Philips shares surge after $1.1bn settlement over sleep apnoea devices
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Dutch group Philips has agreed to settle litigation linked to its machines that treat night-time breathing problems for $1.1bn, ending a long-running legal battle and sending its shares up as much as 37 per cent on Monday.
The Amsterdam-listed group said it had reached a deal with plaintiffs in the US to end “uncertainty” from the litigation, without admitting liability in personal injury claims and a medical monitoring class action suit.
In 2021, Philips recalled certain machines used to treat sleep apnoea after it was found that foam used in the devices could break down and be inhaled or swallowed, according to the US Food and Drug Administration.
The company still faces an ongoing investigation into the devices by the US justice department. The problems have affected 15mn sleep apnoea devices globally. Philips has since cut thousands of jobs and targeted a recall of 5.6mn devices.
In January, it agreed to stop selling sleep apnoea machines in the US after reaching an agreement with the federal government over how to fix problems with the machines.
The prospect of legal action and the hit to sales caused by the faulty devices had contributed to a roughly 60 per cent fall in Philips’ share price from a peak in early 2021. Analysts had estimated the cost of any settlement to be between $2bn and $4bn.
“Getting that to a close is a very important milestone,” Philip’s chief executive Roy Jakobs told the Financial Times.
Julien Dormois, an analyst at Jefferies, said the settlement was “much milder than feared”.
Analysts at Goldman Sachs said in a note that the news had come “sooner than many [investors] were expecting. Uncertainty regarding the personal injury litigation had been a key overhang on the shares.”
Shares in Philips, which has transformed itself from a consumer electronics conglomerate to a medical technology business over the past decade, rose as much as 37 per cent to €27.05 in early trading.
Jakobs said on Monday: “$1bn is still a very significant outflow. This is not an admission of guilt. There’s no wrongdoing that led to harm to people. We have put a lot of efforts into remediating the products and replacing them.”
He declined to provide a timeframe for resuming US sales of the sleep apnoea devices.
The company will now focus on a plan to reach 3 to 5 per cent comparable growth by 2025, he said. The announcement came as the company reported a 1 per cent fall in sales, to €4.1bn, in the first quarter of 2024.
It said this was partly because of falling sales in China after the government launched an investigation of hospital purchasing practices for medical devices.
Jakobs said he welcomed the investigation but that “processes and procedures have become longer and slowed demand”.