Hearing aids: incumbents have a sound basis to withstand disruption
Clunky and fiddly, hearing aids have long carried a stigma. An ageing population is driving demand for more variety. Meanwhile, politicians want to break down regulatory barriers to competition and consumer technology companies are circling.
Demographic trends favour the industry. The World Health Organization reckons that some degree of hearing loss will affect 2.5bn people worldwide — one in four — by 2050, up from 1.5bn. Age is the main driver, though loud music is a factor too. The market is growing at an annual rate of 4-6 per cent.
Shares in leading manufacturers such as Switzerland’s Sonova and Denmark’s Demant, which both have about a quarter of the market, trade in line with other European medtech stocks at around 30 times forward earnings. Australia’s Cochlear, the market leader in hearing implants, trades at an even higher multiple of 52.
This is an appealing sector for would-be disrupters. Numerous biotech companies are working on treatments for hearing loss, including using gene therapy to regenerate hair cells that line the inner ear. Decibel Therapeutics, Frequency Therapeutics and Sensorion, which recently announced a partnership with Sonova, are among those that have already gone public. But the research — though promising — is likely to take years to develop.
A more immediate threat in the US is the Biden administration’s push to introduce more competition. The 84 per cent market share of the four largest manufacturers helps to explain why hearing aids cost an average of $5,000-plus per pair, according to the White House.
Consumer electronics companies such as Bose and Apple are already coming up with devices to help with mild hearing loss. In July, the White House ordered US regulators to allow hearing aids to be sold over the counter at drug stores. Shares of companies such as Sonova and Demant fell sharply.
The central question is whether newcomers can snatch business from incumbents. Probably not. Those with serious hearing problems will continue to consult health professionals. The main effect of the US regulatory shake-up will be on people who would otherwise have gone without. With just one in seven of the 48m Americans with hearing loss using an aid, it sounds like an expanding market.
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