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October 28, 2002

Ear to the ground

From: Sydney Morning Herald, Australia
Oct. 28, 2002

Salomon Smith Barney was about to publish a 70-page report on Cochlear when the ear implant developer announced earnings would be up 40 per cent in the current financial year.

The market was stunned - only a few months ago Cochlear management had stuck to the traditional 25 per cent EPS growth when it released 2001-02 full-year figures - and the share price soared as analysts upgraded their numbers.

Not Salomon Smith Barney.

An extensive look at the Cochlear's products, the products of their rivals, the meningitis scare that had upset the sector for so long, and the extent of the ear implant market globally, helped the broker come to the conclusion earnings would be $55 million this year. The company has come in at $56 million.

While much of SSB's work focused on the enormity of the untapped market (the 65,000 recipients of cochlear implants so far represents less than 8 per cent of the market in developed countries), some cautionary notes were sounded.

In the US, Medicare is considering cutting cochlear implant reimbursements by 21 per cent, which could pose a serious challenge to Cochlear in the coming year.

SSB says that while roughly 16 per cent of implant patients are on Medicare, 54 per cent of the target market are of Medicare age (mainly retirees).

Cochlear rose 70c to $35.85 yesterday.

Copyright © 2002. The Sydney Morning Herald.