Philips’ share price shoots up after $1.1 billion settlement in apnea affair

Philips has settled for 1.1 billion dollars (1.03 billion euros) with American customers over defects in the company’s sleep apnea devices. This concerns approximately 58 thousand patients who used Philips devices and suffered personal injury as a result, or are under medical supervision because they fear future damage. As part of the settlement, Philips does not have to admit guilt for the sale of the devices.

Analysts recently predicted that a settlement in this case would cost Philips several billion dollars. So that turned out to be considerably lower. The case raised concerns in the Philips boardroom and among investors, partly because American jury trials are unpredictable.

“This puts the vast majority of the claims behind us,” Philips CEO Roy Jakobs said on Monday after the settlement was announced. Users of the devices have also filed claims in other parts of the world, but the amounts are expected to be smaller. Almost all defective equipment has now been replaced.

Possibly still fined

“That doesn’t mean everything has been solved,” Jakobs warned. There is still an ongoing investigation by the US Department of Justice, which could lead to a fine. Philips has not yet set aside any money for this. The investigation is still ongoing and Jakobs does not want to speculate about the outcome.

In addition, there are two ongoing proceedings from investors who want to hold Philips liable for the economic damage they have suffered due to the loss of the price of their shares. The management of the group had been aware of possible problems with the devices for years, but did not act accordingly.

After the settlement was announced, Phillips shares opened 33 percent higher on the Amsterdam stock exchange on Monday. The affair caused Philips a share price loss of more than 50 percent before Monday. That has not yet been remedied.

Cost of affair: 5 billion

In 2021 it was found that the soundproofing foam in the sleep apnea devices can crumble. It was assumed that the foam causes health damage to users. Philips therefore recalled 5.5 million devices. Last year, the company reported based on its own research that the foam particles do not lead to an increased risk of cancer or other diseases. Dealing with the problems, including the latest settlement, already cost more than 5 billion euros, not to mention losses incurred and the stock market decline.

Last year, Philips settled with American patients for the equivalent of 448 million euros due to the economic damage allegedly suffered because the devices did not work properly. A judge recently confirmed that settlement.

Jakobs calls the two settlements ‘important milestones’ that ‘create more clarity about the way forward for Philips’. Jakobs will especially hope that this will put an end to the reputational damage caused by the devices. The persistent stories about malfunctioning sleep apnea machines are giving Philips a lot of negative publicity.

Sample loss

This was also noticeable in Philips’ financial performance. Last year the company suffered a monster loss of 1.6 billion euros. In recent months, Philips has cut six thousand jobs, including 1,100 in the Netherlands.

The latest settlement was reached with a group of patients who filed a joint case. Payments will start next year, Philips said. However, 980 million euros have already been paid for the settlement in the first quarterly account of this year.

Philips has also reached an agreement with insurers to pay out 540 million euros for the recall of sleep apnea devices. That money is expected to arrive in the second quarter of 2024.

Especially in the US

The problems mainly occur in the American market. In January, Philips reached an agreement with the American regulator FDA, as a result of which sales of the devices have been stopped for the time being. Only when Philips devices meet all safety requirements can they enter the American market again.

Philips announced the settlement on Monday together with the figures for the first quarter of 2024. The company recorded a turnover of 4.1 billion euros. This amounts to a growth of 2.4 percent, despite disappointing sales in the growth market China. Partly because of the settlement, Philips’ loss this quarter amounts to 800 million euros.