Introduction
There has been continuous research in almost every part of health practice just like in many other areas of knowledge. The area of hearing research might pass unnoticed for most people as it is something that does not conspicuously cross their way now and then. However, there have always been continuous developments to a point that one Professor Clark, a major contributor of this research, was awarded to give him a place just like other renowned personalities like Pasteur Louis, Charles Darwin among few others. It is a field that just like the development of an airplane, came through various hurdles and started from very remote or crude inventions, which at their time were not seen to be of significance but later came to be the fundamentals of further research and development.
History of cochlear implants
Cochlear implants are over forty years old now. However, the technological development of the cochlear implant started with some remote yet very important discoveries in 1790. This was after an electrical stimulation in the auditory system that could create some sound perception was discovered by Alessandro Volta. For the next 50 years there were some sporadic attempts to investigate the phenomenon but the results lacked tonal quality as reported by patients and this was only momentary (Bollard 120).
Some crude electrical stimulation attempts were done in the eighteenth and nineteenth century in Paris, London and Berlin. They soon gave up on it after realizing that sound stimulation with a direct current could not produce a satisfactory hearing sensation. The next step was therefore to try alternating current, undertaken by Duchenne of Buologne. The results were flattering sound and was quite an improvement but not satisfactory (Bigadike 105).
Brenner, in 1968 published some extensive investigations about effects of changing polarity, intensity of stimulus and also use of electrodes and the way they affected the hearing sensation. He observed that negative polarity in the ear by an electrical stimulus produced better results. His work was later to be cited by Simmons in 1966. Brenner had used bipolar stimulation and his electrode came to be known as Brenner electrode. There was no much development after those years until the 20th century (Kipp 14).
In 1950, Lundberg made one of the first recorded attempts to stimulate the auditory nerve with sinusoidal current in an operation and his patient could only hear noise. In the same year, French-Algerian surgeons reported cricket like sounds when wires were placed on nerves exposed during an operation on a patient. They first attempted to make a clinical cochlear implant in 1957. In 1961, Dr William House developed a device with five electrodes and was implanted in over one thousand recipients opening way to further clinical development of such devices.
In the 1960s through 1970s, the device was developed to a point where 50% of words could be heard. In 1954 for instance, a six-channel device was implanted into some recipients by Blair Simmons of Stanford University. Its improvement was that different pitches of sound could be heard even though the words could not be discriminated and so it was still not the appropriate hearing device. In 1964, it was reported that Doyle together with other researchers had inserted an array of electrodes that were intended to prevent the spread of electrical field and that were stimulated in sequence with threshold waves superimposed with signals (Dosi 166).
The patient was able to repeat phrases. In 1970, Robin Michelson implanted a cochlear implant in three deaf adults but when he reported the results, he was accused of lying. Later, tests were done and one of them was caught humming the tune of a song he had heard. Rapid progress was observed in the years beginning 1972 when 3M first marketed its single electrode commercially. Over one thousand such devices were implanted between then and mid 80s. Those were the years that the age for the implants came to be lowered from 18 to 2 years and later to 12 months. In Australia, a team at the University of Melbourne was developing a prototype bionic ear, first implanted in 1978 (Dosi 121).
In 1979, a medical device group called Nucleus became interested in the work of Professor Clark about the multiple channel device and they also made the multi-channel cochlear implant that came to be made available into the market by the Australian government. It is today known as the Nucleus multi-channel cochlear implant. This came to be allowed for use in the United States in 1984 in adults and later to age two in 1998. In the year 2000 Nucleus ACE coding strategy was introduced and is designed to customize sounds through combining the benefits of pitch information of the SPEAK strategy and high rates of stimulation with CIS strategy with an advantage of customizing to fit any person’s hearing needs.
Improved sound precision is realized, more so in a noisy background, if one hears with two ears. For this reason, investigations are being done on bilateral implants and already, users have shown that it is a breakthrough. Over 3000 people have now already received these bilateral implants, 1600 of them being children and the youngest of them being only 163 days old. Improved speech is realizing by using an implant with an FM system as opposed to use of two implants without the support of an FM system.
