Competition watchdog raises concerns over medtech acquisition

MedTech News: The competition watchdog has outlined significant concerns with an Australian medtech’s acquisition of a device business.

In April 2022, Cochlear announced that it had agreed to acquire Oticon Medical for AUD$170 million following Demant’s decision to exit its hearing implants business.

The Australian Competition and Consumer Commission (ACCC) outlined significant preliminary competition concerns with the proposed acquisition in a statement of issues published yesterday.

Cochlear and Oticon Medical manufacture and supply non-surgical bone conduction devices, surgical bone anchored devices, and cochlear implant hearing devices. These devices are used to treat more advanced hearing loss that typically cannot be managed by hearing aids.

There are few suppliers of these devices globally. In Australia, Cochlear and Oticon Medical are two of only three suppliers of non-surgical bone conduction and bone anchored devices, and two of only four suppliers of cochlear implants.

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The ACCC is concerned the proposed acquisition would substantially lessen competition in already highly concentrated markets, which may lead to higher prices, reduced service levels and reduced innovation.

Cochlear said in a statement that the company does not believe the proposed acquisition will reduce competition and will continue to work with the ACCC to address the matters raised as part of this public consultation process.

“Cochlear is by far the largest supplier of surgical bone anchored devices and cochlear implants in Australia. It is also an important supplier of non-surgical bone conduction devices,” ACCC Chair Gina Cass-Gottlieb said.

“Although Oticon Medical has a much smaller presence in Australia, we have significant concerns that the proposed acquisition will remove one of Cochlear’s few competitors in the supply of these three types of hearing devices in Australia.”

“These devices are critically important in providing choice to consumers with hearing loss about the way they manage their hearing needs,” Ms Cass-Gottlieb said.

“Market feedback has indicated that demand for these devices is likely to increase and so it is important to ensure acquisitions in this market do not lead to higher prices or reduced innovation over time.”

The ACCC is also concerned about the impact of the proposed acquisition on incentives to innovate.

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Decisions to invest in innovation take into account a range of factors at the global level. If incentives to innovate are reduced with the removal of competition from Oticon Medical, it will have a significant negative impact on Australian consumers.

The ACCC is also considering the likelihood of other suppliers of non-surgical bone conduction devices, surgical bone anchored devices and cochlear implants entering or expanding in Australia.

“Market feedback indicates brand awareness is important to the clinicians and surgeons that recommend these devices to Australian patients. In addition to significant technical and regulatory barriers, new entrants would need to overcome clinicians’ reluctance to switch to new or unknown providers,” Ms Cass-Gottlieb said.

In the statement of issues, the ACCC has also outlined the issues it is considering that are relevant to the likely future without the acquisition. The ACCC will explore this issue in detail in the next phase of its review, including considering what would be likely to happen to the Oticon Medical business and its assets if the transaction did not occur.

The ACCC is inviting feedback on the statement of issues by 22 December 2022 and will publish a provisional final decision on 16 March 2023.

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