Philips breathes easy after reaching $1.1bn US settlement

Philips has reached a $1.1 billion settlement to resolve lawsuits over recalled night-time breathing devices in the United States.

The Dutch-based medical technology company said the resolution would bring to an end the uncertainty from personal injury claims that has hung over the company and its share price for three years. It did not admit any fault or liability.

In January Philips reached an agreement with the Department of Justice in America, representing the US Food and Drug Administration, not to sell new devices in the country to treat sleep apnoea, a condition in which an individual’s breathing stops and starts while they sleep. The final details of that agreement, including the improvements required, were reached this month.

The personal injury claims and medical monitoring settlement is smaller than the hit of $2 billion to $4 billion hit expected by industry analysts and a “worst case” scenario of $10 billion. The timing was also sooner than had been anticipated.

The outcome prompted a surge in Philips’ shares, which were up by 34.5 per cent, or €6.80, at €26.55 in afternoon trading in Amsterdam. However, the shares remain about 40 per cent below the levels at which they were trading before the recall of millions of devices began in 2021 amid concerns that foam used to reduce noise from the devices could degrade and become toxic, including posing a potential cancer risk. The problems have led Philips to cut thousands of jobs and to target a recall of about 5.6 million devices.

The settlement was announced alongside first-quarter profits that were better than expected. Roy Jakobs, the chief executive of Philips, said the deal was a “significant milestone and provides further clarity on the way forward for Philips. Patient safety and quality is our highest priority and we have taken important steps in further resolving the consequences of the respironics recall.

“The remediation of the sleep therapy devices for patients is almost complete and the test results to date show the use of these devices is not expected to result in appreciable harm to health. We do regret the concern that patients may have experienced.”

As part of the settlement, which was reached after mediation with a judge, Philips did not admit that any injuries had been caused by the devices.

Payments as part of the $1.1 billion settlement are expected in 2025 and will be funded from the company’s cashflows. It has made a €982 million provision, recognised in its first quarter. The company also said that it had concluded an agreement with insurers to pay Philips €540 million to cover recall-related product liability claims.

Analysts at Jefferies, the broker, said the settlement was “much milder than feared and shall mark the end of litigation uncertainty”.

Although Philips is still facing lawsuits in Europe over the devices, the company expects the American settlement to finalise most of the issue for investors.

In January, at the time of the agreement with US authorities, analysts at ING, the Dutch bank, described it as “very punitive” and said it would be “very difficult for Philips to recover its US respironics market position”.

As part of the agreement, in America Philips can continue to service sleep and respiratory care devices already with healthcare providers and patients, as well as supply accessories, consumables and replacement parts. Outside the US, Philips will continue to provide new sleep and respiratory care devices, “subject to certain requirements”.