Philips' CPAP recall dents Q2 connected care sales

Following a global recall of its CPAP and sleep care machines, Philips posted a decline in sales for that segment’s wider connected care portfolio. The faulty devices offset the mid-single-digit financial gains seen from the medtech’s hospital patient monitoring efforts.

Altogether, the connected care division delivered a 16% decline in sales for this year’s second quarter compared to the same three months of 2020, which saw the early stages of COVID-19’s international spread as well as 167% growth as demand skyrocketed for digital and remote monitoring hardware amid lockdowns and distancing protocols.

Across the company as a whole, Philips’ sales totaled €4.2 billion for the second quarter of 2021, or about $4.96 billion U.S., for net income amounting to €153 million.

“I am pleased with the good performance momentum in all our businesses except the Sleep & Respiratory Care business, as we delivered a strong 9% comparable sales growth and 280 basis points profitability improvement for the group in the quarter,” CEO Frans van Houten said in a statement.

That includes a 16% gain in sales for the company’s diagnostics and treatment divisions—about half of Philips’ business—for €2.1 billion in sales as well as an encouraging 29% rise in new orders for image-guided therapy, ultrasound and diagnostic imaging hardware over the coming months.

RELATED: FDA dishes out Class I label to Philips’ recall of faulty CPAP machines and other ventilators

For the ventilator recall—launched in mid-June after it was discovered that pieces of the sound-insulating foam inside CPAP and BiPAP machines for sleep apnea could break off and be inhaled by the user—Philips took another €250 million budget provision for the second quarter, following the previous €250 million provision that it set aside for precautionary measures during the first quarter of 2021.

Currently, the company is conducting further research and tests to establish the full scope of patient risk and has established dedicated customer support centers while registering more than 2.2 million active devices.

“We fully understand the impact that this is having on patients, as their well-being is at the heart of everything we do at Philips,” van Houten said. “We are in discussions with the relevant regulatory authorities to obtain authorization to start deploying the repair kits and replacement devices that we are producing.”

Last week, the FDA gave the recall its Class I label, the agency’s most serious, and urged patients to stop using the devices immediately and contact Philips to replace the component. Meanwhile, regulators in the E.U., U.K. and Japan have advised patients to consult with clinicians before altering their therapy.

The recall affects nearly two dozen models manufactured between 2007 and this year. More than 1,200 complaints have been filed with the FDA, with at least 100 injuries linked to the foam particles, the agency said.

By the end of this year, Philips said it aims to triple its ability to manufacture repair kits and replace units, ramping up to 80,000 per week.

RELATED: Philips puts down $2.8B for BioTelemetry and its wearable heart monitors

The company also announced a €1.5 billion share buyback program, following its reinvigorated M&A strategy including the acquisition of the wearable heart monitor maker BioTelemetry for $2.8 billion, which was quickly joined by a $635 million buyout of the medical device integrator Capsule Technologies earlier this year. 

These major outlays came after a relative drought in acquisitions for the company, which amounted to only about €1 billion total over the three years spanning 2018 to 2020. Comparatively, Philips spent about €3.6 billion over the prior three years .

“Looking ahead, while we continue to see uncertainty related to the impact of COVID-19 across the world and electronic component shortages, our financial outlook remains within our guided range, with low-to-mid single-digit comparable sales growth and an adjusted EBITA margin improvement of 60 basis points expected for the group in 2021,” van Houten said.