Philips expects €545m in litigation costs over faulty medical devices

Royal Philips is anticipating more than $600 million (€545 million) of legal costs in the US arising from millions of potentially faulty medical devices.

The Dutch health technology company said on Monday that it had set aside €575 million against the resolution of a class-action lawsuit brought after the 2021 discovery of a faulty component in machines used to help patients with sleep apnoea to breathe.

The provision is in addition to €204 million in costs related to job cuts and problems with the respiratory devices, more than five million of which it has had to repair or replace. The company’s total loss before tax in the first three months of this year was €678 million as a result.

The anticipated litigation costs are the latest indication of the costly fallout since Philips’ disclosure of the faulty component, which has been followed by thousands of job cuts and the departure of a former chief executive.

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The 132-year-old group had been counting on a shift from electronics towards health technology to boost business and win over shareholders. Its stock, however, has lost almost two-thirds of its value since 2021.

Philips shares rose 13 per cent in early trading on Monday as the group reported earnings above expectations and suggested it was close to a resolution in the US lawsuit.

Adjusted earnings before interest, tax and amortisation, which exclude litigation costs, rose almost 50 per cent year on year to €359 million during the first quarter, driven by an easing of supply chain problems that have hit sales at many manufacturers.

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Chief executive, Roy Jakobs, said he was “encouraged” by “a solid start to the year” but he acknowledged “uncertainties remain” and that resolving the recall of respiratory devices was the group’s “highest priority”.

Philips faces further class-action lawsuits and personal injury claims brought after it emerged that foam used in its respiratory devices could degrade, exposing patients to toxic chemicals.

Its Philips Respironics business is also subject to an investigation by the US department of justice and is in discussions with the Food and Drug Administration over a settlement. Philips acknowledged these factors could have a financial impact but it was unable to say how large this would be. – The Financial Times