Why Cochlear Limited just invested $24 million in a sleep apnea treatment business

Cochlear Limited (ASX:COH) is investing in a challenger to ResMed Inc. (CHESS) (ASX:RMD).

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of Australia's best healthcare businesses in hearing aid maker Cochlear Limited (ASX: COH) trades on a very expensive valuation due to its best-in-class reputation as a manufacturer and retailer of hearing aids.

Even after recent share price falls it still trades on close to 40x trailing earnings per share of $4.21 in financial year 2018. This is because it has a strong competitive position, pricing power – as patients demand the best hearing aids – and a large global addressable market.

It also has a solid track record of long-term growth to prove its qualities as the kind of company investing legend Warren Buffett might even like at the right price.

It does however, have a few weaknesses including the risk of cut-price competition and the fact that it can be described as a one-trick pony in that it largely sells only slightly differing versions of hearing-aid devices or chips.

However, today it announced an investment that helps branch its operational interests out into another fast-growing area of medical devices.

It is to invest EUR13 million (A$23.8m) into a European medical device named Nyxoah S.A. that's "focused on the development and commercialisation of a best-in-class hypogloassal nerve-stimulation (HGNS) therapy for the treatment of obstructive sleep apnea".

In reality this is a small investment in a start-up type business and therefore not especially material to a $10 billion business like Cochlear, but it's possible over the long-term it may turn into a good deal for investors.

It's also notable that Nyxhoah's in-development-therapy for the treatment of sleep apnea is described as "minimally invasive" and an "attractive alternative" for patients who struggle to comply in using traditional masks for the treatment of obstructive sleep apnea via continuous open airway therapy.

The market leader in this sector is ASX-listed ResMed Inc. (CHESS) (ASX: RMD) and the potential for innovative new therapies to challenge its existing medical devices is a risk for investors to watch. Today ResMed shares are down 3.3% to $14.31, which is not much worse than the wider S&P / ASX200 (ASX: XJO).

Cochlear's share price is down 3.1% to $169.90 on the kind of day when shares paying BIG dividends become more attractive..

Such as the one identified by The Motley Fool below….

Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Cochlear Ltd. and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Fallers

A woman faces the camera with her lip raised up to the side in total confusion.
Bank Shares

Why is the CBA share price being hit so hard today?

Has CBA's luck finally run out?

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why ASX, CBA, Iperionx, and Sayona Mining shares are dropping today

These shares aren't having a good session on Tuesday. But why?

Read more »

A businesswoman exhales a deep sigh after receiving bad news, and gets on with it.
Share Fallers

Why Bell Financial, IPD, Megaport, and Resolute Mining shares are falling today

These shares are starting the week in the red. But why?

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Megaport, Pilbara Minerals, Vysarn, and WiseTech shares are falling today

These shares are ending the week in the red. But why?

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Accent, Sayona Mining, Web Travel, and Weebit Nano shares are dropping today

These shares are having a tough time on Thursday. Why are they being sold off?

Read more »

A smartly-dressed man screams to the sky in a trendy office.
Share Fallers

Why Appen, DroneShield, PWR, and Webjet shares are sinking today

These shares are having a tough time on hump day. But why?

Read more »

a car driver sits up and looks alert with wide eyes and an expression of concentration while he holds the wheel of a car.
Share Fallers

Why this ASX All Ordinaries stock just crashed 24%!

Investors are punishing the ASX All Ords company today. Let’s find out why.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Elders, KMD, Lovisa, and Telix shares are dropping today

These shares are missing out on the good times on Tuesday. But why?

Read more »