INTERVIEW: Turbocharging for growth

Cochlear boss Chris Roberts has spent 30 years at Australia's leading device companies -- but that doesn't mean he has stopped learning, as Helen Schuller discovers.

In February 2004 Chris Roberts took over as CEO of bionic ear maker Cochlear. The Australian company was struggling with profit downgrades and its share price was plumbing lows not seen for several years. But today, with Cochlear back in the ascendancy, Roberts can reflect on a successful year personally, as well as in business.

"What surprised me, particularly in the first six months when it was really difficult, was that the worse things got, the harder I worked," says Roberts of his first days at the helm of Cochlear. "The more competitive I felt, the earlier I'd get up in the morning and the harder I'd fight."

Roberts is a veteran of 30 years in the Australian medical device industry. Before joining Cochlear he was executive vice-president for sleep disorder device specialist ResMed. Four weeks after Roberts took up his position at Cochlear, its shares had fallen to $18.90 -- their lowest level in four years. But he was not discouraged.

"I felt very comfortable coming to Cochlear," he says. "This is the first time I have been involved with the ear, but in terms of all the aspects about the business -- implantable electronics, global businesses, high R&D spends and health care -- I am totally at home.

"To some degree it is easier to come into a situation that is difficult because then you have a mandate for change -- if you come into a situation where everything is going perfectly then no one wants to change anything.

"We have made a lot of changes in the last year, and the entire team is really firing on all cylinders and working really well -- it is really rewarding from that point of view."

Roberts was initially impressed by Cochlear's sound fundamentals -- technology, a strong competitive position and solid heath economics in the form of an unmet clinical need. He says that he felt the main issue was how to organise Cochlear as a business to capitalise on these things.

"I have a very strong technical background - I'm a chemical engineer, and proud to be a chemical engineer," he says. "I think like an engineer. I'm a technologist rather than a scientist. Science is the knowledge, and technology is the application of that knowledge. That is very much my training and how I have approached [Cochlear].

"This sort of business is about understanding the clinical direction of the area in which you are operating, and marry that with understanding of where the technology is heading, so that you can provide the technology that allows the surgeons or physicians to manage their patients in a way they want to be managing them down the track."

According to Roberts, it's also about bringing technologies to market and internationalisation -- about trying to drive a company globally. "It's a case of understanding where we need to be heading from a technology perspective, and then how we can turn it into a global business."

When he joined the firm, Roberts saw holes in Cochlear's presence in Europe. In the first half of 2004-05, Cochlear purchased distributors in The Netherlands, Belgium and France. In May the company went direct in Italy and as a result 75 per cent of sales in Europe are now through direct sales operation. The importance of this strategic move was reinforced with end-of-year financial results showing a 37 per cent increase in European sales.

Another highlight of Cochlear's 2004-05 financial year performance was its March 2005 acquisition of Swedish-based Entific Medical Systems. However, Cochlear is unlikely to go down the acquisition path again soon. There are limited opportunities for more acquisitions, Roberts has said, and instead the company's focus will be on organic growth.

"In our space, growth by acquisition has to be strategic," he says. "By and large, more companies die from indigestion than from starvation when it comes from acquisitions -- there are lots of acquisitions out there that don't add value.

"The Entific acquisition was a great one for us -- it really did just fall into our sweet spot in terms of the positioning and of the scale that we can get with our distribution approaches, because the product is being sold to the exact same customer [as Cochlear's]. That really made some sense.

"We aren't frightened of organic growth and I guess that's what the company has done in its several decades of existence. It is part of out strategy to broaden our vision to see ourselves having a range of implantable solutions rather than just Cochlear implants. This was a nice leg up -- to broaden the product range -- and we have a lot more work to do in building this area, but most of those ideas are internal ideas we can develop ourselves. I also think there is still an opportunity in bone conduction and I could envisage a day when the bone conduction business was just as big as the Cochlear implant business."

Roberts has been touched by the role that Cochlear plays in helping people whose hearing is profoundly impaired, and is excited about the future direction of the company.

"There is no other company in the world positioned like Cochlear in terms of the resources we have, our understanding of hearing and implantable electronics, our global distribution, our reputation and ability to bring a technology into the market that will fundamentally change how surgeons can manage hearing problems with these patients."

Cochlear's share price has climbed back to $41.00, but Roberts believes he is only just beginning to settle into the role. "I've not been able to relax yet, because after 18 months [as CEO], you realise every day how much you still don't know. I am excited about the ongoing challenge and by the fact that it is an ongoing learning exercise -- it really is dynamic. I think I understood enough about it to be able to come in and have a positive impact, but there is still a lot more to learn."

