Dutch Health Tech Firm Philips Stops US Sales Of Respiratory Devices Under Finalized Consent Decree Over Device Recall

In its Q4 earnings release on Monday, Koninklijke Philips NV PHG agreed on a settlement with the FDA, primarily focusing on Philips Respironics’ business operations in the U.S.

Philips Respironics is finalizing a consent decree, which will be presented to a U.S. court for approval. 

The decree outlines specific actions, milestones, and deliverables for Philips Respironics to demonstrate compliance with regulatory requirements and revive its business. 

In November, the FDA warned patients and healthcare providers to carefully monitor Philips’ DreamStation 2 continuous positive airway pressure (CPAP) machines for signs of overheating.

In the U.S., Philips Respironics will continue servicing existing sleep and respiratory care devices for healthcare providers and patients, supplying accessories, consumables, and replacement parts. 

However, the company will not sell new CPAP or BiPAP sleep therapy devices or other respiratory care devices in the U.S. until the consent decree’s requirements are met.

Internationally, Philips Respironics will maintain its provision of new sleep and respiratory care devices, along with associated accessories, consumables, replacement parts, and services, subject to specific conditions. 

To address the consent decree, Philips recorded a €363 million provision in Q4 2023 for remediation activities, inventory write-downs, and onerous contract provisions. 

In 2024, Philips anticipates approximately 100 basis points of costs related to remediation activities and disgorgement payments for Philips Respironics sales in the U.S. 

The decree is being finalized and will be submitted to the relevant U.S. court for approval.

Fourth-quarter earnings: Philips reported revenues of €5.1 billion, down 6.6% year-on-year, and a comparable sales growth – excluding provisions charged to sales of 3%.

Due to the provision, Philips’s core profit (EBITA) in the fourth quarter remained roughly stable at €653 million versus €651 million a year ago.

Guidance: Philips said the agreement did not change its 2024 forecasts.

Philips reiterates its 2023-2025 forecasts, acknowledging that uncertainties remain. 

For 2024, Philips expects to deliver 3-5% comparable sales growth and an Adjusted EBITA margin of 11-11.5%. 

The free cash flow from Philips’ businesses is expected to amount to €0.8 billion-€1 billion, excluding the remaining cash-out related to the previously announced resolution of the economic loss class action in the U.S.

The previously stated 2023-2025 Group financial outlook of mid-single-digit comparable sales growth, low-teens Adjusted EBITA margin, and €1.4 billion-€1.6 billion free cash flow now considers the consent decree and remains unchanged. 

It excludes the investigation by the U.S. DOJ related to the Respironics field action and the impact of the ongoing litigation.

Price Action: PHG shares are down 7.29% at $21.10 during the premarket session on the last check Monday.

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