Philips and US Department of Justice discuss consent decree on sleep apnea and ventilator recall

Philips is in talks with the US Department of Justice over its recall of millions of sleep apnea devices and ventilators, the the company said on a second-quarter earnings call.

We are in confidential discussions. We cannot yet disclose what the terms are and what impact they will have, but we understand you are very interested in this and as soon as we can share we will share more details on this, Roy Jakobs, head of Philips’ Connected Care unit, told investors.

Jacobs said the company received a proposed consent decree from the DOJ on July 18. The DOJ subpoenaed Philips earlier this year, seeking information about the recall.

A Philips spokesperson wrote in an emailed statement that “the first stages of the discussions, which are confidential, we cannot speculate on the outcome. The DOJ did not return a request for comment per post.

Philips said in a press release Monday that the DOJ talks come after the U.S. Food and Drug Administration inspected some of its U.S. facilities following the company’s June 2021 recall, which now has more than 5.5 million devices. Philips said it was in discussions with the DOJ, on behalf of the FDA, regarding “the terms of a proposed consent decree to address the identified issues.”

The company’s stock price fell nearly 7% in Monday morning trading. Wall Street analysts were already weighing in on the DOJ news, arguing it would likely boost rival ResMed, if the FDA temporarily halted Philips manufacturing.

“The assent decree could lead to the cessation of production at [Philips] facilities while it resolves its quality issues, further delaying market re-entry,” Needham analysts wrote in a Monday note. “However, we believe the FDA/DOJ could try to avoid this given the severe shortage of flow generators and the backlog of patients.”

KeyBanc Capital Markets analysts wrote that a consent decree “would present additional uncertainty about its ability to fully revert to a new patient diagnosis.”

In April 2020, Philips announced that the FDA had lifted manufacturing restrictions for the company’s emergency care and resuscitation businesses, which are part of a consent decree put in place in 2017. enabled Philips to begin manufacturing and shipping external defibrillators in the United States.

Philips said the earlier consent decree came after regulators found issues with manufacturing sites in Washington and Massachusetts and “addressed quality issues with specific components of Philips defibrillators.”

A spokesperson said in an emailed statement that the 2017 consent decree is still in effect.

Philips executives spent a significant portion of Monday’s call talking about its recall of sleep apnea devices and ventilators, prompted by concerns about degradation of sound-absorbing foam that potentially exposes users to toxic chemicals.

The company has produced about 3 million repair kits or replacement devices so far, up from 2.2 million last quarter. It expects to have produced or shipped 90% of replacements by the end of the year, in line with its expectations last quarter.

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