Philips agrees to $1.1 billion settlement over U.S. ventilator recall

Dutch medical devices maker Philips announced on Monday that it has agreed to a $1.1 billion settlement regarding personal injury lawsuits in the United States.

This agreement relates to the global recall of ventilators used for treating sleep apnea. Despite the settlement, Philips has stated that it does not admit any fault or liability.

The resolution aims to eliminate uncertainty surrounding the U.S. litigation.

Impact of the recall on Philips

Based in Amsterdam, Philips has faced significant challenges since the recall of millions of breathing devices and ventilators three years ago.

The recall, initiated in April 2021, was due to safety concerns that the foam used in these devices could degrade and become toxic, potentially increasing cancer risks.

This issue has substantially affected Philips’ market value, with approximately two-thirds decline due to fears of hefty litigation expenses.

Legal and regulatory developments

Earlier this month, Philips disclosed the final details of a consent decree with U.S. authorities that was finalized in January.

This decree outlines required improvements at the company’s Respironics plants in the U.S.

CEO Roy Jakobs said,

“The approved consent decree 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.”

Financial arrangements and projections

In addition to the settlement, Philips has reached an agreement with insurers to cover 540 million euros ($580 million) in product liability costs, expected to be received in the second quarter of 2024.

The company has also booked a provision of 982 million euros in its first-quarter results to cover the settlement payments, which it plans to fund from next year’s cash flow.

Philips’ Q1 performance

Philips also reported its first-quarter earnings on Monday, surpassing analyst expectations with an 8% increase in core profit to 388 million euros.

Analysts had anticipated an adjusted EBITA of 361 million euros. The company achieved a comparable sales growth of 2.4%, aligning with expectations and resulting in a higher-than-expected profit margin of 9.4%.

However, order intake saw a decrease of 3.8% compared to the first three months of 2023, largely due to slower sales in China.