Listen: The Sound Of Hope

Cochlear implants could be a boon for the deaf -- and a booming business

Ravi Pandian, a 43-year-old geologist who lives in Highland Park, N.J., knows the exact moment he went deaf. An immigrant to the U.S. who grew up in India, he had suffered his first debilitating ear infection when he was six months old, and by 1991 had lost all hearing in his left ear. At 10:30 a.m. on Feb. 7, 2003, Pandian sensed something was wrong with his right ear, too. Within 30 minutes, his hearing was gone.

Pandian's case was complicated by a tumor on his eardrum and a botched childhood operation that had severed a nerve in his right ear. Starting in 2003, Pandian spent two years going from doctor to doctor, but nothing worked. "It was awful being deaf," he says. "Not to hear my son speak, not to hear his school band play." Finally, in February, 2005, he got a cochlear implant -- a device that uses tiny electrodes to turn sounds picked up by an external microphone into electronic impulses. The implant then transmits those impulses to the brain via auditory nerves in the inner ear. After the doctor activated the device, Pandian could hear the words of his wife and son. He was struck by a cacophony -- revolving doors, roaring buses, the tick-tock of the directional signal in his car. "I went in with no expectations and no hopes," he says. "I came out with tons of excitement for the future."

Manufacturers of cochlear implants, which were introduced more than three decades ago, are hoping such testimonials can finally help them reap major rewards. Only 17,000 people worldwide had cochlear devices implanted last year, yet in the U.S. alone, some 900,000 people are believed to be deaf or near-deaf. One problem is that the implants may cost $25,000, and the surgery itself can run up an equally high tab. Cochlear Ltd. in Sydney, Australia, which provided Pandian's implant, claims 70% of the market. Its two chief rivals are Advanced Bionics Corp. (BSX ) in Sylmar, Calif. -- a unit of Boston Scientific Corp. (BSX ) -- and Med-El Corp. in Innsbruck, Austria.

Many more hearing-impaired people may seek implants as the technology grows more powerful. The integrated electronic circuitry and software in the newest implants put the world's most sophisticated cell phones to shame, achieving results that once seemed completely out of reach. Some patients testify that they can now stand in a crowded room and carry on a conversation. Others report that they can listen to music -- something that, with earlier implants, sounded like a series of hisses and squeaks.

Much of this magic is performed by the microcode embedded in the latest devices. "The programming has leaped beyond imagination," says Dr. Darius Kohan, chief of the otolaryngology depart- ment at NYU-Brooklyn Hospital Center and Pandian's doctor. "This could potentially eliminate deafness."

If Kohan is right, implants could become a mainstream business. Cochlear is also betting that demographics are on its side. One out of every four Americans over 65 suffers some hearing loss. Traditionally, senior citizens have assumed that "as you get older, you get deaf, and that's the way things are," says Neville Mitchell, Cochlear's chief financial officer. But baby boomers "are less tolerant of disability," he says. "They're not prepared to put up with deafness."

DEAFENING DEMOGRAPHICS

Cochlear is working hard to position itself for a boomer bonanza. Chief Executive Chris Roberts, a 52-year-old biomedical engineer, says the company is developing a range of new treatments to address different types of hearing problems. This includes hybrid devices that combine an implant with a hearing aid, aimed at people with less severe hearing loss. That could expand the target patient population some 50 to 60 times, Roberts believes.

The company is also broadening its reach through partnerships that would create complementary products, as opposed to devices that compete with implants. In 2003 it teamed up with Switzerland's Phonak Group, a leading maker of hearing devices, to create implantable hearing aids. And last March, Cochlear paid $150 million to acquire Entific Medical Systems, a Swedish company that produces the world's top bone-anchored hearing aid. It conveys sound through bone rather than the middle ear, for patients with malformed ear canals. Beyond just implants, Cochlear is "going to be the hearing-loss company," says David Stanton, an analyst at ABN Amro (ABN ) in Sydney.

Cochlear has deep roots in auditory science. It was spun off from Australia's most distinguished hearing lab, the Bionic Ear Institute of Melbourne, in 1983, and it continues to maintain exclusive ties to that institution. Bionic researchers are aiding the company in one of its most urgent missions: figuring out how to preserve the fragile hairs of the inner ear, which can be destroyed by infections or injuries.

For many partially deaf people, getting an implant simply is not worth the risk of causing irreversible damage to hair cells that still function. New drug therapies and other techniques pioneered by the Melbourne scientists could help safeguard the hairs that are left, says R.K. Shepherd, acting director of the institute. Researchers at the institute are also boosting the capacity of cochlear implants, and even designing devices to implant in the central auditory pathway, bypassing the inner ear altogether.

Cochlear's competitors are trying to catch up to the industry giant with their own innovations. Advanced Bionics, which made the device implanted into talk-radio host Rush Limbaugh in 2002, had a setback last year when it had to recall some implants and temporarily halt production because of safety concerns. The company was acquired by Boston Scientific in June, 2004, for $742 million, and is now testing a new implant that the company says can provide five times as many combinations of sounds to the brain as existing models. "Cochlear may be No. 1 now, but that's going to change," vows Advanced Bionics President Jeff Greiner. Andrew Goodsall, an analyst at Citigroup Smith Barney in Sydney, says it's too early to draw conclusions.

Meanwhile, Cochlear is facing its own uncertainty: Two years ago, the U.S. Justice Dept. launched an inquiry into incentives the company offers to implant surgeons. Cochlear CEO Roberts argues that such investigations are routine and notes that there are no allegations. "They wanted documentation; we provided documentation. It's pretty common."

The leading cochlear implant makers face other risks. Some researchers in China and India are attempting to develop similar devices that would cost much less. So far, their work hasn't spawned any commercial products, and Cochlear officials say they're not worried. Patients who are getting devices inserted into their heads will always prefer to enlist a company with a proven track record, they insist.

In fact, Roberts predicts that current implant patients could end up being excellent repeat customers -- they may opt to have devices in both their ears. He predicts that within a decade bilateral implants will be routine. If so, old age need no longer be a silent age.

By Bruce Einhorn, with William C. Symonds in Boston

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