Philips sees dim light at end of tortuous tunnel

Long and winding road. Philips is seeing a tiny speck of light at the end of a long tunnel. The 18 billion euro Dutch medical-kit maker said on Monday it had clinched a deal with the U.S. Food and Drug Administration over devices used to treat sleep apnoea that it recalled in 2021. It’s a small first step towards reassuring investors it has capped the potential costs of the issue.

The agreement is tough: Philips will be banned, possibly for years, from selling new ventilators in the United States until it takes certain regulatory steps, although it will be able to continue to sell masks and serve existing machines. The deal triggered a 363 million euro writedown that hit the company’s fourth-quarter results. Yet, at around 1% of 2024 sales, the hit from the accord looks muted. That’s around 200 million euros based on the company’s expected sales of just over 20 billion euros this year, according to forecasts compiled by LSEG. CEO Roy Jakobs is confident the manufacturer of everything from toothbrushes to nuclear imaging systems can still meet its business targets for the next two years.

The U.S. settlement should offer investors who have watched the company shed 60% of its equity value in the past three years some respite. Yet the company still faces a possible U.S. fine, for which it has not booked a provision, as well as potential litigation from health issues related to the devices, which can lead to users breathing in toxic chemicals. German chemical giant Bayer on Monday offered a stark reminder of the risks arising from U.S. litigation after a jury awarded $2.25 billion to a Pennsylvania man who said he developed cancer from exposure to the Roundup weedkiller. The 6% drop in Philips shares on Monday underscores that any recovery is going to be long and tortuous.