On Monday local time, Royal Philips Electronics of the Netherlands (Philips) officially announced that it has reached a settlement agreement with the US Food and Drug Administration (FDA) regarding a large-scale recall of ventilators, and its related products will temporarily withdraw from the US market. Before the US stock market, Philips's stock price fell by about 6%.
In its financial report released on the same day, Philips pointed out that due to the need to handle the settlement agreement reached with the FDA, the company set aside 363 million euros (approximately 393.5 million US dollars) in funds for remedial activities, inventory write downs, and other purposes in the fourth quarter of last year. By 2024, related expenses will account for approximately 1% of total revenue.
(Source: Company website)
Philips stated that it will stop selling hospital ventilators, home ventilators, portable and fixed oxygen concentrators, and other products in the United States until its sleep apnea machine and ventilator equipment are improved and meet the satisfaction of US regulatory agencies.
In addition, the settlement agreement also requires approval from US courts. Philips will continue to provide services to its existing customers in the ventilator department, including providing consumables and accessories.
Philips CEO Roy Jakobs stated in a statement, "We are fully committed to complying with the settlement agreement, which is an important step and provides a clear path forward."
Jakobs also claimed that after extensive testing of these devices, Philips did not "see any obvious harm". However, the FDA stated that it believes the analysis is not sufficient to comprehensively assess the risks posed by the device to users. FDA officials said they have received 385 death reports that may be related to machine malfunctions.
In June 2021, Philips recalled millions of sleep apnea treatment machines and ventilators, 80% of which are used to help patients with sleep apnea, and the rest are life sustaining mechanical ventilators, because it is worried that a foam material used in ventilator equipment may degrade and release harmful and possibly carcinogenic particles.
Afterwards, the incident continued to ferment, and due to investor concerns about high litigation costs, Philips' market value shrank by about 70%.
Huge claims
Although this electronics company has allocated approximately 1 billion euros to resolve some lawsuits, it may still face costly class action lawsuits and thousands of individual lawsuits in the future. The company is also under investigation by the US Department of Justice.
Jeffrey analyst Julien Dormois believes that it is expected that Philips will resume selling sleep apnea treatment machines in the United States in a few years.
Analyst Holly from stated that Philips may be forced to pay $2 billion to $4.5 billion to settle personal injury claims related to these ventilator devices.
Despite discontinuing the sale of respirator products in the United States, Philips still expects to achieve a comparable sales growth of 3-5% in 2024, with an adjusted EBITA profit margin of 11-11.5%.
Market shuffle
Of course, Philips's exit is a great positive event for its competitors, which will reshape the global ventilator market.
Huajin Securities released a research report on Monday, stating that with Philips withdrawing from sales of respiratory equipment in the US market, China's leading respirator and mask company, Jardine Matheson (301367. SZ), is expected to drive rapid growth in its overseas business with its high cost performance and brand advantages. Therefore, it has given an overweight rating to Jardine Matheson (301367. SZ).
The main market for home ventilators in the United States is the medical insurance market, with high channel barriers and limited participants, mainly consisting of Ruisimai, Philips, and Jardine Matheson. After Philips announced the withdrawal of its equipment from the market, it is expected that Jardine Matheson's share in the United States will stabilize and gradually increase.
According to data disclosed by Jardine Matheson, its market share and ranking of non-invasive home ventilators in the global market have increased from 4.5% in 2020 (fourth place) to 17.7% in 2022 (second place), and its domestic market share has increased from 21.6% in 2020 to 25.8% in 2022.