Are IntriCon (IIN:US) and Hi HealthInnovations still in love? The Brangelina of Audiology is rarely heard from nowadays, after almost two years together. Hearing Economics’ interest was piqued last week when IntriCon quietly notified the SEC (US SEC Form 8-K Current Report, June 12 2013) of planned lay-offs and global strategic restructuring.
IntriCon jumped on our screen last year after it jumped into bed with United HealthGroup (UNH), prompting a 3-post series in Hearing Economics introducing this tiny company to a broader Audiology audience.
The hullabaloo wasn’t really about Intricon, but about UNH’s 2011 decision to set up a subsidiary. HIHealthInnovations Nobody, including IntriCon, knows how to write this name. UNH filed the trademark of the name on 10/7/11 and it was finally registered 1/29/13 by USPTO. To wit: “The mark consists of the words “HI HEALTHINNOVATIONS”, with the word “HI” being larger and outlined and containing a large bolded underline underneath the word “HI”.” for direct sale of hearing aids to its MedicareAdvantage and pharmaceutical enrollees via the Internet. Reactions were swift and varied, with Audiology groups displaying uncharacteristic unity in their opposition.
In short it was fun and slightly hysterical, providing lots of fodder for writers at HearingHealthMatters.
Much was said, little of it good, about HI HealthInnovations’ hearing aids, but not until 2012 did the focus shift to the Supplier of those much-maligned hearing aids. That’s where Intricon stepped out of the shadows and flexed its muscles, though Wayne Staab had done some foreshadowing on 11/13/2011 with this comment:
From IntriCon I saw and listened to a stock, open fit ITC called APT™, intended to physically fit essentially all ears, that incorporates an interesting securing monofilament feature that is shaped to and fits within the concha.
Ten days earlier (10/3/11) UNH issued a press release announcing its Internet retail hearing aid plan, the creation of HiHealthInnovations (sic) and a contractual, sole-source supply arrangement with Intricon. The global economy was declining and UNH shares were going down with it, but Intricon’s stock jumped 37% on the news (see chart below). The UNH press release painted a rosy future of additional anticipated alliances with Wal-Mart, Walgreens and other chain-store pharmaceutical distribution channels. The future was bright.
Those who could read the future had done so two months earlier when the volume of Intricon shares traded jumped 100-fold on 8/11/2011 (see bottom of chart). On that single day, 55,620 shares traded hands, compared to just 250 shares a week earlier (8/3/2011) and 657 a week later. Whoever the buyers were on 8/11/2011 bought low and big and probably sold high in the first half of 2012. As David Kirkwood reported, Intricon attributed revenue boosts in the first quarter of 2012 to the new alliance with UHN:
Hearing health sales totaled $7.57 million in the first three months of 2012, 39.5% above 2011, primarily driven by IntriCon’s sales to hi HealthInnovations… and other key hearing health customers.
The trend continued in the second quarter, with hearing health sales 17.3% above 2011 sales, resulting in 28.6% sales growth for IntriCon’s hearing section in the first half of 2012.
That Was Then, This Is Now
And it’s been downhill ever since. On June 13, 2013 IntriCon announced the aforementioned global strategic restructuring plan “designed to accelerate the Company’s future growth … and reduce costs by approximately $3.0 million annually…[and a] global net workforce reduction of approximately 35 administrative and support employees, resulting in immediate annual cost savings of $2.0 million.“
What’s up with that? According to IntriCon’s SEC Form 10-Q for the first quarter of 2013, hearing sales dropped more than 30%, more than $2M. Comparing same quarter 2013 versus 2012, Total Revenues (all departments) dropped by almost $2M and there was a before-tax Income loss of of $481K compared to a gain of $277K last year. In case you’re wondering how tied up IntriCon is with this deal, here’s IntriCon’s assessment of risks exposure as stated in their 2012 10-K (p 11):
hi HealthInnovations is not required to purchase any minimum amount under the manufacturing agreement and may cease purchases at any time. We also agreed that during the term of the agreement, we would not sell hearing aids or accessories to another health insurer or directly to consumers.
That last phrase really hurts. IntriCon had this to say in its 2013 10-Q and its end-of-year Annual Report to Security Holders (ARS) 2012 (filed with SEC 3/22/2013) about its relationship with HI HealthInnovations and “sluggish sales”:
- Within hearing health, IntriCon continues to experience softness in the conventional market, which is consistent with ovearall industry trends.
- The hi Healthlnnovations program is based on development of an innovative new distribution channel.
- While hi Healthlnnovations continues to make progress there are challenges to be overcome and it is difficult to project program needs at this time.
- However we do believe in the long-term potential of this program.
- We continue to support hi Healthlnnovations in building the infrastructure to provide high quality affordable hearing healthcare to their customers.
This is not a match made in heaven, for sure.
Rethinking the Relationship
Love may have passed it by, but IntriCon has other fish to fry in what is calls the “nontraditional PSAP” hearing health market. Recall Wayne Staab’s remark at the beginning of this post, which seems in line with IntriCon’s positioning itself in that market. In addition, IntriCon’s believes that it is:
“the largest supplier worldwide of micro-miniature electromechanical components to hearing instrument manufacturers and that its full product line [of] automated manufacturing process and low cost manufacturing capabilities in Asia allow[s] it to compete effectively with other manufacturers within this market.”
Audiologists can breathe easy. After all the hoopla, Hi HealthInnovations may turn out to be a dud, distribution-wise. IntriCon may not have gotten rich from that relationship and probably won’t in the near future, but it’s working hard to be the comeback kid on its own terms. Maybe someday it will match 2007, when its revenues peaked at $69M and it employed 612 people.
photo courtesy of hotter than a pile of curry
While I feel sorry for the people who may be losing their jobs, I can’t say I’m too sad to see this experiment fail… At the end of the day, it’s not the widget, it’s the provider!
Holly, Thank you for sharing the previous and curent status of this internet mode of hearing aid sales. I hope the summary is correct as the success of the patient, I believe, is based directly on the success of the relationship between the audiologist and patient.