Royal Philips CEO Frans van Houten [Photo courtesy of Philips]
Royal Philips (NYSE:PHG) today disclosed a Department of Justice subpeona for information related to the massive recall of Respironics respiratory devices.
Philips Respironics and Philips subsidiaries in the U.S. received the subpoena on April 8 seeking “information related to events leading to the Respironics recall,” the Amsterdam-based company said as it announced its latest financial and operating results. Phillips said its subsidiaries are cooperating with investigators.
“At this time it’s a subpeoena for information,” CEO Frans van Houten said on today’s earnings call. “That means they are preparing an investigation and we just have to accept that.”
Philips shares dropped about 12% in trading Monday as the company detailed continued supply chain struggles and mounting recall costs.
Van Houten said Phillips remains in close collaboration and contact with regulatory agencies.
“Like us, they feel the pressure from the patients and they are very focused on working with us to achieve the remediation as fast as possible,” he said. “That is what the conversations are about. That’s priority No. 1 in all conversations. Secondly, there is keen interest in the testing that’s going on that we expect to share in the second quarter. At this time there is nothing to be concluded.”
Van Houten was also asked about his expectations of further action from regulatory agencies such as warning letters, a consent decree and potential fines.
“I don’t exclude anything, but the measures that we have taken voluntarily are of such significance that it has gotten the attention of the FDA and they appreciate those measures, ranging from closing the site in Carlsbad, to retiring some of the older product ranges to a slate of activities to relook at patient signals from the field and of course we are sharing all those findings with them,” he said. “So we are doing a lot and I think that will help very much on how the agency will judge us. So it’s a work in progress.”
The FDA in November said Philips knew about respirator problems for years before the recall, ordering the safety testing that van Houten said is underway.
In March, the FDA ordered Philips Respironics to improve communications over the ventilator recall, describing the manufacturer’s efforts to notify patients and others affected by the recall as “inadequate.”
Philips said it has produced more than 2.2 million repair kits and replacement devices as of today, but that the total number of units that need to be addressed has increased by another 300,000.
The company said those efforts will take longer than previously anticipated. Philips said last month that it expected to complete all repairs and replacements by the end of this year, but today said “Philips Respironics expects to complete over 90% of the production and shipments to customers in 2022.”
Philips increased its cost estimate for the recall by another €165 million (about $177 million), which does not include potential legal or regulatory costs.
The total cost is now estimated around €890 million (about $954 million), according to the Wall Street Journal.