Cochlear says implant recall to cost up to A$150 mln

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Reuters - October 17, 2011

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Cochlear says implant recall to cost up to A$150 mln

* Company switching back to older model implant

* Nucleus 5 implant likely to be off the market for months, analysts say

MELBOURNE, Oct 18 (Reuters) - Australian bionic ear maker Cochlear Ltd said

on Tuesday the recall of its biggest-selling product, the Nucleus 5 hearing

implant, will cost up to A$150 million as it convinces patients to switch to

an older model.

Chairman Rick Holliday- said Cochlear was able to immediately

substitute the recalled products with the previous Freedom system.

Last month, Cochlear recalled the entire range of unimplanted Nucleus 5

implants, which accounts for the bulk of revenues, after an increase in the

number of Nucleus 5 implant failures.

The news pushed its share price down 20 percent.

On Tuesday, the shares were down another 3.3 percent.

Analysts say the problem relates to moisture in the devices, which can cause

a malfunction in one or more diodes. The company is still investigating the

cause.

The N5 implant is likely to be off the market for a minimum of six months,

analysts said.

Even after the cause is determined, Cochlear will need to run clinical tests

and win regulator approval to return to market.

The U.S. Food and Drug Administration can take up to 180 days to review

data.

Holliday- told the annual shareholders meeting the recall will cost

between A$130 million and A$150 million ($132 million to $153 million) and

the provision will include stock write-offs and other charges.

The after-tax impact is expected to be A$20-A$30 million.

He said the company has increased its existing banking facilities and is

working closely with the regulators.

" We are working diligently to ensure they are satisfied with our actions, "

Holliday- said of the regulators.

Analysts said clinics need to convince clients to switch back to the

previous model, Cochlear's Nucleus Freedom, and the company would need to

ramp up production capacity for the older Freedom model.

With revenues of A$809 million last fiscal year, Cochlear posted 43 percent

of its sales in the Americas, 40 percent in Europe and 17 percent in Asia.