Philips Plunges After Halting Sales of Sleep Apnea Devices in the US

New York Registry shares of Koninklijke Philips (PHG) tumbled over 5% in intraday trading Monday after the medical technology firm said it would stop selling its sleep apnea devices in the U.S. after they were found to present a potential hazard.

The Netherlands-based company said the decision came as it complied with a consent decree with the Department of Justice representing the Food and Drug Administration (FDA). It said that decree would provide its Philips Respironics unit “with a roadmap of defined actions, milestones, and deliverables to demonstrate compliance with regulatory requirements and to restore the business.”

Philips said that until the relevant requirements of the consent decree are met, it “will not sell new CPAP or BiPAP sleep therapy devices or other respiratory care devices in the U.S.”

In October, the FDA ruled that Philips’ handling of concerns about the devices was inadequate. The machines had been recalled after officials said in June 2021 that they were dangerous because sound-reducing polyurethane foam in the devices could break down and potentially be inhaled or swallowed by users.

The company noted that as a consequence of the multi-year consent decree, it recorded a 363 million euro ($392 million) provision in the fourth quarter related to remediation activities, inventory write-downs, and “onerous contract provisions.” It added that it anticipates some 100 basis points (bps) of costs this year for remediation activities and disgorgement payments for Philips Respironics sales in the U.S.

In the fourth quarter, Philips reported revenue rose 3% from a year ago to 5.06 billion euros ($5.47 billion), with income from operations of 24 million euros ($25.9 million), which included the consent decree writedowns. 

Despite Monday’s selloff, New York Registry shares of Philips were up more than 24% over the past year.