The U.S. Food and Drug Administration (FDA) has expressed continued dissatisfaction with the way Dutch healthcare technology firm Philips (PHG.AS) has managed a significant product recall and is urging the company to conduct additional risk assessments.
As a result of this news, Philips saw its shares drop by 9.6% to 16.81 euros at 0726 GMT on Friday, marking the latest setback in an ongoing saga involving the recall of millions of sleep apnea and respiratory devices, which first began in 2021.
The FDA issued an overnight update stating, “We do not believe that the testing and analysis Philips has shared to date are adequate to fully assess the risks posed to users from the recalled devices.” This statement further compounds the challenges faced by Philips in resolving the issue.
In response, Philips disclosed that it had engaged five independent laboratories to conduct testing on the recalled devices. However, the company acknowledged the FDA’s call for more comprehensive testing and indicated that it was in discussions with the agency to finalize the details.
In a statement, Philips emphasized its commitment to prioritizing the health and well-being of patients by providing replacement devices and conducting further safety testing on the recalled sleep and respiratory care devices.
The CEO of Philips, Roy Jakobs, who assumed his position in October 2022 following the departure of his predecessor, has made addressing the recall his primary focus.
The devices subject to recall utilized a foam material that could deteriorate when exposed to cleaning chemicals, potentially causing harm to users’ airways or even leading to cancer, according to the FDA. The agency has received a significant number of complaint reports, totaling 100,000, along with 385 reported deaths associated with these machines.
Philips has faced substantial market challenges due to the recall, with its market valuation plummeting by over two-thirds in 2021-2022. However, the company has shown signs of a modest recovery in 2023.
Analysts from Bernstein commented on the situation, stating, “This is negative news. The FDA is clearly still dissatisfied with the way the recall is being handled.” They maintain a 20 euro price target and a ‘market perform’ rating on the stock.
The FDA’s latest update emphasized its ongoing dissatisfaction with the recall’s status and included a new resource section on its website, incorporating feedback from patients and providing a comprehensive timeline of events.
The FDA noted that in March 2022, it had instructed Philips to improve its communication with the public, including the issuance of monthly updates. Additionally, in May 2022, the FDA proposed issuing a repair/replace/refund order to Philips, an authority that had not been exercised for a decade.
In the preceding month, Philips reached a settlement for one major category of legal claims related to the recall, for which it had previously set aside a provision of 575 million euros ($606 million).
However, the company still faces personal injury claims and an investigation by the U.S. Department of Justice. Philips is currently engaged in discussions with the FDA regarding a potential “consent decree” or settlement.
