Cochlear stock soars on news that the reason for device failures has been found

MELBOURNE—Cochlear, the dominant company in the cochlear implant industry, announced this week that it has discovered what was causing about 2% of its Nucleus C1500 units products to fail. Those failures led the Australian-based company to voluntarily recall the whole Nuclear line in September.

Cochlear notified clinics that handle its devices that a fault in the manufacturing process had caused tiny cracks to develop in the C1500s. The cracks allowed moisture to get into some of the devices, which could lead to implant failure.

The recalled model was the company’s most popular, accounting for about 70% of its sales before the recall. Cochlear’s recall did not include devices that had already been implanted in patients. If failures do occur in these, the unit simply shuts down without causing any injury to the patient.

According to company officials, the recall of the Nucleus products had little impact on Cochlear’s market share because it was able to substitute devices from its Freedom line.

However, in the wake of the recall, Cochlear shares lost a quarter of their value and the company suffered serious damage to its reputation. Now, though, a full recovery may be on its way. After this week’s announcement that the cause of the failures had been determined, the stock price immediately soared by 16%, reaching $64.33 (in Australian dollars), the highest since September.

Although Cochlear believes it knows the cause of the product failures, it must still conduct clinical tests and then gain regulatory approval before it can return the Nuclear devices to the U.S. and other major in markets.  That is likely to take several months.