Philips predicts sleep machine sales to recover by 2025 as ventilator recall rages on

In its first earnings report since passing the anniversary of its international respiratory device recall, Philips saw yet another quarter of slipping sales.

For the second quarter of 2022, the medtech giant reported 4.2 billion euros ($4.3 billion) in sales, a drop of about 7% compared to the same period last year. However, the latest results represent an improvement over the first quarter’s 3.9 billion euro take.

Though declines in recent quarters have primarily been attributed to the vast ventilator recall effort and ongoing supply chain issues, this time around, Philips linked its sales slump in large part to China's strict COVID-19 measures.

“The impact of the COVID lockdowns significantly affected our business in China, where comparable sales and order intake declined almost 30% in the quarter,” said CEO Frans van Houten. “Production in several of our factories, as well as those of our suppliers in China, was suspended for two months, which exacerbated the global supply chain and cost challenges.”

Amid the lower-than-expected results, Philips’ stock price plummeted, trending toward $20 on Monday after closing Friday afternoon above the $22 mark. That’s a nine-year low for the company, according to Reuters, and the culmination of about a 40% price drop since the start of the year.

Despite mounting concerns from other angles, the Class I recall is still top of mind for Philips. That effort began in June 2021, when the Dutch devicemaker disclosed potential safety issues linked to its broad range of CPAP and BiPAP machines, ventilators and other breathing machines. The polyester-based polyurethane foam used to muffle sound and vibrations in the devices was found to be at risk of breaking down over time, potentially sending dangerous particles and chemicals into a user’s airflow.

In this week’s earnings update, Philips said that it has so far produced 3 million replacement devices and repair kits—up from the 2.5 million total it reported last month—in its work to address the possible foam breakdown in approximately 5.5 million devices distributed around the world.

Meanwhile, the company disclosed that it’s in discussions with the U.S. Department of Justice regarding a proposed consent decree that would settle the issue between Philips and the FDA. The regulator has previously taken issue with what it has classified as Philips’ slow-moving and “inadequate” response to the recall.

And while sales for its CPAP and BiPAP machines have ground to a halt as Philips sorts out the issues at the core of the recall, the company is already plotting a triumphant return. In a presentation to investors Monday, Philips predicted that the sales for its Respironics division—the home of its breathing support devices—will recover to the pre-pandemic and pre-recall levels of 2019 by 2025, with forecasted annual sales of 2.1 billion euros (about $2.2 billion).

Despite making substantial headway, the repair-and-replace program for the recall may fall short of the end-of-year deadline Philips set for itself at the beginning of 2022. Instead, the company said it’s now expecting to address about 90% of all affected machines by the end of this year, with the remainder completed in early 2023.

The devicemaker has also pulled back its sales expectations for 2022. Though it kicked off the year with high hopes for its post-recall recovery—forecasting year-over-year sales growth between 3% and 5%—Philips is now aiming for a more modest increase, landing somewhere between 1% and 3%.