Biotech or not biotech?

Cochlear's name is often uttered in the same breath as ResMed's, as proof that in the broader biotech industry, medical devices are what Australians are good at. But while ResMed's US-based boss Peter Farrell takes pains to avoid classing his firm as a biotech, Roberts takes a broader view.

"I think that in the Australian context it is worth including [Cochlear] in the biotech system," he says, "although strictly it's not biotech."

The rest of the sector could learn from the device industry. To begin with, Australia's success with devices has come about because technology-driven companies have successfully evolved their products, Roberts says.

"I think technology is a turbocharger for growth, for a company or a country," he says. "As a CEO for these sorts of companies, you have to understand the drivers of business, and the driver of business in the medical device industry is innovation and internationalisation." Roberts doesn't see much value in the "linear model" of science to commercialisation. "You don't just do curiosity-driven science, and find interesting things that you can commercialise," he says. "For commercialisation, you have to be market-driven -- you have to figure out what the market needs and then go back and do the science for it. I think that if you are a curiosity driven scientist and that's your background, it is hard to turn that into a business."

As for the 'tyranny of distance', improvements in communication technology have levelled the playing field, says Roberts. "I love working in the US market against American companies," he says. "There are advantages to doing things in Australia -- the dollar, health care, communication. There is no global disadvantage."

Although he has developed his own way, it's not surprising that Roberts' time working with Farrell at ResMed has had a profound effect on her business style and outlook generally. "My modus operandi is technology and its internationalisation -- innovation through technology," he says. "To me, that's exactly how Peter Farrell has approached ResMed from day one. [Cochlear and ResMed] were born global -- they were never ever going to work if Australia was the market. Australian sales for Cochlear and ResMed are probably 2 or 3 per cent [of the total]. Australia is an important market, but you have to approach it as a global market."

Obligation

Like any good CEO, Roberts' primary motivation is the end-user -- the people who will be helped by Cochlear's devices.

"I don't mean this in an arrogant sense, but we are uniquely positioned in the world in terms of our resources -- our understanding of hearing, our understanding of implantable electronics, our global distribution, our reputation with key opinion leaders -- to bring technology into the market that will fundamentally change how surgeons can manage hearing problems with patients," he says.

"We almost have an obligation to do what we are doing, because no one else is doing it. We can do it in a way that actually makes business sense, because it is a niche we own."

Understanding a company's clinical motivation, and its niche should be the motivation for investment, too. "What you need to do from an investment point of view is go out and convince yourself of the clinical need, and whether there are technologies that can really help these people, and thirdly whether Cochlear can commercialise these technologies to help these people. I think that after several decades now we have been able to demonstrate all three."

Roberts says he didn't take the helm at Cochlear simply because he wanted another job. "I came here because I really believe that we can make a genuinely significant contribution," he says. "I truly think we have an opportunity in Cochlear -- if we do this properly over the next five to 10 years we will create a truly global business that will help tens of thousands of people every year who otherwise won't be helped.

"At one level it's a huge responsibility on our shoulders, because it will be the difference to ten of thousands of people whether they get help or not. And it is really exciting that we can do it from Australia."

Advocate for an industry

Roberts was recently named the new chairman of Research Australia, the organisation set up to implement the groundbreaking Wills Review of medical research.

"My life has been engrossed in the medical device committee and health and medical research in general," he explains. "Research Australia is really important -- its mission is that health and medical research should be a higher national priority in Australia. I fundamentally believe that is an important goal for the health of Australia, and I'm a proud Australian and interested in what is good for Australia."

The role has no business impact on Cochlear, Roberts points out. But as a veteran of the life science industry, he knows the importance of advocacy and mentorship. Science communicators like Karl Kruzselnicki are "fantastic", he says, but there needs to be more.

"We have failed our generation in educating them in science and technology," he says. "I don't think it is because of the curriculum -- I think that you have to start at primary school."

The guiding hand needs to apply in business, too, he believes. "At Cochlear I am trying to create an environment where people can learn about themselves learn about the industry -- to get an opportunity to make mistakes and have successes where stuff can happen and happen quickly enough where mistakes aren't fatal," he says. "Making enough decisions and moving along fast enough when things are going off the rails you can put in preventative action very quickly. You have to have a bias toward action in business."