Why Is European Healthcare Tech Giant Philips Stock Trading Higher On Wednesday?

Zinger Key Points
  • The company booked a €363 million provision in Q4 2023 for remediation activities related to the Respironics consent decree.
  • Philips Respironics will continue servicing sleep and respiratory care devices that healthcare providers and patients already use.

On Wednesday, Koninklijke Philips NV PHG said it reached a final agreement with the U.S. Justice Department and FDA regarding a settlement related to its Respironics ventilators.

The Dutch health-technology company said that under the consent decree, Philips Respironics will continue to prioritize completing the remediation of the sleep and respiratory care devices under Respironics’ voluntary June 2021 recall.

The agreement primarily focuses on Philips Respironics’ business operations in the U.S., including its manufacturing facilities in Murrysville and New Kensington, its service center in Mount Pleasant, and its Respironics headquarters in Pittsburgh, Pennsylvania.

In June 2021, Philips initiated a voluntary recall notification for certain CPAP and BiPAP sleep therapy devices and ventilators related to the polyester-based polyurethane (PE-PUR) sound abatement foam in these devices that were harmful to the users.

The relevant requirements of the consent decree must be met before Philips Respironics will resume selling new CPAP or BiPAP devices or other respiratory care devices in the U.S.

Philips Respironics will be permitted to continue servicing these sleep and respiratory care devices that are already with healthcare providers and patients and to sell accessories (including masks), consumables (including patient circuits), and replacement parts (including repair kits).

Philips said its 2023-25 guidance for mid-single-digit comparable sales growth and low-teens adjusted EBITDA is unchanged, while its forecast of €1.4 billion-€1.6 billion in free cash flow considers the consent decree.

The company had said in January that it booked a €363 million provision in the fourth quarter of 2023 for remediation activities, inventory write-downs, and contract provisions related to the Respironics consent decree. 

For 2024, Philips expects around 100 basis points of costs related to remediation activities and disgorgement payments for Philips Respironics sales in the U.S.

Price Action: PHG shares are up 3.05% at $21.27 on the last check Wednesday.

Photo via Wikimedia Commons

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