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Philips surges after settlement on US sleep apnea claims
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Summary
Bloomberg Intelligence analyst Holly Froum had put the likely payments between $2 billion and $4.5 billion to settle personal injury claims tied to the devices. The total costs for the sleep apnea recall are now around $5 billion, according to Bloomberg calculations.
Royal Philips NV shares soared in Amsterdam after the company set aside 982 million euros ($1.1 billion) to help settle US claims linked to a recall of sleep apnea medical devices, much lower than what analysts had expected.
The stock surged 37% in Amsterdam, the most on record following the statement.
The Dutch medical equipment maker said the settlement is expected to resolve US claims over the faulty sleep therapy devices, an issue that has dogged the company for the past three years. The funds set aside will cover the expected expense for a medical monitoring class-action lawsuit and individual personal injury claims in the US, the company said Monday.
The manufacturer has been dealing with faulty sleep therapy devices for some time. The company started a recall in June 2021, after health concerns due to disintegrating noise-dampening foam inside the machines designed to treat sleep apnea. The US Food and Drug Administration has labelled the fault a Class 1 issue, the most serious type.
“This is much milder than feared and shall mark the end of litigation uncertainty,” Jefferies analysts said.
Analysts had expected a larger cost for the latest settlements. Bloomberg Intelligence analyst Holly Froum had put the likely payments between $2 billion and $4.5 billion to settle personal injury claims tied to the devices. The total costs for the sleep apnea recall are now around $5 billion, according to Bloomberg calculations.
As part of the issues, Philips was also ordered to suspend sales of the devices in the US after an agreement with the US Food and Drug Administration in January. In addition, the company is being investigated by the US Department of Justice and has not yet made any financial provisions for that matter.
The settlement “covers all the claims in the US, even the ones that would come in still over the next six months,” Philips CEO Roy Jakobs says in an interview with Bloomberg TV. “That doesn’t mean that everything is resolved,” Jakobs said, referring to the DOJ investigation which he says is “one of the last remaining pieces of the whole suite of actions” in the sleep apnea recall.
Jakobs said Philips cannot provision for the DOJ probe as that investigation is ongoing and cannot “speculate” on the outcome.
The company has stepped up patient safety checks across all of its products after the sleep apnea recall to preemptively address other possible issues. This has resulted in additional recalls of other products including some MRI devices and ventilators.
Philips also took a hit from a sweeping anti-graft campaign across China’s healthcare sector last summer, in line with Beijing’s increasing focus on local and state-oriented procurement in medical technologies. Authorities across the country included strict domestic product requirements for many categories of devices.
“The market in China continues to be impacted by the industry-wide anti-corruption measures initiated by the government and by subdued consumer demand,” Philips said in the statement.
Prior to Monday’s news, the company has lost more than half of its market value since the initiation of the sleep apnea recall.
The Amsterdam-based medical technology company’s comparable order intake decreased 3.8% in the first quarter driven by declines in China. It reported adjusted earnings before interest, taxes and amortisation of 388 million euros, in line with the average estimate of 383 million euros in a Bloomberg survey of analysts.
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