Philips can now breathe easy after settling US $1.1bn settlement

Philips has settled lawsuits in the United States over night-time breathing device recalls for $1.1 billion.

The Dutch medical technology company stated that the resolution will end the uncertainty caused by personal injury claims, which has been a cloud over the company’s share price and the company for the past three years. It didn’t admit fault or liability.

Philips and the Department of Justice in America (representing the US Food and Drug Administration) reached an agreement in January to not sell any new devices in America to treat sleep apnoea. This is a condition in sleep where breathing stops and restarts while sleeping. This month, Philips reached the final details of this agreement, which included the improvements that were required.

Analysts in the industry had predicted a $2 to $4 billion settlement for personal injury claims, and an “worst-case” scenario of up to $10 billion. It was also earlier than expected.

Philips shares surged by 29.4%, or €5.80 at €25.54, as a result of the announcement. The shares are still about 40% below where they were before the recall began in 2021. This was due to concerns that the foam used to reduce the noise of the devices might degrade and turn toxic, which could pose a cancer risk. Philips has cut thousands of positions and is aiming to recall 5.6 million products.

The settlement was announced along with first quarter profits which were better than expected. Roy Jakobs said that the agreement was “a significant milestone” and provided further clarity for Philips. Our highest priority is patient safety and quality. We have taken significant steps to resolve the respiratory recall’s consequences.

The remediation of sleep therapy devices has almost been completed and test results have shown that the devices are not expected to cause significant harm to the health. “We regret any concern patients may have felt.”

Philips, as part of the settlement reached following mediation with a court, did not admit any injuries caused by the devices.

The $1.1 billion settlement will be paid in 2025, and the cash flow of the company will fund the payments. In its first quarter, it has recognised a €982million provision. The company said it also announced that it had reached an agreement with insurance companies to pay Philips €540m to cover product liability claims relating to recalls.

Jefferies analysts said that the settlement “was much milder than anticipated and will mark the end to litigation uncertainty”.

Philips still faces lawsuits over its devices in Europe, but the company believes that the American settlement will resolve the majority of the issues for investors.

Analysts at ING, a Dutch bank, said that the agreement reached with US authorities in January was “very punitive”, and it would ” be very difficult for Philips” to regain its US respironics position.

Philips will continue to provide sleep and respiratory devices in America, including accessories, consumables, and replacement parts. Philips will continue providing new respiratory and sleep care devices outside the US “subject certain requirements”.