Royal Philips (NYSE:PHG) is no longer taking orders of sleep therapy systems as it handles a serious recall involving millions of the devices.
“As a consequence of the prioritization of the repair or replace actions, we are currently not taking new orders for sleep therapy systems while masks and other consumables, of course, continue to be sold,” CEO Frans van Houten said during a July 26 earnings call, transcribed by Seeking Alpha.
Van Houten said it will take 12 months after regulatory approval to address problems with all the devices, which have a polyester-based polyurethane (PE-PUR) sound abatement foam that could potentially break down and enter a device’s air pathway.
The FDA recently designated the recall as Class I, noting that users of the Philips ventilator devices face a host of health problems and toxic carcinogenic effects. The agency said that there have been more than 1,200 complaints and more than 100 injuries.
“To be clear, we do not have data at this point such as preclinical or clinical study results indicating that exposure to the particulates or emitted chemicals related to the sound abatement foam will lead to disease, while at this point, we cannot exclude it either,” van Houten said. “The various regulators around the world have made their own interpretation of the field safety notice and the data, also weighing the patient risks and benefits.”
Philips is boosting production of new replacement devices and repair kits, which will start shipping as soon as regulatory authorities authorize the fixes, said van Houten, who added that Philips submitted the relevant applications to FDA in June.
The headline of a Needham analyst note released after Philips earnings said: “Philips is Effectively Out of the Sleep Device Market for the Next Year.”
“We now see potential for [ResMed] to capture a significant portion of PHG’s ~$780M of sleep device business over the next ~12 months,” said Needham senior research analyst Mike Matson.
Analysts at Baird also previously noted that the recall involves an opportunity for competitor ResMed.
Before COVID-19, Philips’ sleep business annual revenue was close to €1.1 billion (nearly $1.3 billion), about 60% from systems and 40% from masks and consumables, according to the company.
In the second quarter alone, Philips registered a €250 million ($285 million) provision related to the recall. In addition, the company also announced a €1.95 billion ($2.22 billion) goodwill impairment for its Sleep & Respiratory Care business. Philips is already facing civil complaints and personal injury claims in courts, according to van Houton.
Van Houton said the company identified the problem behind the recall through its own post-market surveillance processes. “In the last few years, we have made strong progress in our quality culture and approach. Improved design controls, improved post-market surveillance and improvements in the way that we handle corrective and preventative actions.”