by a professor at Melbourne University.The company had revenues of A$809 million last fiscal year,
with the Americas accounting for 43 percent of the sales, Europe
40 percent and Asia 17 percent.Roberts said Cochlear had more than tripled production of
the older Freedom implant, which still works with the newer
Nucleus 5 external component, and had not run into any supply
problems with it.Freedom accounted for only 30 percent of production in
fiscal 2011.”That was a major change for the manufacturing. It was more
than trebling production, but we have that flexibility and
agility in manufacturing which really helped,” he said.Executives earlier told shareholders the recall will cost
between A$130 million and A$150 million, including stock
write-offs and other charges.The after-tax impact is expected to be A$20-A$30 million.The company said it planned to preserve its current dividend
pattern and pay a first-half dividend of A$1.20 a share.