Background: Issues with Philips' CPAP Devices

Koninklijke Philips N.V. is a Dutch multinational company specialized in a wide range of electronic and health technology products. Philips is listed on the primary market of the Euronext Amsterdam and the secondary market through the New York Stock Exchange.

As reported by the FDA, Philips became aware of polyester polyurethane foam degradation issues in its Continuous Positive Airway Pressure (CPAP) devices as early as October 2015. A customer complaint notified Philips of this issue, prompting them to contact their raw foam supplier on October 30th, 2015. The supplier confirmed via email that the degradation was likely, as stated in the customer complaint. Despite having this crucial information, Philips failed to undertake a proper risk analysis or implement any Corrective and Preventive Actions (CAPA).

Between 2016 and 2018, Philips received additional evidence of these issues. On August 24th, 2018, internal tests conducted by Philips confirmed that the foam used in the Triology Ventilator systems degraded under high heat and humidity, as reported by customers. Despite these findings, Philips continued to use the polyester polyurethane foam in its devices, choosing not to implement any corrective action.

In April 2021, Philips launched the "DreamStation 2," which did not include the problematic foam. However, in its 1Q 2021 financial report released on April 26th, 2021, Philips disclosed a "regulatory update" for the first time, setting aside over EUR 250 million in provisions. The stock price fell by 5-6% on this news. Two months later, on June 14th, 2021, Philips formally recalled specific CPAP and mechanical ventilator devices to address health risks linked to the polyester-based polyurethane (PE-PUR) foam, causing the stock price to sink by an additional 3-4%.

Regulatory Actions and Investigations

Following the recall, the FDA conducted an investigation from August 8th to November 9th, 2021. The investigation concluded with eight observations, highlighting inadequate risk analysis, failure to implement corrective actions, insufficient quality management, and other critical deficiencies within Philips. On November 14th, 2021, Philips issued a press release acknowledging the FDA's findings, resulting in a further stock price drop of over 10.5%.

On April 8th, 2022, Philips Respironics and some of its U.S. subsidiaries received a subpoena from the Department of Justice (DoJ) to provide information related to the recall. Later that month, Philips' 1Q 2022 report included new provisions totaling more than EUR 800 million, and the company stated that its relevant subsidiaries were cooperating with the DoJ. This announcement caused the stock price to fall by an additional 13%.

In August 2022, Philips Respironics and the DoJ reached a settlement agreement, requiring Respironics to pay $22.625 million to the United States. On October 24th, 2022, Philips’ 3Q report revealed an additional EUR 575 million in provisions related to the anticipated resolution of economic loss claims by users, hospitals, and private insurers in the U.S.

In response to an updated safety communication by the FDA, on September 7th, 2023, Philips agreed to pay at least $479 million to U.S. consumers to address health issues caused by its respiratory devices. On April 4th, 2024, the FDA and DoJ made a joint statement acknowledging Philips’ failure to comply with the recall remediation plan. This led to a court-approved Consent Decree of Permanent Injunction on April 9th, 2024, prohibiting the manufacture or distribution of Philips' respiratory devices from its U.S. facilities until the company meets strict remedial requirements. Subsequently, on April 29th, 2024, Philips announced a revised settlement of nearly $1.1 billion to U.S. consumers – an increase of over $600 million from the initial 2023 agreement – to address claims from U.S. consumers.

On September 23rd, 2024, a New York federal court ruled that the U.S. securities case could proceed against Philips and former CEO Frans van Houten (Patel v. Koninklijke Philips N.V.). The court found sufficient evidence of material misrepresentations about Philips' compliance, quality, and safety in its reports from 2015 through 2020, as well as plausible omissions concerning its respiratory products.

Our Proposal

Given the substantial evidence of misconduct, Martingale Risk is pursuing all possible actions against Philips to claim damages on behalf of its clients in the Netherlands. Our strategy includes:

• Preliminary Analysis: Reviewing clients’ data to evaluate potential claims.

• Detailed Damage Assessment: Conducting in-depth analysis of damages suffered by each client following the identified wrongdoing.

• Negotiation and Extra-Judicial Proceedings: Seeking to recover loss amounts through negotiation and extra-judicial measures for the quickest possible resolution.

• Litigation: Pursuing claims in the Netherlands through our global network of associated law firms.

  
  

Martingale Risk intends to file actions on behalf of investors who purchased Philips common stock during the period from October 30th, 2015 to April 24th, 2023. We invite all institutional and retail investors who experienced losses within this period to contact us for a preliminary and free claim evaluation.

Our services will operate on a full contingent fee basis of the recovered amount, with no anticipated costs, fees or expenses for the clients.

Presentation of the class action against Philips by Marco Delzio, CEO of Martingale Risk