After suddenly going deaf at age 30, Ke Liu, a civil servant in China’s eastern Jiangxi province, didn’t have many options. A cochlear implant might’ve restored his hearing, but the imported device cost tens of thousands of dollars. In 2010, Ke learned about a clinical trial for an implant made by a Chinese company, Hangzhou Nurotron Biotechnology. That year he had one surgically implanted and has since recovered nearly all of his hearing. “I have my old life back,” says the 38-year-old.
Unlike hearing aides, which simply amplify sound, cochlear implants translate soundwaves into signals sent directly to the brain. Nurotron has received approval from China’s health regulators to sell its implant on the mainland. At 98,000 yuan ($16,000), the price of its devices is less than half that of imported implants, says Nisa Leung, a board member who is a partner at Qiming Ventures Partners, a venture capital firm and an investor in Nurotron.
That price gap threatens companies that dominate the estimated $1 billion market for cochlear implants. The leader is Australia’s Cochlear (COH:AU), which sold more than $600 million of the devices in its 2012 fiscal year ended June. Cochlear has enjoyed “a virtual monopoly,” says Stuart Roberts, an analyst with Bell Potter Securities in Sydney. He notes the price of cochlear implants has barely budged over the years, while other sophisticated electronics—such as computer chips—have gotten less expensive even as quality has improved.
That’s what motivated Fan-Gang Zeng to try to come up with a cheaper alternative. The Chinese native, who has a Ph.D. in hearing science from Syracuse University, is director of the Center for Hearing Research at the University of California at Irvine. Zeng, who launched Nurotron in 2005, says finding researchers to work on his project was not a problem. “Cochlear made a lot of enemies along the way,” Zeng says of the company’s pricing. “So when we asked for help, we got help.” Cochlear declined to be interviewed for this story.
Nurotron also got plenty of assistance in China, where there are 28 million deaf people and 30,000 babies born without hearing each year. The government, the Chinese Academy of Sciences, and state-backed hospitals contributed about 75 percent of the startup’s initial funding of 30 million yuan (about $3.7 million at the time), Zeng says. Mainland authorities were also willing to fast-track the approval process, which usually takes three to five years. After wrapping up clinical trials in 2010, Nurotron secured permission in less than a year to have its cochlear implants used in patients aged six and older.
If low-cost options such as Nurotron’s make cochlear implants as popular in China as they are in the U.S., “we are talking about 100,000 devices a year,” says Zeng, who now heads development at Nurotron. The company is focused on basics, such as building a sales team and training Chinese doctors to perform the operation. It’s also contemplating expanding into Latin America, according to Li Fangping, a former real estate developer who’s now the company’s president. Zeng says Nurotron will “eventually” consider applying for approval in the U.S. and hopes the U.S. Food and Drug Administration will accept data from the Chinese trials.
In India, government-backed researchers are starting clinical trials of a locally developed device, says Dr. J.M. Hans, chairman of the ENT and cochlear implant department at the Rockland Group of Hospitals in the New Delhi area. It will take “another two years before trials are done and we are sure the thing works,” says Hans. If it does, a made-in-India implant could cost as little as $2,500.
Cochlear’s Sydney-listed shares are down 13.5 percent this year, compared with a 7.4 percent increase for Australia’s benchmark index, amid sluggish sales in the U.S., Europe, and developed Asia. “China offers a huge opportunity,” Chief Executive Officer Chris Roberts told the Australian Broadcasting Corp. on Feb. 10. But only if Cochlear has a solution for the local competition.
Nurotron’s Li says his company’s low-cost manufacturing base gives it an edge over its Australian rival. “The raw materials for our products are the same,” he says. “The difference is, if it costs us 3,000 yuan per worker, it might cost them $3,000 per worker.”