Recall stings sales at Philips

AMSTERDAM, the Netherlands – Philips estimates that its recall of certain CPAP devices and ventilators created a headwind of about EUR 150 million for the company’s sales in the third quarter of 2021. 

Philips reported EUR 4.2 billion in group sales for the third quarter, a 7.6% comparable decline due to not only the recall but also global supply chain challenges. 

“Excluding the Sleep & Respiratory Care business, year-to-date comparable sales growth was 10% and the adjusted EBITDA margin improved almost 500 basis points,” said Frans van Houten, CEO, during an Oct. 18 conference call to discuss the company’s latest financial results. 

Philips announced the recall in June, mostly impacting its first-generation DreamStation CPAP devices. The company announced in September that it had received authorization from the U.S. Food and Drug Administration to begin replacing the sound abatement foam in affected devices with new material. 

To date, Philips says it has produced a total of about 750,000 repair kits and replacement devices, of which more than 250,000 have reached customers. 

“We have substantially increased our overall production volume in the third quarter to 55,000 units per week and are on track to reach 80,000 units per week in the fourth quarter,” van Houten said. “We expect to complete the repair and replacement programs within 12 months. We have a strong program management in place to see the corrective actions through as fast as possible.” 

When asked for a break down, van Houten said more devices are being replaced right now than repaired. 

“For a repair process, you need the return of units affected and that return flow takes time to organize,” he said. “Once we are fully underway with the circular model there, we will be in a better position to tell you the quality of the units that are returned and whether they are worthwhile to repair. Moreover, as we don’t want patients to wait and we are able to produce DreamStation 2 units, we are basically shipping DreamStation 2 units into the field to get underway this whole cycle. And, therefore, you should assume that in the early months of the repair-replace program, you will see an overweight of new (devices); whereas, later on when that return path is well underway, you will see a more beneficial ratio of repair.” 

Currently, Philips says a total of 3.3 million recalled devices have been registered as part of the recall. 

“That does not mean that all registered devices are qualified devices for repair and replace,” van Houten said. “Because, after they are registered, we need to determine whether they actually have been used or whether they have just been taken out of the cupboard and put on the registration list.”