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Advanced Bionics Is Sold — Again. Should Customers Worry?

November 9 2009 | by

Advanced Bionics — the only U.S. cochlear implant maker — has been acquired by Sonova, a Swiss maker of hearing aids. Sonova will pay $US 489 million for Advanced Bionics in the deal, which is expected to close in February 2010, subject to approval.

Buying the Cupertino, Calif.-based Advanced Bionics thrusts Sonova, a relatively unknown maker of hearing aids, into the broader landscape of hearing-health technology. Sonova will be the first global company to manufacture both hearing instruments and cochlear implant systems, or CIs, which are implanted devices that enable profoundly hearing impaired and deaf persons to hear sounds.

As part of the merger, Advanced Bionic will combine with Phonak, a Sonova unit that makes micro hearing systems such as personal amplification systems. The two companies will remain as independent units under the Sonova umbrella.

With a more diverse hearing health portfolio, Sonova is betting that it can capture more share of the fast-growing CI market, which it believes is worth around $US 750-800 million. In the U.S. and Europe, private healthcare or government insurance pay for the devices, which cost up to $US 25,000.

If all goes well, that’s good news for Sonova, as Advanced Bionics currently has about 20 percent marketshare and competes with only two other CI makers, Australia’s Cochlear Corp. and Israel-based Med-El. Advanced Bionics had revenues of $US 117 million in 2008.

But other companies have tried to take the reins of Advanced Bionics – and failed. In 2004 Boston Scientific bought Advanced Bionics for $US 740 million and spun it off three years later. Boston Scientific had tried unsuccessfully to remove Advanced Bionic’s two top executives, citing their inability to grow profits and lack of attention to quality. Indeed, quality practices had emerged as a central concern after federal regulators issued a warning letter citing numerous violations at Advanced Bionics’ facilities.

Besides potential management -– and geography -– hiccups, Sonova also will have to work hard to develop relationships with the network of doctors, hospitals and audiologists that implant, service or market Advanced Bionics’ CIs, which include the popular Harmony HiResolution Bionic Ear System. These networks are brand-agnostic, but they -– as well as customers -– must rely on manufacturers for parts, accessories, warranties, insurance reimbursements and customer service.

Sonova doesn’t seem worried. The merger will result in “highly innovative products that deliver the best possible hearing for cochlear implant patients” and help the company “double its revenues … within three to five years,” according to its press release.

Advanced Bionics’ customers, however, may be more concerned. They cannot switch brands once the device has been implanted, and must hope that the merger goes smoothly. The company says: “Rest assured … there will be “no interruption in your service.”

That may be true, but Sonova now must take care to keep current customers pleased, while aggressively reaching out to new ones in order to remain a leader in the CI space.

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