The Netherlands-based medical device manufacturer, Philips, recently announced a $1.1 billion settlement in the United States to address lawsuits related to faulty sleep machines. The settlement comes after a series of issues with the company’s DreamStation machines, which are used to treat sleep apnea, a condition characterized by interrupted breathing during sleep.
In response to the crisis, Philips halted new sales of the machines in the US earlier this year following recalls of devices made by its subsidiary, Philips Respironics. This move caused concern among shareholders, but the settlement was perceived as less burdensome than initially feared.
The agreement reached by Philips addresses personal injury litigation and a medical monitoring class action, bringing an end to the uncertainty surrounding the legal proceedings in the US. The company stated that it did not admit any fault or liability, nor did it acknowledge that any injuries were caused by Respironics’ devices.
Following the announcement of the settlement, shares in Philips surged by over 33% on the Amsterdam stock exchange, indicating positive investor sentiment. The company’s CEO, Roy Jakobs, emphasized the importance of patient safety and quality, noting that the devices’ remediation is nearly complete and is not expected to pose significant health risks.
Despite the financial impact of the settlement, Philips remains committed to addressing the consequences of the recall and providing clarity on its future direction. The company reported significant losses in 2023 and the first quarter of this year, attributed in part to the ongoing challenges related to the sleep therapy devices.
As part of the settlement, Philips has set aside a provision of 982 million euros in the first quarter, with expectations that the payments will be made in 2025. Additionally, the company reached an agreement with insurers to cover recall-related claims, further mitigating potential financial risks.
With the major litigation cases now settled, analysts and investors see the resolution as a positive development for Philips, allowing the company to move forward with greater certainty. While there may still be remaining legal risks to address, the settlement is viewed as a significant step towards derisking the investment case for Philips.