The company says it agreed with the FDA and the DOJ on the terms of a consent decree focused on the Respironics business. Philips says it provides “clarity and a roadmap” for compliance and the restoration of the business.
William Blair analysts think Philips likely won’t be able to sell respiratory products without restrictions until 2025 — at the earliest.
The Dutch medtech giant began dealing with troubles within its Respironics business in mid-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 CEO Roy 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.
In a communication updated on the company’s website last week, Philips confirmed the discontinuation of a number of products. That includes the DreamStation Go portable CPAP therapy system, which was included in the massive recall. The full list of discontinued devices can be accessed here.
Philips describes the decision to discontinue these products as a move to streamline its portfolio and narrow focus on other programs.
“Importantly, changes to our commercial portfolio will not affect our commitment to the remediation of devices impacted by the June 2021 recall of certain CPAP, BiPAP and mechanical ventilator devices,” the communication says.
More on the consent decree resolution
Philips disclosed midway through 2022 that the U.S. Department of Justice, acting on behalf of FDA, provided a proposed consent decree on July 18 following an inspection of U.S. Philips Respironics facilities in 2021.
The company today said it agreed on the terms of a consent decree with the DOJ and FDA. It’s currently being finalized and will be submitted to the relevant U.S. court for approval. Philips said it should provide Respironics with a roadmap of defined actions, milestones and deliverables. It aims to demonstrate compliance with regulatory requirements and re-establish the business.
In the U.S., Philips Respironics intends to continue servicing sleep and respiratory care devices and supply accessories, consumables and replacement parts. Until it meets the relevant requirements of the consent decree, Philips won’t sell new CPAP or BiPAP sleep therapy devices or other respiratory care devices in the U.S.
Outside the U.S., it may continue to provide new sleep and respiratory care devices, accessories and more. The company recorded a provision of $392.5 million in the fourth quarter related to remediation activities, inventory write-downs and onerous contract provisions.
Philips expects to offer more details once the consent decree becomes finalized and submitted to a U.S. court for approval.
Who could benefit from the product discontinuations?
The Philips recall had widespread ramifications on the sleep respiratory market, with competitors like ResMed (NYSE: RMD) and Inspire Medical (NYSE: INSP) feeling both positive and negative effects. Today’s news sent RMD shares up more than 3% to $196.15 apiece, and INSP shares were up more than 1% to $215.55 apiece.
ResMed, which develops CPAP technology, first saw a massive rise in demand because of Philips’ absence from the market. Revenues spiked, but increased demand caused some supply chain issues and delays for customers. The company recently changed its operating model following a 5% workforce reduction.
Margaret Kaczor Andrew, Macauley Kilbane, and James Beers at William Blair think that with Philips still out of the market for over a year, ResMed will be able to better keep the market share it gained during the recall. “Given ResMed’s now meaningful share in the market, the company is primarily focused on accelerating market growth through demand generation, better products/diagnostics, and software to improve adherence and utilization.”
Minneapolis-based Inspire Medical develops minimally invasive implantable products for treating obstructive sleep apnea. It offers an alternative to the traditional CPAP machines made by the likes of Philips and ResMed.
Inspire Medical’s reputation has grown over the past several years as Philips dealt with its recall, and people moved away from that method of treatment.
ProSomnus offers another alternative, for which it picked up significant funding last fall. Its FDA-cleared, non-invasive, mouthguard-like intraoral medical devices precisely track the treatment plan and anatomy of each patient.
Pleasanton, California-based ProSomnus released a statement following the Philips product discontinuations highlighting its preparedness to support patients with obstructive sleep apnea.
“ProSomnus along with our qualified providers are mobilized to facilitate access to high-quality healthcare for the millions of patients suffering from untreated Obstructive Sleep Apnea,” said Len Liptak, CEO of ProSomnus. “Scientific data from over a dozen studies, including hundreds of patients, establish ProSomnus devices as safe, effective, and patient-preferred. We stand ready to help sleep physicians and their patients connect to qualified providers.”
Philips reports fourth-quarter results
Shares of PHG took a hit this morning on the back of the latest Respironics news, coupled with fourth-quarter financial results. They fell more than 5% to $21.52 apiece in morning trading. (MassDevice‘s MedTech 100 Index was up slightly.)
Sales grew by 3% year-over-year in the quarter, totaling approximately $5.5 billion. However, that amount fell short of Wall Street expectations, as analysts projected $5.8 billion in revenue.
Philips reported losses of $124.3 million, largely thanks to the $392.5 million cash outlay related to the consent decree.
“Our strong results in 2023 were driven by solid execution of the first year of our three-year plan to create value with sustainable impact,” CEO Roy Jakobs said. “While there is more work to be done, the progress we achieved in a volatile world lays a solid foundation for sustained performance.
“Patient safety and quality remain Philips’ highest priority across the company. Resolving the consequences of the Respironics recall for our patients and customers is a key focus area, and I acknowledge and apologize for the distress and concern caused. We are fully committed to complying with the consent decree, which is an important step and provides a clear path forward.”
Philips expects sales growth between 3% and 5% in 2024.
