Philips expects €1.3 billion charge for sleep apnea machine recall, lawsuits

Medical technology company Philips expects to lose 1.3 billion euros on the business unit responsible for the sleep apnea devices the company had to recall. Millions of machines have been recalled. Philips expects that a possible settlement in the United States will take a significant bite out of subsidiary Respironics’ value. Philips reported in July that it was negotiating a settlement with the U.S. Department of Justice on the matter.

Philips discovered that the insulating foam in some of its sleep apnea devices could crumble when cleaned with a specific product, causing potential health problems for users. Philips is working on replacing 5.5 million devices. Last summer, Philips produced 3 million replacement devices. The issue came to light last year, but according to the U.S. Food and Drug Administration (FDA), there were indications that something was wrong as early as 2015.

The problems with the sleep apnea devices already cost Philips 719 million euros, excluding legal costs for, for example, claims from angry patients. Investors are also dissatisfied with how things are going. The interest group for private investors VEB held Philips liable for the losses shareholders suffered. The VEB estimated the damage caused by the market losses at 16 billion euros.

Philips also reported in its profit warning that it suffered from parts shortages. As supply chain bottlenecks were even more severe than previously anticipated, third-quarter sales will be about 5 percent lower than in the same period last year. Operating profit will also be significantly lower than a year earlier, the company reported before releasing its final quarterly results on October 24.