Biotech firm Cochlear has seen its shares crash over 20% this morning after it announced a voluntary recall on one of its devices after the company noticed a rising number of failures with one particular model.
The crash comes alongside a 2.9% fall in the sharemarket this morning, wiping off $35 billion, as investors respond to growing fears the European debt crisis may worsen.
Cochlear shares are now trading down 22% to $56 at 11.45 AEST.
The company announced its voluntary recall yesterday of the CI500 implant range, saying that while less than 1% of the devices have failed since release in 2009, the company is undertaking “an abundance of caution” in issuing a voluntary recall.
It also stresses in the release that if a failure occurs, the implant shuts down and causes no injury, and says recipients are entitled to be re-implanted with a replacement.
“Cochlear takes reliability extremely seriously and all necessary measures are being implemented to address this unexpected occurrence.”
However, the company says that the financial impact of the recall is “difficult to predict at this stage… further information will be communicated when the situation becomes clearer”.
But the impact is already being noticed. UBS analyst Andrew Goodsall has reportedly downgraded the company’s forecast, reducing his prediction for 2012 net profit after tax by 10.5% to $179.9 million. He has also downgraded the company’s stock to “sell”.
“(The) longer-term reputational fallout (is) likely to overhang market willingness to pay a premium for a previous unblemished market leader,” he said, according to The Australian.
Last month Cochlear recorded a 16% increase in full-year profit to $180 million. But it is the second time in one year that a major cochlear implant producer has issued a recall, with Advanced Bionics announcing its own last November.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
