Philips Subpoenaed by DOJ Over Sleep-Apnea Device Recall

Philips Chief Executive

Frans van Houten

told investors Monday that the company wasn’t aware of any specific allegations. “They are preparing an investigation and we just have to accept that,” he said.

His comments came as Philips further increased the estimated cost of the recall and flagged several other factors that could hurt the company’s profitability this year, prompting its shares to fall more than 12%. Mr. van Houten highlighted challenges including transport delays at Shanghai’s port amid the city’s Covid-19 lockdown, Russia’s war in Ukraine, and inflationary pressures.

Philips initially expected to repair or replace three to four million devices world-wide—around half of which are in the U.S.—but has twice raised that estimate as more customers come forward. Now it anticipates that the program will cover around 5.5 million devices.

The recall, first announced in June, mainly affects CPAP and BiPAP machines, devices that regulate breathing by gently pushing air into the lungs through a mask. They are mainly used to treat sleep apnea, a condition that causes a person to stop breathing for brief periods while asleep. It also affects some ventilators.

Mr. van Houten said Monday that the latest increase in devices covered came after a push to raise awareness of the recall, which led to a bump in registrations. The company had already earlier widened the scope of the program to include older devices, after receiving requests from customers for replacements or repairs. In the U.S., insurers typically replace such devices every five years, but some patients continue to use devices that are older than that.

The ballooning size of the recall, plus additional costs from inflationary pressures, has prompted Philips to set aside a further 165 million euros, equivalent to $178 million, to deal with the issue, bringing the total provision to around €890 million.

That provision doesn’t include any potential legal costs. As well as the Justice Department investigation, Philips is the defendant in several class-action and personal injury lawsuits.

Philips also said the recall would likely last longer than expected. The company now expects to repair or replace more than 90% of devices by the end of the year, having previously aimed to complete the program in 2022.

Concerns center on a sound-dampening foam made of polyester-based polyurethane, or PE-PUR, found inside the affected devices that Philips said can degrade and be inhaled by the user. The company was also worried that the foam could emit harmful gases.

Testing so far by independent labs has shown that gases emitted by the PE-PUR foam in the first generation DreamStation devices, which Philips says represent the majority of affected machines, don’t occur at levels that would cause long-term harm to users. Philips said that the tests were conducted on machines that hadn’t been cleaned using ozone, a cleaning method that it said had separately been shown to accelerate the foam degradation. Testing on potential harm from foam particles, and of emissions from other models containing PE-PUR foam, is still under way.

Mr. van Houten said Monday he expected the results of those tests during the second quarter, but warned that the timeline isn’t certain.

The recall has placed sleep-apnea patients in a difficult position, forcing them to choose between continuing to use a device that could be causing them harm and ceasing a treatment that helps prevent serious long-term conditions such as strokes, diabetes and heart problems.

Some customers have attempted to rip out the foam themselves. Others have turned to Philips’ main competitor

ResMed Inc.

—itself hit by supply constraints amid the sudden spike in demand—or bought alternative machines secondhand.

Many customers are stuck in limbo, waiting to receive a new or refurbished machine. Philips has promised to repair or replace affected devices, substituting the PE-PUR foam for one made of silicone. The company said Monday it had so far produced 2.2 million repaired or replaced devices, less than half of the expected total.

In November, the Food and Drug Administration raised concerns that the replacement, silicone foam, could also release harmful gases. The FDA has asked Philips to hire an independent lab to run further tests on devices using the new foam, but has recommended that patients continue to use those machines, as it would be more harmful to stop treatment altogether.

Write to Denise Roland at [email protected]