Cochlear April revenue down 60% as pandemic hits surgeries

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Cochlear has updated investors on the impact of the COVID-19 pandemic confirming a 60 per cent decline in revenue for April 2020 compared to the same month last year.

The company had already foreshadowed a substantial but temporary negative impact on cochlear implant surgeries. In its new update, it said surgeries have been deferred across the US and Europe as hospitals prioritise their COVID-19 responses.

Cochlear said implant unit sales declined by approximately 80 per cent across developed markets. To the extent there were surgeries, they were largely for children, it said.

Elective surgeries have continued in South Korea and, until recently, Japan. Surgeries in Japan slowed in late April following a growing number of COVID-19 infections. In China, surgeries recommenced in late February and continued to recover throughout April. The company said surgeries are now running close to pre-virus run rates despite Beijing, the largest surgery centre, remaining largely closed to elective surgery.

The company said it has significantly reduced non-essential spending and capital expenditure until there is a sustained increase in surgeries.

"The business has also implemented a hiring freeze, with temporary pay reductions for the Board and senior management across the business," it said, adding it expects to be able to participate in various Australian government subsidies established for the pandemic, including JobKeeper, with similar subsidies available in a number of European countries.

It said its supply chain continues to be largely intact with no supply shortages expected for components over the coming months. Its manufacturing and service and repair centres have been deemed as essential services and continue to operate.

The company said its liquidity position has been strengthened through the recent $1.1 billion capital raising and $225 million increase in debt facilities.

"The business is currently cash flow negative, with expectations that this will continue in the coming months," it said.

It added, "On a positive note, implant surgeries are restarting in some major developed markets including the US, Germany and Australia. It is too early at this stage to understand the rate of recovery with the recommencement of surgery expected to differ by country, hospital and surgeon."

“Since the outbreak of COVID-19, we have taken steps to ensure the health and safety of our employees, provide ongoing support to our recipients, clinics and professional partners while ensuring the financial health of the Company is maintained," said CEO and President, Dig Howitt.

“Cochlear’s teams remain focused on providing support to recipients, while continuing their outreach programs with candidates through the Company’s direct-to-consumer efforts. The rapid adoption of online tools across the business, and with Cochlear’s professional partners, candidates and recipients, is to be commended and has ensured that we can continue to provide valuable education and support throughout the pandemic.

“We continue to expect that many of the delayed surgeries will progress once hospitals resume normal operations, although the pace of the recovery is unclear. At this early stage, we are expecting a gradual recovery with expectations that hospitals will proceed cautiously with the resumption of elective surgery, while prioritising the case load. Based on current feedback from surgeons, cochlear implants for children are expected to be prioritised given the long-term impacts on developmental outcomes from delaying surgery.

“While the resumption of elective surgeries is positive, commencing ahead of our expectations, we caution that there is still risk, noting that Japan and Singapore have recently restricted elective surgery following an increase in the COVID-19 infection rate. We need to be careful in assessing progress as second waves of infections and restrictions may occur in more markets, complicating recovery plans and timing.

“Longer-term, there remains a significant, unmet and addressable clinical need for cochlear and acoustic implants that is expected to continue to underpin the long-term sustainable growth of the business. Following the capital raising and expansion of debt facilities, we have strengthened our balance sheet and liquidity position, which enables the business to weather the expected temporary decline in demand caused by COVID-19, while continuing to progress the R&D pipeline.”