Royal Philips NV shares soared by a record after a lower-than-expected settlement on US claims linked to faulty sleep apnea devices, stoking hopes the manufacturer has moved past concerns that have dogged it for the past three years.
The stock surged as much as 47% in Amsterdam following the statement, adding nearly $9 billion to the medical equipment maker’s market value in a single day. Philips’ market valuation still remains 35% lower than before the start of the issues, which have seen the company swap out its chief executive officer and cut 10,000 positions to save costs.
The Dutch company set aside €982 million ($1.1 billion) to cover the expected expense for a medical monitoring class-action lawsuit and individual personal injury claims in the US, much less than analyst predictions of as much as $4.5 billion. The deal is expected to draw a line under the US claims over the faulty sleep therapy devices that have weighed on the stock since June 2021.
“This is much milder than feared and shall mark the end of litigation uncertainty,” Jefferies analysts said.
The manufacturer started recalling the sleep therapy devices over concerns of disintegrating noise-cancelling foam inside the machines that patients inhaled. The US Food and Drug Administration has labeled the fault a Class 1 issue, the most serious type.
Analysts had expected a larger cost for the latest settlements. Bloomberg Intelligence analyst Holly Froum had put the likely payments between $2 billion and $4.5 billion to settle personal-injury claims tied to the devices. The total costs for the sleep apnea recall are now around $5 billion, according to Bloomberg calculations.
Philips claims the use of the faulty devices doesn’t result in “any appreciable harm” to patients. Still, the FDA has said it doesn’t believe that the analysis is adequate to fully evaluate the risks posed to users and asked for additional testing from Philips. The company is still conducting the toxicology tests related to the device.
The devices are designed to force extra air down the throat to treat obstructive apnea — an ailment that interferes with proper sleep and can cause fatal heart problems.
Users have alleged that inhaling the foam after it disintegrates poses a cancer risk. FDA officials said in January that they received 561 reports of deaths possibly linked to malfunctioning machines.
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