Philips shares soar after $1.1B settlement of sleep apnea-related claims
Philips, a prominent medical equipment manufacturer, witnessed a record 37% surge in its shares in Amsterdam. This significant increase followed the company's announcement of a $1.1 billion settlement to resolve US claims related to their sleep apnea device recall. The settlement amount was notably less than market analysts' predictions, leading to an extraordinary rise in Philips's stock value.
Settlement funds allocated for lawsuit and injury claims
The settlement funds, as stated by Philips on Monday, are designated to cover costs related to a class-action lawsuit for medical monitoring and individual personal injury claims in the US. The company has been grappling with issues concerning defective sleep therapy devices over the past three years. This led to a recall in June 2021 due to health risks posed by deteriorating noise-dampening foam within these machines.
FDA categorizes defect as highest severity
The US Food and Drug Administration (FDA) has classified the defect in Philips's sleep therapy devices as a Class 1 issue, its highest level of severity. Analysts from Jefferies commented on the settlement, stating, "This is much milder than feared and shall mark the end of litigation uncertainty." Bloomberg Intelligence analyst Holly Froum had previously projected that payments could range between $2 billion and $4.5 billion to settle personal injury claims related to these devices.
Philips CEO comments on settlement and ongoing challenges
Philips CEO Roy Jakobs told Bloomberg that the settlement "covers all the claims in the US, even the ones that would come in still over the next six months." However, Jakobs also noted that not all issues have been resolved yet, specifically referring to an ongoing investigation by the US Department of Justice (DOJ), for which no financial provisions have been made yet. The total costs linked to the sleep apnea recall now stand at approximately $5 billion.
Philips increases safety checks, faces challenges in China
In response to these challenges, Philips has increased patient safety checks across all its products following the sleep apnea recall. This proactive approach has led to further recalls of other products, including certain MRI devices and ventilators. The company is also dealing with an anti-corruption drive in China's healthcare sector, which has enforced stricter domestic product standards for numerous device categories.
