Philips Respironics reaches agreement with US government on a consent decree creating a clear path forward

Apr 10, 2024 | 4 minute read

Philips confirms that further to communicating the main terms of the Philips Respironics consent decree on January 29, 2024, Philips’ subsidiaries Philips Holding USA and Philips Respironics have now reached final agreement on the consent decree with the DOJ and FDA. As previously stated:

The consent decree primarily focuses on Philips Respironics’ business operations in the US.
It provides clarity and a roadmap to demonstrate compliance with regulatory requirements and to restore the Philips Respironics business.
Philips Respironics is committed to meeting the consent decree requirements, while continuing to service healthcare providers and their patients under agreed conditions in the US and outside the US.
The 2023 – 2025 Group financial outlook takes the consent decree into account and remains unchanged.

Amsterdam, the Netherlands - Following the FDA’s inspection of Philips Respironics’ facility in Murrysville in 2021 and the subsequent inspectional observations, the US Department of Justice (DOJ), representing the US Food and Drug Administration (FDA), began discussions with Royal Philips (NYSE: PHG, AEX: PHIA) in July 2022 regarding the terms of a proposed consent decree. On January 29, 2024, Philips announced that it agreed with the DOJ and FDA on the terms of the proposed consent decree.

Philips’ subsidiaries Philips Holding USA and Philips Respironics have now reached final agreement on the consent decree with the DOJ and FDA, that primarily focuses on Philips Respironics’ business operations in the US, including its manufacturing facilities in Murrysville and New Kensington, its service center in Mount Pleasant and its Respironics headquarters in Pittsburgh in Pennsylvania.

The consent decree provides Philips Respironics with a roadmap of defined actions, milestones, and deliverables to meet relevant regulatory requirements, as previously communicated by Philips on January 29, 2024, including:

Philips Respironics will continue to prioritize completing the remediation of the sleep and respiratory care devices under Respironics’ voluntary June 2021 recall. More than 99% of the actionable registered CPAP and BiPAP sleep therapy devices have been remediated globally, while the remediation of the ventilators is ongoing in coordination with the relevant competent authorities. Philips Respironics will retain independent experts to review various aspects of the recall remediation.
Philips Respironics’ business operations must demonstrate continued compliance with the FDA’s Quality System Regulation (current good manufacturing practice requirements for medical devices). Philips Respironics will retain independent experts to supervise the compliance improvement program.
In the US, millions of patients are currently using Philips Respironics sleep and respiratory care devices. Philips Respironics will be permitted to continue servicing these sleep and respiratory care devices that are already with healthcare providers and patients, and to sell accessories (including masks), consumables (including patient circuits), and replacement parts (including repair kits).
In 2021, Philips Respironics voluntarily stopped selling CPAP and BiPAP sleep therapy devices and other respiratory care devices in the US, as it prioritized the production for the remediation of the affected devices under the June 2021 recall. Until the relevant requirements of the consent decree are met, Philips Respironics will not resume selling new CPAP or BiPAP devices or other respiratory care devices in the US.
The consent decree includes provisions to allow for exports. Outside the US, Philips Respironics will continue to provide new sleep and respiratory care devices, accessories (including masks), consumables (including patient circuits), replacement parts (including repair kits) and services, subject to certain requirements that Philips Respironics will meet.

Philips Respironics’ devices with the new silicone sound abatement foam have been subject to extensive testing in accordance with the applicable industry testing standards, and Philips Respironics has not identified any safety issues. These devices may continue to be used in accordance with the instructions for use.

Roy Jakobs, CEO at Philips said: “Strengthening patient safety and quality remains Philips’ highest priority and the increased scrutiny will help us to improve even more. With the agreement on a consent decree for Philips Respironics in place, we now have a clear path forward to gradually restore the business, serving patients around the world.”

Philips Chief Patient Safety and Quality Officer Steve C de Baca said: “Patient safety and quality is our number one priority. We know what we must do to meet the consent decree requirements. Philips Respironics has been working with the FDA, and is already making significant changes in its organization, quality management systems and operations. This includes strengthening the quality management processes and deepening the competencies of the relevant teams. We are fully committed to meeting the terms of the consent decree and continuing to serve the millions of patients who rely on our devices every day.”

Financial impact

As previously stated on January 29, 2024, as a consequence of addressing this consent decree, which is a multi-year plan, Philips expects costs of around 100 basis points in 2024 that relate to remediation activities and profit disgorgement payments for Philips Respironics sales in the US.

The previously stated 2023-2025 Group financial outlook of mid-single-digit comparable sales growth, low-teens Adjusted EBITA margin, and EUR 1.4-1.6 billion free cash flow now takes the consent decree into account and remains unchanged. It excludes the investigation by the US DOJ related to the Respironics field action and the impact of the ongoing litigation.

General information about this consent decree can be found here.

Further information about this consent decree for investors and financial analysts can be found here and here.

About Royal Philips

About Royal Philips

Royal Philips (NYSE: PHG, AEX: PHIA) is a leading health technology company focused on improving people's health and well-being through meaningful innovation. Philips’ patient- and people-centric innovation leverages advanced technology and deep clinical and consumer insights to deliver personal health solutions for consumers and professional health solutions for healthcare providers and their patients in the hospital and the home.

Headquartered in the Netherlands, the company is a leader in diagnostic imaging, ultrasound, image-guided therapy, monitoring and enterprise informatics, as well as in personal health. Philips generated 2023 sales of EUR 18.2 billion and employs approximately 69,700 employees with sales and services in more than 100 countries. News about Philips can be found at www.philips.com/newscenter.
Forward-looking statements

Forward-looking statements

This release contains certain forward-looking statements with respect to the financial condition, results of operations and business of Philips and certain of the plans and objectives of Philips with respect to these items. Examples of forward-looking statements include statements made about the strategy, estimates of sales growth, future EBITA, future developments in Philips’ organic business and the completion of acquisitions and divestments. By their nature, these statements involve risk and uncertainty because they relate to future events and circumstances and there are many factors that could cause actual results and developments to differ materially from those expressed or implied by these statements.