The newest approaches include a totally implantable cochlear implant system device also called TIKI device. Another one is the Hybrid L cochlear implant design that combines use of electrical and acoustic stimulation within the same ear. Cochlear Limited together with University of Melbourne did the first complete cochlear implantation in three patients in Australia back in 2005.Talking of Cochlear Ltd let us look at how the cochlear industry developed economically.
A brief mention of ongoing research
The ongoing research is immense. There are several target developments that cochlear manufacturers are eyeing. These, according to scientists when achieved, will mark an era when the most significant breakthrough in providing hearing to the deaf will have been made. Among them are to minimize the impact of noise on the speech signal clarity, maximize the benefit for young children, develop speech processing strategies of the auditory system, improve the design of the cochlear implant electrodes, initiate auditory nerve regeneration to enhance cochlear implants effectiveness and much more (Dosi 140). This is expensive research. Who funds it? What is the motivation? Is there economic sense? We now evaluate the once little known field of research growing into viable and competitive business.
Economic development of the cochlear implant industry
Initially, research and technological advances was dominated by academic research units. This was supported through research contracts and grants from public research foundations and philanthropists. It took place for over two hundred years since the first discovery by Volta in 1790. The researchers began with different assumptions and took different lines of technological designs for the implants. The research was not towards a central target and often one researcher’s development undermined the other’s line of development. Between 1973 and 1978, there were marked improvements and that drew the attention of private firms (Bigadike 107).
A second period was between 1979 and 1982 where private firms showed marked activity in this field. Firms such as 3M, Storz, Symbion, Nucleus and Biostem negotiated and entered into agreements with universities and teaching clinics. These types of relationships often included efforts to commercialize the cochlear implant but often failed due to divergent institutional orientations and cultural practices.
A third period that began in 1983 was characterized by more attempts to commercialize the cochlea implants but still, misguided arguments on the type of implants that should be used dominated the arena. There was a lot of leapfrogging where some firms attempted to commercialize the devices even before they were tested. The industry was beginning to expand but with market uncertainties. The safety and efficacy could still not be established. Private firms were already entering into agreements and seeking to expand the market for proprietary reasons.
A fourth period at around 1986 had already seen two devices approved by the FDA for large scale commercial sale to customers. Even after extensive testing and accolades from people, the successful trials did not translate to large sales of the devices after they had stabilized the industry. There was market insufficiency for the cochlear implants. However, there are several people who have benefited from these devices despite safety concerns that still mar the industry. In an article written this year, the main question was “will safety concerns slow the growth of the cochlear industry in the year ahead?”
There are over fifteen firms that focus on the cochlear implant though most of them are small players. The major global manufacturers of the cochlear implants are only three with Cochlear Ltd being the biggest (Bollard 120). The indication is that the industry has the prospects of expansion though its history has been marked by very slow growth. Its achievement of commercial status is an indication that competition will drive discoveries and improvements at a faster rate. Its safety may not be an issue in the few coming years with the amount of research invested in it.
Commercialization of research and development (R&D)
The transition of developed countries from industrial to knowledge-based economies has contributed significantly towards commercialization of several traditionally publicly funded researches. Emergences of ICT and biotechnology have been influenced by discoveries about fundamental phenomenon in a range of research fields contributed by universities across the world. They have therefore contributed to new businesses and jobs growth.
The way by which ideas are transformed into business has recently received greater policy attention due to the power associated with breakthrough research. The universities that have in the past been seen to be research and teaching institutions are now being seen to take positions in the third role of commercialization of their research findings and so becoming bigger contributors to economies. Governments that have created favorable policies and have no regrets by now as the benefits they are reaping from these researches are immeasurable.
Direct commercialization on the other hand involves formation of new spin-off companies that will generate economic returns from the research. There are many other methods through which commercialization of research and development can be achieved but let us now focus on the commercialization of the cochlear industry.
Commercialization of the cochlear implant industry
In this study, we have already seen that there are over 15 active players within the industry. Three major ones are producing the cochlear implants at scales that are highly profitable. The market has also been seen to be growing as safety of the devices starts to be guaranteed. We shall take a case study of Cochlear Limited to see the economic impacts of the commercialization of the industry (Bigadike 109).
