Philips
(NYSE: PHG)
today announced a final agreement on a consent decree with the FDA and U.S. Dept. of Justice (DOJ).
The consent decree primarily focuses on its Philips’ Pennsylvania-based Respironics business — the subject of a major recall over the past several years. That includes manufacturing facilities in Murrysville and New Kensington, a service center in Mount Pleasant and its Respironics headquarters in Pittsburgh.
Until the company meets the relevant requirements of the consent decree, it may not sell the CPAP and BiPap devices in the U.S.
Philips began discussions with the DOJ, representing the FDA, in July 2022 over the terms of a proposed consent decree. On Jan. 29 of this year, the company agreed on the terms of the consent decree ahead of today’s finalization.
The consent decree provides Philips Respironics with a roadmap forward, the company said in a news release. It defines actions, milestones and deliverables to meet relevant regulatory requirements.
“Strengthening patient safety and quality remains Philips’ highest priority and the increased scrutiny will help us to improve even more. With the agreement on a consent decree for Philips Respironics in place, we now have a clear path forward to gradually restore the business, serving patients around the world,” CEO Roy Jakobs said in a news release.
How Philips got here
The Dutch medtech giant began dealing with troubles within its Respironics business in mid-2021 relating to continuous positive airway pressure (CPAP) machines. A one-time leader in the sleep respiratory market, the company lost a significant share as a result of repeated troubles related to the sleep apnea machines.
In April 2021, Philips recalled more than 5 million devices since then due to the dangerous degradation of sound abatement foam. The FDA logged more than 100,000 reports of problems related to the recall.
At least 385 related to deaths.
While the company continues to work through its remediation process, more light has been shed on how the recall unfolded as it did. ProPublica and the Pittsburgh Post-Gazette first reported that Philips withheld its CPAP issues from the FDA for years.
The reporting later revealed Jakobs’ apparent knowledge of the ongoing issues and alleged approval of the sale of defective devices. The most recent development from that investigative reporting includes concerning chemicals found in replacement devices.
William Blair analysts think Philips likely won’t be able to sell respiratory products without restrictions until 2025 at the earliest.
See the full timeline outlining the events of the recall here.
Terms of the consent decree
Under the terms agreed with the FDA and DOJ, Philips intends to continue prioritizing the remediation of its sleep and respiratory care devices. The company said it already remediated more than 99% of the actionable CPAP and BiPAP devices globally. Remediation remains ongoing with the relevant authorities.
The Respironics business must demonstrate continued compliance with the FDA’s Quality System Regulation. This falls in line with the current good manufacturing practice requirements for medical devices.
In the U.S., millions of patients continue using the company’s sleep and respiratory care devices. Philips may continue servicing these devices and selling accessories (like masks), consumables (like patient circuits) and replacement parts (including repair kits).
The consent decree includes provisions to allow for exports. Outside the U.S., Philips Respironics plans to continue providing new sleep and respiratory care devices. The company said it has not identified any safety issues.
Government regulators weigh in
The DOJ said in a news release that a federal court ordered Philips Respironics to stop manufacturing most sleep and respiratory devices at those three Pennsylvania facilities, and to stop distributing such devices from those facilities, until the company takes specific measures designed to increase the safety of its devices and ensure compliance with the Federal Food, Drug, and Cosmetic Act (FDCA).
“Medical device manufacturers have a responsibility to comply with requirements designed to ensure the safety and effectiveness of their products,” said Principal Deputy Assistant Attorney General Brian Boynton, head of the Justice Department’s Civil Division. “Today’s action reflects our commitment to vigorously enforce federal law and prevent manufacturers from marketing adulterated and misbranded devices to vulnerable patients who need them.”
The FDA noted its agreement to a remediation plan to ensure that Philips provides recall to patients impacted by the recall. This could include new or reworked/remediated devices or, for certain devices, the option for a partial refund.
“The finalization of this decree is a significant milestone. Throughout this recall, we have provided patients with important health information by issuing numerous safety communications and have taken actions rarely used by the agency to help protect those impacted by this recall,” said Dr. Jeff Shuren, director of the FDA’s Center for Devices and Radiological Health (CDRH). “Today’s action is a culmination of those efforts and includes novel provisions aimed at helping ensure that patients receive the relief they have long deserved. This also marks the first time a device company is providing a remediation payment option for a recalled device under a consent decree.”
The financial impact on Philips
Philips expects costs of around 100 basis points in 2024 relating to remediation and profit disgorgement payments for U.S. Respironics sales.
The group’s financial outlook still calls for mid-single-digit comparable sales growth and low-teens adjusted EBITA margin. Philips expects €1.4 billion to €1.6 billion ($1.52 billion to $1.74 billion) in free cash flow, all taking the consent decree into account. The financial outlook excludes a DOJ investigation related to the Respironics field action and the impact of ongoing litigation.
“Patient safety and quality is our number one priority. We know what we must do to meet the consent decree requirements. Philips Respironics has been working with the FDA, and is already making significant changes in its organization, quality management systems and operations,” Philips Chief Patient Safety and Quality Officer Steve C de Baca said. “This includes strengthening the quality management processes and deepening the competencies of the relevant teams. We are fully committed to meeting the terms of the consent decree and continuing to serve the millions of patients who rely on our devices every day.”
