Leaky seals are being blamed for causing Cochlear’s latest bionic ear device to break down and spark a massive recall which could cost the company up to $150 million.
Cochlear stunned shareholders and customers in September when it issued a global recall of its biggest-selling hearing implant, the Nucleus CI500, after several stopped working.
Shareholders at Cochlear’s annual general meeting in Sydney on Tuesday heard that, while investigations were ongoing, experts believed there was a problem with moisture leaking into the devices through the airtight seals.
Chief executive Chris Roberts said the cost of collecting all the CI500 devices shipped from Cochlear’s Australian manufacturing plant would be between $130 million and $150 million, a hit which would be taken in the first half of this financial year.
He said that out of the 30,000 or so devices which had been implanted in patients, dozens had been returned to Cochlear for tests which had revealed problems with the hermetic seals.
Breaks in the airtight seals were believed to have allowed moisture to seep inside, causing key electrical components known as diodes to stop working and shut down the implants.
“These diodes malfunction due to the presence of moisture in the air within the electronic package and the moisture has gone in there because of a loss of hermeticity,” Dr Roberts said.
“We have a lot of work still to do to understand exactly what we need to do to make that system more robust than it has been and we don’t know exactly when the CI500 series will return back to the market.”
While shareholders at Cochlear’s meeting applauded the company’s handling of the recall, the stock market took a different view.
Shares in the company, which tumbled more than 20 per cent when the recall was announced on September 12, fell another 1.8 per cent on Tuesday to close at $53.54.
Some shareholders at the meeting expressed concern about the damage inflicted on Cochlear’s reputation as a reliable supplier of hearing implants.
But Dr Roberts, who admitted to having lost sleep over the recall, said there had been “minimal loss of market share”.
All patients who had been scheduled to undergo surgery to have CI500 devices implanted had instead been offered an older model, the Nucleus Freedom.
As a result, Cochlear is having to ramp up production of its Freedom devices to keep up with demand for hearing implants.
Dr Roberts said he did not believe Cochlear would have to widen its recall to include CI500 devices which had already been implanted in patients but were so far problem free.
“The failure rate is very low,” he told reporters.
“We are still seeing some failures but the total failure is around one per cent (of the total number of devices produced).”
Dr Roberts said patients needing to undergo surgery to have a replacement Freedom device fitted would receive the implant free of charge and were expected to have most of their costs covered by their home country’s health care systems.