With support coming from both the University of Melbourne and a few others of Australian Research Council research grants, in the late 1970s Professor Clark at the University of Melbourne developed and introduced a prototype for the Cochlear implant for the profoundly deaf. He began research into the feasibility of cochlear implants in 1967, and then trailed the implant in 1978 (Dosi 166).
Cochlear Limited as a company was formed in the early 1980s in a bid to commercialize the technology. The company is today the world leader in hearing implant products, and produces cochlear implants for children who are deaf and adults who in the course of life have become deaf. Today, Cochlear Limited of Australia is among the top 50 companies which have a market capitalization of more than $1.9 billion. Cochlear now employs over 700 people, 400 among them in Australia, with head office, manufacturing, and the majority of Research and Development remaining in Australia.
The company has regional offices in the USA, UK, Belgium, Switzerland, Germany, Japan and Hong Kong. Its Nucleus product range is available in over 70 countries, with over 95 per cent of sales generated out of Australia. Since their first commercial implant about 20 years back, Cochlear’s award-winning nuclear range has been implanted in approximately 40,000 recipients across the world. Cochlear is a publicly listed company in this industry and is known to seek to achieve strong ongoing growth of at least 20 per cent.
Cochlear was before a business segment of Nucleus Limited, which itself was a wholly-owned subsidiary of Pacific Dunlop Limited. In 1995 Pacific Dunlop Limited made a venture to establish the hearing implant division as a separate listed company so that they could facilitate the future growth and expansion of the company’s activities and market. It was achieved through a public float of 50 million ordinary shares of Cochlear Limited on the Australian Stock Exchange each share going for $2.50. It was seen then, as the greatest step to commercialize it. Priority access to the shares in Cochlear was given under the public issue to Pacific Dunlop shareholders, various research centers and technological institutes involved in hearing impairment and implant research.
Cochlear has been one of the major success stories on the Australian shares market over the last five years, experiencing a lot of growth in revenue and operating profits and providing significant share returns for investors over the period. The company’s share price has increased from an initial issue price of $2.50 in December 1995 to an overwhelming price of $33.30 in August 2003 (with a high of $48 in December 2001). Sales revenue for the year ending June 2002 for the company was $255 million, which was an increase of 16 per cent over the previous year, and representing an increase of 56 per cent from 2000.
Ten years earlier Cochlear had made sales of $40 million of which exports accounted for 95 per cent. The company’s good results were a reflection of strong system sales, which grew by 21 per cent in 2002. The company still maintains its technological lead by using its strong association with hospitals and other research institutes across the world. Cochlear is a large investor in Research and Development – its R&D expenditure was $37.7 million in the year 2002. R&D expenditure of the company has grown significantly over recent years, increasing by 30 per cent in a short span of between 1998 and 2002. The Company also spends over 14 per cent of its sales revenue on R&D. Profit after income tax in 2002 amounted to $40.1 million, which was an increase of 29 per cent from 2001 (Kipp 15).
The contribution of the publicly funded research can also not be underestimated as it contributes to estimated revenue of 20 percent. Cochlear today holds a global market share in its product niche of between 65-70 per cent. This could be summarized into the significant achievements of 700 employees across the globe, revenues of over $300 million yearly and sales outside Australia of over $300. However this could be a different industry if the regulatory bodies were quicker to exercise their part and allow quicker adoption of technology.
The fact that there are only three major players in the production of cochlear implants is an indication that there is difficulty of entry into this market. Often it is not only on the capital investment involved, but the addition of the barrier of regulatory bodies to this. Looking back at the cochlear industry, if the FDA was quick to allow commercialization and adoption of even the initial forms of the cochlear implants, one would be talking of milestones of new technology in this area.
More resources would have been channeled into this research by the competing firms, bringing about several improvements within a very short time. The cost of implantation would have gone down over a shorter period and the readiness to adopt it as a solution eased. The industry is still not at its full potential even though it has big companies that have the capability of great innovations (Bigadike 110).
However this is a case study of one case in an oligopoly. The fact that there are very few such companies dominating the market raises the question of whether the industry can perform to its full potential. As in any other oligopoly, the market is dominated by few large suppliers and there is very high degree of market concentration. In such a market, the firms involved are the price setters as opposed to price takers. There are many barriers to entry and exit into the market and the few firms that manage to enter make abnormally high profits. In several occasions the products are homogeneous as is experienced in the case of cochlear implants. There is so much interdependence in that if one of the few large firms involved takes a certain action, the others are affected to a large magnitude.
