Philips stock soared nearly 30% on Monday to over $27 after the the Dutch medical device maker announced it has agreed to pay $1.1 billion to resolve personal injury litigation and a medical monitoring class action lawsuit related to its ongoing recall of sleep apnea machines.
“The approved consent decree and economic loss settlement, and now the resolution of the personal injury and medical monitoring litigation in the U.S., are significant milestones and provide further clarity on the way forward for Philips,” the company said in its first quarter earnings report. As part of the deal, Philips did not “admit any fault or liability.”
A Barclays analyst told Reuters that the settlement was expected to be around $2 to $4 billion, and potentially up to $10 billion in the “worst case.”
In a call with analysts, Philips CEO Roy Jakobs said today that the settlement “ends the uncertainty associated with litigation in the U.S.”
He also said the payments are expected in 2025 and will be funded through cash flow generation.
Philips first issued a recall of multiple breathing devices, including ventilators and continuous positive airway pressure (CPAP) machines in 2021. A foam used in the devices to reduce sound was found to break down and potentially become toxic, making it possible for users to potentially inhale chemicals that carry cancer risks.
Earlier this year, the U.S. Food and Drug Administration said there have been 561 deaths since 2021 related to the use of the recalled machines.
This month, Philips entered a consent decree with the FDA and the U.S. Department of Justice. Under the agreement, Philips was prohibited from producing and selling new CPAP machines and other devices until it met certain requirements.
The company said, at the time, that the decree, “provides clarity and a roadmap to demonstrate compliance with regulatory requirements and to restore the Philips Respironics business.”