Pandemic and patent litigation hit Cochlear result

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The COVID-19 pandemic and the outcome of patent litigation have impacted Cochlear's (ASX:COH) full-year result with the company reporting a net loss of $238.3 million.

The company said it had a strong first half, with sales of implant units growing 13 per cent, but that the pandemic has resulted in a 22 per cent decline in sales revenue in the second half of financial year 2020.

It said full-year sales revenue declined 6 per cent to $1.4 billion with a 42 per cent decline in underlying net profit to $153.8 million. 

The reported net loss of $238.3 million includes $416.3 million in patent litigation expenses. In March, the company suspended dividend payments until trading conditions improve and it confirmed no net profit guidance will be provided given the uncertainty in forecasting revenues for the financial year 2021.

"Despite these impacts, Cochlear has maintained its commitment to investing in market growth activities and R&D programs to enable the business to emerge from the pandemic in a stronger competitive position," it said, adding the recommencement of surgeries is positive and its $1.1 billion capital raising has strengthened the balance sheet.

The company said cochlear implant volumes across the developed markets were tracking in line with expectations from January until the pandemic hit in mid-March. 

It said, "...from mid‐March we experienced a substantial, short‐term negative impact on cochlear implant surgeries, particularly in the US and Western Europe, as healthcare systems diverted resources to meet the increasing demands of managing COVID‐19.  

"In April, cochlear implant unit sales across the developed markets declined by around 80% (compared to April 2019), with most elective surgeries postponed. To the extent there were surgeries, they were predominantly for children.  

"Surgeries recommenced across many markets from early‐May. Market conditions however still varied across our developed markets by the end of June with surgery volumes recovering relatively quickly in the US, Germany, Benelux and Australia and more slowly in the UK, Spain and Italy.

"By the end of June, over 80% of cochlear implant surgical centres in the developed markets had recommenced surgeries."

The company 'cautioned' that "second waves" of COVID-19 cases "are likely to remain a reality for some time and may result in new restrictions to elective surgery, complicating recovery plans and timing."

"We also recognise that the surgeries currently occurring, particularly for adults and seniors, include a catch up of delayed surgeries from March to May. We will get a clearer picture of the impact of clinic closures in April and May on the new candidate pipeline over the next few months," it said.

Cochlear also announced changes to its board with the retirement of Donal O’Dwyer and appointment of Christine McLoughlin.

Mr O’Dwyer joined the Cochlear Board in 2005 and has served as a member of the Audit and Risk, Medical Science, Nomination and Technology and Innovation Committees.

Cochlear chairman, Rick Holliday-Smith said, “Donal has provided invaluable counsel in his 15 years of service to the Cochlear Board. His extensive technical expertise in the medical device and healthcare industries, along with his significant management experience globally in these industries, have contributed greatly to Cochlear’s strategic direction. Donal’s deep knowledge in commercialisation and risk management of medical technologies has greatly assisted the delivery of long-term value to shareholders."

Christine McLoughlin's appointment will become effective on 1 November 2020. Ms McLoughlin has served on the boards of a number of companies and is a highly respected company director with domestic and international experience in financial and health services and telecommunications.

Mr Holliday-Smith said, “Christine is an accomplished director and business leader. She has had wide ranging experience covering health, insurance, resources, infrastructure and financial services. She is currently Chairman of the Suncorp Group Limited, Chancellor-elect of the University of Wollongong, and is a non-executive director of nib holdings limited.

“Her board and governance experience, combined with her commercial capabilities including risk assessment, health policy and the interactions between research, education and medical innovation, will be invaluable to Cochlear. We look forward to her joining the Board.”