Legitimation, performance verification and technology demonstration
Legitimation is the attempt to reduce consumer uncertainties about the new product, process or service in an effort to promote creation of new markets. If there is no much trust, commercialization can be difficult to be achieved successfully especially when it comes to products on human health. It is difficult to guarantee performance of technologically sophisticated innovations since the underlying science is not always fully understood. Consumer unions and private standards organizations may help in certification of performance. Technology demonstration outside regulatory context also provides an alternative way in which a producer can guarantee consumer confidence. For pharmaceuticals, safety is the standard (Bigadike 105).
Commercialization of the cochlear implant industry was assisted by the formation of a separate panel within the FDA to look into the terms and standards that were more appropriate to the technology. It shows that regulatory approvals can burden innovators through addition of the time and uncertainties of the whole process. Even though they are necessary for the sake of consumer confidence and public safety, they should be done with speed and good intention that allows each invention serve its right time and purpose. The approval of the cochlear implants for instance experienced a four year delay from FDA. When the HFCA assigned cochlear implants to diagnosis-related-groups, the reimbursement for the Medicare did not adequately cover the costs and hospitals were losing money. 3M, one of the first developers of cochlear implants decided to abandon the market. This was a major cause of the commercial failure.
There was also high cost of approval process. In all these practices, there was observed failures and it was recommended that humanitarian devices be exempted from undue costs, clearer internal policies be established for guidance on trials of such devices and eliminate multiple cycles of review that have unreasonable necessities. In shorter terms, regulatory bodies have a mandate to act in the interest of public health. The burdens against developers of neuroprostheses should be removed to enable quicker adoption of such technology that brings solutions in this area. If this happened, a number of things would be observed; (Kipp 12)
- There would be a number of small emerging technology-based businesses coming into the arena.
- There would be an increased proportion of small technology-based businesses breaking through and becoming the emerging giants of the industry.
- There would be arising well paid jobs from these emerging global companies as an impact of technology.
- There would be an attraction of innovation-intensive activities bringing multinationals in search of refined researchers.
- There would be generally greater investment in generation of ideas that would translate to a booming economy.
On the contrary, what is observed in the cochlear implant industry is continued dominance of a few large firms and presence of small and almost insignificant others. The evidence that this is a case of oligopoly is the impact of the recent safety fears that were raised on one of the companies’ implants. It was presumed that the developments of the industry may be hampered in the next year due to such safety fears.
This would not be the case if there were several companies that were developing diverse and competitive products based on different backgrounds. There would be instant switching of focus from the company’s cochlear implant to other companies and this would even not strike the headlines of news. The smaller companies continue to be smothered as competition becomes stiff and economies of scale become unfavorable. Innovations continue to be slow since there is loose competition and there is therefore no much threat of being outsmarted.
Recommendations for the cochlear industry
Building good business from a technological invention needs to be given time. Cutting off successful programs before maturity is likely to result in poorer outcomes than would be the case if not. Governments need to find a way to supplement the smaller companies that are introducing ideas into the market. This should be done in terms of financial support and subsidizing the regulatory requirements.
More needs to be done in getting sufficient number of people possessing the range of skills needed to develop technology-based business. Focus should be given beyond sufficient pre-seed and later stage venture capital provision. The tax concession that is channeled to research and development should be used to strengthen the collaboration between business and universities and also other research agencies. There should be improved ways of evaluating commercialization outcomes so as to be able to benchmark the achievements.
Works Cited
Bigadike, Robert. “The risky business of diversification.” Harvard Business Review, 57.3; (1979): 103-111.
Bollard, Jessica. “Specific language growth in young children using the Clarion cochlear implant.” Annals of Otology, Rhinology and Larynology 177; (1999): 119-123.
Dosi, Gerald. “Sources, procedures and microeconomic effects of commercialization.” Journal of Economic Literature 26.3; (1988): 1120-1171.
Kipp, Horward. “Knowledge commercialisation Australia.” Forum and Fair of Ideas: Commercialisation 2; (2003) 12-20.