Interesting article....on SHH
CANADA VENTURE: Sonomax Sealing Position in Hearing Aid Mkt
By Brian Truscott
Of DOW JONES NEWSWIRES
943 words
4 June 2008
16:00
Dow Jones News Service
English
(c) 2008 Dow Jones & Company, Inc.
VANCOUVER (Dow Jones)--You've heard it when sitting on a commuter train or standing at an intersection, waiting for the light to change: the person beside you has an MP3 player with the music turned up so loud that you have the joy of hearing the "unce-unce-unce" beat of their favorite song.
Annoying.
But for Nick Laperle, president and founder of Sonomax Hearing Healthcare Inc. (SHH.V), the first thought is that the person wearing those MP3 earphones is at serious risk of hearing loss.
While industrial workers subjected to 85 decibels or more when working an eight-hour shift must have protective hearing gear, there's nothing to protect the average office worker who goes out clubbing, uses an Ipod or cranks up the tunes in the car.
"The MP3 generation is seriously at risk of hearing loss; there's little awareness about the potential danger," Laperle said.
Because generic earphones don't provide an acoustic seal, people turn up the volume to drown out ambient noise - to levels that are potentially damaging to hearing.
Enter Sonomax and its four key products that all but erase ambient sound by creating a custom-fitted acoustic seal that blocks out hazardous and/or ambient noise but allows users to hear conversations and warning signals. Cured silicone for fit and Windows-based technology have been combined to achieve this. It's a process that Sonomax has been working on for about seven years - about $40 million worth of research and development.
The company has about C$2 million of debt but expects to go cash-flow-positive by the end of the year or in the first quarter of 2009, as distribution is ramped up.
"We're in the middle of a study right now, but, anecdotally, we've demonstrated that because you're not competing with the outside environment, you are in fact listening to the (MP3) at lower volumes, below the threshold for risk to your hearing," Laperle said.
Business Model Takes Three-Pronged Approach
The Sonomax business model can be divided into three categories: industrial hearing protection, earphones for music and entertainment and affordable hearing aids.
Companies such as senior miner Rio Tinto (RTP) have bought roughly 2,000 Sonomax hearing products and that should climb to about 3,000 by the end of the year, Laperle said.
"The real problem with a ramp up is that there's a mine here and a mine there and you've got to get there to fit the miners," he said. "We expect a sharp increase in volumes in 2009."
Other companies, such as Kimberly-Clark Corp. (KMB), are in discussions to buy the product while Pratt & Whitney Canada Corp. (PNW.YY) is, for example, using specialized hearing-protection devices featuring Sonomax's customized instant-fit technology hearing protectors.
"There are 100 million workers around the world exposed to 85 decibels or more and we think Sonomax can capture 20 million of those workers on the hearing-protection side of it and 50 million workers on the software-application side," Laperle said.
Affordable hearing aids is another market that Sonomax is going after, he said. Most hearing aids now cost anywhere from C$1,700 to C$5,000 or so. But the average person who needs a hearing aid earns less than C$50,000 a year so those price points become prohibitive, he said.
Sonomax wants to sell hearing aids into the market for less than C$500 and as low as C$299 - a product that would take 30 minutes to custom fit, he said.
The company recently sold its Vitasound Audio Inc. subsidiary to Ontario-based investment group Trivaris Ltd. So Vitasound will now market Sonamax's instant custom-fit technologies in hearing aid channels worldwide, Laperle said.
"We want to bring the most affordable hearing aid to the Canadian market," he said. "We will be using the same chip and technology that you would find in high-end hearing aids to power that C$299 hearing aid."
He said charging this kind of price wouldn't be a loss-making enterprise for the company.
"No. Absolutely great margins, so you can imagine what the companies selling C$2,500 hearing aids are making in terms of margins," he said. "Right now, Vitasound and Sonomax are going to start educating the customer about getting a hearing aid for a couple hundred dollars."
He said if the trend takes off, it might just force competitors to re-appraise their business models and follow suit, in terms of pricing.
The plan now is to set up some joint ventures with various companies to increase distribution and product placement, he said. Big retailers and headphone companies are on the agenda in this case.
"We've had interest from companies that are interested in a co-venture for a co-branded product; this is something that will form a part of our strategic business plan as we develop the business and form economies of scale," he said.
Company Web Site:
https://www.sonomax.com [https://www.sonomax.com]
-Brian Truscott, Dow Jones Newswires; 604-669-1595; brian.truscott@dowjones.com
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