Friday, April 12, 2024
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Koninklijke Philips NA has 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 lawyers for the plaintiffs.
Amsterdam-based Philips and its US unit agreed to settle a class-action lawsuit filed by device users who bought or rented one of the 16 lines of recalled machines, the attorneys said in a filing Thursday in the Pennsylvania federal court where the cases had been consolidated. The company confirmed a deal was reached, but didn’t say how much it would pay.

While the accord 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.

Philips’ shares weakened 1.6% at €19.7 in Amsterdam as of 3:57 p.m. local time. The shares briefly gained as much as 1.9% after Bloomberg News first reported the settlement based on information from people familiar with the deal. Philips is still down more than 50% since it started recalling its faulty sleep therapy devices in June 2021.

“We have sought to resolve these claims now so that we may dedicate more time and energy to our central focus of transforming patient lives,” Philips Respironics, the US unit, said in an emailed statement.

Lawyers for the consumers, in an emailed release, said the deal “provides substantial monetary compensation to those who were sold or paid for defective devices by Philips and is an important step towards justice.”

Proposed Payouts

As part of the economic damages settlement, Philips will pay a minimum of $445 million to users who bought, leased or rented one of the recalled CPAPs or BiPAPS and an additional $34 million to health plans and companies that reimbursed users who paid in some form for one of the targeted machines, court filings show.

The settlement amount may increase based on how many machine users accept the payout and with the addition of legal fees paid to consumer lawyers, the company said. Under the agreement, Philips isn’t admitting any wrongdoing, it said.

The machines are designed to force extra air down the throat to treat obstructive apnea — an ailment that interferes with proper sleep and can cause fatal heart problems. US Food and Drug Administration officials have said they received 385 reports of deaths linked to malfunctioning machines.

Reggie White — a Hall-of-Fame defensive tackle for the National Football League’s Philadelphia Eagles and Green Bay Packers – died in 2004 of a 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 Reserve

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.

In its own defence, Philips’ lawyers told Senior US District Judge Joy Conti in May new tests on its recalled machines showed the vast majority of devices are unlikely to cause considerable health damage to patients. Exposure to degraded foam in 95% of the recalled apparatuses is “unlikely to result in an appreciable harm to health in patients,” the company said, citing its test results.

Philips 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. Juries may have to weigh some claims against Philips in test trials before settlement talks turn serious, she said.

Citigroup analyst Veronika Dubajova estimated Philips could face around 5 billion euros ($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 Conti. As of last month, the MDL only contained 698 cases, according to court records. But the plaintiff’s lawyers note more than 50,000 claims that may 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.

Conti, based in Pittsburgh, must give final approval to the settlement, Philips said. She’s also overseeing the personal-injury and medical-monitoring claims. No test trials — called bellwether cases — have been scheduled for trial yet, according to court records. Jury verdicts in bellwether cases are used to provide guidance on the value of plaintiffs’ claims.

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).

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