Philips In Talks With U.S. Authorities Over Defibrillators -- 2nd Update
January 24 2017 - 05:29AM
Dow Jones News
By Maarten van Tartwijk
AMSTERDAM--Royal NV Philips is again caught in the crosshairs of
U.S. authorities.
The Dutch health-technology company said Tuesday it is in talks
with the U.S. Department of Justice following inspections of its
defibrillator business by the Food and Drug Administration before
and during 2015. The outcome of the talks could have a "meaningful
impact on the operations of this business" and hurt group earnings
this year, it said.
The FDA in 2013 warned that thousands of defibrillators made by
Philips may not deliver the needed shock during medical emergencies
due to an electrical component failure that could mistakenly
indicate that the device was ready to be used. These so-called
automated external defibrillators are used to restore patients'
heartbeats after cardiac arrest and are used by consumers and first
responders working at fire departments.
Chief Executive Frans van Houten said the discussions with the
Justice Department aren't related to product quality but to
manufacturing procedures. He declined to give further detail on the
talks but said the defibrillator business is relatively small,
accounting for roughly EUR200 million ($215.07 million) in annual
sales. The U.S. represents only part of that figure, suggesting the
impact of a potential fine or plant shutdown could be relatively
limited.
Still, Philips shares fell by around 4% in Amsterdam even as it
reported better-than-expected fourth-quarter earnings.
The investigation comes as Philips is aiming to resolve a
yearslong brawl with the FDA over a factory in Cleveland that makes
diagnostic imaging tools. Production at the facility was
temporarily halted in 2014 after the FDA detected shortcomings in
manufacturing controls, causing Philips to issue multiple profit
warnings.
"[The Justice Department investigation] throws doubt into
Philips' ability to run FDA compliant factories in the U.S." ING
analyst Nigel van Putten said. "As the investigation is ongoing,
uncertainty is expected to linger," he said.
The issue adds to wider concerns of Philips' operations in the
U.S., its most important market by sales. The promise of President
Donald Trump to undo the Affordable Care Act is generating
uncertainties in the health-care industry. General Electric Co.,
one of Philips' major rivals, last week warned that uncertainties
could slow sales of medical equipment such as MRI and X-ray
machines.
Mr. van Houten said the U.S. business continues to perform well
but that the industry has a lot of questions about the future under
the new President. "I have spoken with several hospital
CEOs...Everybody is trying to understand what 'repeal and replace'
could mean. Nobody knows what could happen," he said.
Philips, the maker of products ranging from X-ray machines to
electric toothbrushes, said Tuesday it returned to net profit in
the fourth quarter as it reported a pickup in sales and benefited
from cost-savings. Net profit was EUR640 million ($688 million) in
the last three months of 2016, up from a EUR39 million net loss in
the same period a year earlier, beating market expectations.
Adjusted earnings before interest, taxes and amortization were
EUR1 billion, up from EUR842 million in the previous year. Sales
were EUR7.24 billion, up 3% on a comparable basis.
The Dutch company, which is in the process of exiting its
lighting business, also presented new financial targets for the
next three to four years despite voicing concerns about its
markets. Its new goal is to achieve 4% to 6% comparable sales
growth, while growing adjusted Ebita by 100 basis points
annually.
Write to Maarten van Tartwijk at maarten.vantartwijk@wsj.com
(END) Dow Jones Newswires
January 24, 2017 05:14 ET (10:14 GMT)
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