The U.S. Food and Drug Administration (FDA) has expressed ongoing dissatisfaction with Dutch healthcare technology company Philips’ handling of a significant product recall involving millions of sleep apnea and respiratory devices. This development has sent shockwaves through Philips, causing its shares to plummet by 9.6% to 16.81 euros.
The recall of these devices has been an ongoing issue for Philips since 2021. The FDA’s latest statement, published overnight, emphasized its concerns, stating that it does not consider the testing and analysis provided by Philips to be sufficient in fully assessing the risks posed to users of the recalled devices. This assertion has created a significant setback for Philips, which had hoped to resolve the issue swiftly.
In response to the FDA’s concerns, Philips revealed that it had enlisted the services of five independent laboratories to test the recalled devices. However, the company acknowledged the need for additional testing and expressed its commitment to working closely with the FDA to address these concerns. Philips emphasized that its top priority is the health and well-being of patients, which includes providing replacement devices and conducting further safety assessments.
Roy Jakobs, who assumed the role of CEO in October 2022, has made resolving the recall his primary focus since taking office.
The primary issue with the recalled devices revolves around the type of foam used in their construction, which can degrade when exposed to cleaning chemicals. This degradation can result in injuries to airways or even lead to cancer, according to the FDA. The agency has received a staggering 100,000 complaint reports related to these machines, with 385 reported deaths attributed to their use.
The consequences of the recall have been severe for Philips, as the company lost more than two-thirds of its market valuation in 2021-2022. Despite these challenges, the company managed to stage a modest recovery in 2023.
Analysts from Bernstein have characterized the FDA’s ongoing concerns as negative news for Philips. They have set a price target of 20 euros for the company’s stock and rated it as ‘market perform.’ The FDA’s dissatisfaction underscores that the recall situation is far from resolved.
The FDA has also taken additional steps to address the situation, adding a new resource section to its website that includes feedback from affected patients and a comprehensive timeline of events. In March 2022, the FDA directed Philips to improve its communication with the public, including issuing monthly updates. In May 2022, it proposed issuing Philips a repair/replace/refund order, an authority that had not been utilized for a decade.
While Philips recently settled one major category of legal claims related to the recall, for which it had set aside a 575 million euro provision, the company still faces personal injury claims and an investigation by the U.S. Department of Justice. Discussions with the FDA regarding a “consent decree” or settlement are ongoing, indicating that the company’s challenges in resolving this matter are far from over.