top of page

DreamStation became Philips’ worst nightmare


A case that could possibly have been avoided or mitigated if regulatory professionals had been called in time.


In June 2021, Philips announced the (voluntary) recall of 3 to 4 million DreamStation series of sleep apnea and breathing devices. The foam in the medical devices may degrade and consequently, harmful (potentially toxic and carcinogenic) substances may be released, threatening the health of the apnea patients.


In sleep apnea, breathing stops and starts, which can cause fatigue and longer-term health problems. Philips’ products designed to improve sleep patterns include its DreamStation CPAP machines and Trilogy ventilators.



The U.S. Food and Drug Administration (FDA) issued an update on Philips CPAP problems identified by the agency between April 2021 and April 30, 2022, indicating that more than 21,000 medical device reports had been submitted involving cancer, pneumonia, asthma, infections, headaches, coughs, breathing problems, dizziness, chest pains and other side effects, including at least 124 deaths.


The FDA stated (paraphrased) that:

Once broken down, the foam can cause serious injury, which can be life-threatening, cause permanent impairment, and require medical intervention to prevent permanent damage.

The US Justice department opened an investigation into this matter and thousands of Americans are seeking damages.


Clearly, the DreamStation has become Philips’ worst nightmare.

Acquisition of Respironics

In 2007, Philips acquired Respironics for approximately €3.6 bn as this acquisition positioned Philips as a true global leader in the fast-growing Home Healthcare space with a strong product portfolio.


Due diligence

As a rule, such (large and important) acquisitions are preceded by a thorough legal due diligence, in order to verify, investigate or audit whether there are any large issues expected to come out (possibly at a later stage). So, a due diligence contributes to making informated decisions by enhancing the quality of information available to decision-makers. Transactions that undergo such a due diligence process often offer higher chances of success.


In this case, the question may be posed whether a more in-depth due diligence would have been justified.


In the life sciences sector, it is not (only) about the financial returns, it is mainly about treating diseases, about patients and thus about health.

In our view, it would have been advisable if a due diligence would also have covered regulatory and safety aspects about the medical devices, for instance: (1) what regulatory requirements should the medical devices have complied with and (2) what aspects have been taken into account as to the risk assessment and (3) how many adverse events had been reported up so far. We have seen in other medical device cases (PIP breast implants) that the material used in such devices is highly relevant. Often, in medical devices, the material and the human body are in contact for a long period of time.


Back to the apnea case: questions about the performance of the long-term use of the various materials and the applicability of certain ISO standards during the due diligence would have been justified.

In short, in this case, it is not unlikely that having called in regulatory professionals, vigilance specialists and technical expertise during the due diligence process, could have avoided or mitigated the dramatic impact for both Philips and – last but not least - the apnea patients. The additional costs of calling in such experts for Philips would have sunk into oblivion compared to all (recall and legal) costs, settlements and damages Philips has to make now, not to mention the 58% share price collapse.



 

https://www.fda.gov/medical-devices/safety-communications/certain-philips-respironics-ventilators-bipap-and-cpap-machines-recalled-due-potential-health-risks

SEC report 21 December 2007, Koninklijke Philips Nv Acquisition Statement SC To-C, click here.

Obviously, this is not a comparable case as non-medical grade silicon material had been used fraudulently in these breast implants.

Koninklijke Philips earnings have declined over three years, contributing to shareholders 55% loss, 11 September 2022, click here.


Comments


bottom of page