Dutch medical device manufacturer Philips announced on Monday that it has reached a $1.1 billion settlement in the United States to resolve lawsuits related to defective sleep machines. This case has been a persistent issue for the company.
News of the settlement sent the company’s stock soaring, providing relief to shareholders who had feared a more burdensome outcome.
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Since 2021, Philips has been facing a series of challenges concerning its DreamStation machines for sleep apnea. Sleep apnea is a disorder characterized by irregular breathing patterns during sleep.
In the United States, the company announced earlier this year that it would suspend new sales of the machines. This decision came after a string of recalls for the devices produced by its subsidiary, Philips Respironics.
In a statement on Monday, Philips announced that it has reached a settlement with the plaintiffs to resolve both the personal injury litigation and the medical monitoring class action. The company emphasizes that this agreement is intended to bring an end to the uncertainty surrounding the litigation in the U.S. However, it is important to note that Philips does not admit fault or liability, nor does it acknowledge that any injuries were caused by Respironics’ devices.
According to the announcement, the agreement specifically covers claims that have been filed in U.S. courts, as well as any other potential cases.
In a note, analysts at the Jefferies investment firm expressed their view that the settlement was less severe than expected and would bring an end to the uncertainty surrounding the litigation.
Following the announcement, shares in Philips experienced a remarkable surge of over 33 percent on the Amsterdam stock exchange.
“Our utmost priority is ensuring patient safety and quality, and we have made significant strides in addressing the implications of the Respironics recall,” stated Roy Jakobs, CEO of Philips, in the official company announcement.
According to the spokesperson, the sleep therapy devices for patients are nearly finished with the remediation process. The current test results indicate that the use of these devices is unlikely to cause any significant health issues.
“We deeply apologize for any distress that patients may have endured,” he expressed, emphasizing that the settlements mark significant achievements and offer greater transparency regarding Philips’ future direction.”
In 2023, Philips reported losses of €463 million ($501 million) for the full year, leading to significant job cuts.
In the first quarter of this year, it incurred a loss amounting to 824 million euros, with sales reaching 4.1 billion euros, as per Monday’s report.
According to Philips, the company expects to make the settlement payments in 2025 and will fund them through its cash flow generation.
In the first quarter, the company made a provision of 982 million euros ($1.05 billion) to cover the settlement.
Philips has also reached an agreement with insurers to provide a payment of 540 million euros to cover claims related to the recall of Respironics.
During a conference call, Jakobs expressed relief as he stated, “We can finally put the three major litigation cases behind us.”
“While cautioning that everything is not resolved, he emphasized the importance of moving forward.”
Oddo BHF, a Franco-German bank, expressed its belief that the recent settlement significantly reduces the investment risks, stating that “the long tail of remaining legal risks is now very manageable.”
