Medical device company Philips has reached an eye-popping $1.1 billion settlement in the U.S. to resolve complaints related to its Philips Respironics sleep and respiratory care products.
Philips – a business that brings in billions of dollars annually – announced the settlement on Monday, along with its first-quarter financial results. The company previously agreed to a consent decree in January 2024.
“The approved consent decree and economic loss settlement, and now the resolution of the personal injury and medical monitoring litigation in the U.S., are significant milestones and provide further clarity on the way forward for Philips,” Roy Jakobs, CEO of Royal Philips, said in Monday’s announcement.
Philips had been attempting to put out a series of fires related to certain sleep and respiratory devices since at least 2021.
Part of those efforts included major reductions to its U.S. portfolio and a voluntary recall. Specifically, with some of its devices, a foam used in them could degrade and become toxic.
“In the U.S. and U.S. territories, Philips Respironics will focus on the sale of consumables and accessories, including masks, and will not return to the sale of hospital ventilation products, certain home ventilation products, portable and stationary oxygen concentrators and sleep diagnostic products,” a previous company announcement explained.
While $1.1 billion is a hefty sum, it’s less than what some analysts expected for the Dutch medical device company. Previous forecasts had Philips on the hook for upwards of $4 billion – and a worst-case scenario of potentially $10 billion.
In turn, Philips (NYSE: PHG) shares rallied nearly 27% Monday. It’s important to note that the company still faces lawsuits in Europe.
“Patient safety and quality is our highest priority, and we have taken important steps in further resolving the consequences of the Respironics recall,” Jakobs also said in the announcement. “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.”
Under the settlement, Philips and Philips Respironics did not admit any fault or liability, or that any injuries were caused by Respironics’ devices.
The related payments are expected to hit in 2025. They’ll be funded from Philips’ cash flow generation, according to the company.
Philips also concluded an agreement with insurers to pay Philips EUR $540 million to cover Respironics recall-related product liability claims. The sum is expected to be recognized in the second quarter of 2024, with payment expected during 2024.
Philips posted a financial loss of about EUR $463 million for full-year 2023, or about $501 million in U.S. currency. On Monday, it reported a Q1 loss of EUR $824 million alone.
