Koninklijke Philips NA officials have agreed to pay at least $479 million to resolve part of a sprawling litigation tied to a 2021 US recall of millions of machines designed to treat sleep apnea, according to people familiar with the deal.
Amsterdam-based Philips, and its US unit, have agreed to settle a class-action lawsuit filed by device users who bought or rented one of the 16 lines of recalled machines, said the people, who requested anonymity because they weren’t authorized to speak publicly about the accord. Other plaintiffs include insurers or companies that reimbursed users for such purchases, they said.
While the settlement resolves hundreds of economic-damage claims, Philips executives acknowledge they still face potential suits from more than 50,000 people alleging they were injured using the machines because of disintegrating noise-dampening foam inside the recalled devices. Lawyers for consumers contend Philips officials knew about the foam problems for a 13-year period beginning in 2008, but didn’t recall the machines until 2021.
Philip’s listed US shares fell about 1% in premarket trading. The company’s stock has fallen more than 55% since the 2021 recall of the sleep devices.
The settlement amount may increase based on how many machine users accept the payout in the US and with the addition of legal fees to paid to consumers’ lawyers, the people said.
Philips declined to comment.
The machines are designed to force extra air down users’ throats to treat obstructive apnea – an ailment that interferes with proper sleep and can cause fatal heart problems. U.S. Food and Drug Administration officials have said they’ve linked 385 deaths to malfunctioning machines.
Reggie White — an NFL Hall-of-Fame defensive tackle for the Philadelphia Eagles and Green Bay Packers – died in 2004 of heart attack tied to untreated sleep apnea. His death sparked an uptick in use of Continuous Positive Airway Pressure (CPAP) machines and Bi-level Positive Airway Pressure (“BiPAP”) machines in the US. Philips is the largest maker of such devices in the world.
Billion Dollar Settlement
Philips issued a recall in 2021 after the FDA found problems with disintegrating polyurethane foam making its way into the machine’s forced-air stream. Researchers have linked a cornucopia of cancers, including bladder, lung and stomach cancers to the wayward foam particles. Other ailments include respiratory issues and allergic reactions.
The company has set aside around €1 billion ($1.1 billion) to deal with the recall of around 5.5 million devices globally. Lawyers for US users of the machines said in court papers, however, they believe the recall covers 10.8 million devices.
Holly Froum, a Bloomberg Intelligence analyst who has followed the sleep-apnea litigation, said Philips may be forced to pay between $2 billion and $4.5 billion to settle personal-injury claims tied to the recalled devices. She noted juries may have to weigh some claims against Philips in test trials before settlement talks turn serious.
Citigroup analyst Veronika Dubajova estimated Philips could face around 5 billion euro ($5.3 billion) in exposure from the sprawling litigation, which includes a US Justice Department probe of its handling of the devices. Philips RS North America one of the company’s subsidiaries — agreed in September 2022 to pay $24 million to resolve separate claims about kickbacks to customers over a four-year period starting in 2016.
In a March interview with a Dutch newspaper, Philips CEO Roy Jakobs acknowledged the company was negotiating a settlement of the economic-damage claims. The company set aside 575 million euros ($615 million) in the first quarter of this year to cover the specific costs of the accord, according to earnings reports.
More Claims
The cases have been consolidated in a multi-district litigation (MDL) before a federal judge in Pittsburgh. As of last month the MDL only contained 698 cases, according to court records. But plaintiffs lawyers note more than 50,000 claims are waiting in the wings to be filed and have been acknowledged by the company.
Philips launched an effort to replace recalled machines, but ran into problems with some refurbished devices that led to an additional FDA recall. Federal regulators found a number of the repaired devices got incorrect or duplicate serial numbers when Philips re-programmed them. That miscue could lead some machines to deliver the wrong amount of air to apnea patients, causing health risks, the FDA said.
Besides still facing personal-injury claims, Philips also must deal with demands for what could be billions of dollars to cover medical monitoring of affected CPAP and BiPAP users in the future.
In its own defense, Philips’ lawyers told Senior US District Judge Joy Conti in May that new tests on its recalled machines showed the vast majority of the devices are unlikely to cause considerable health damage to patients. Exposure to degraded foam in 95% of the recalled breathing apparatuses is “unlikely to result in an appreciable harm to health in patients,” the Netherlands-based health company said, citing its test results.
The case is In Re Philips Recalled CPAP, Bi-Level PAP and Mechanical Ventilator Products Liability Litigation, 21-MD-3014, U.S District Court for the Western District of Pennsylvania (Pittsburgh).
(Updates with stock movement in paragraph 5)