07.20.23
Rank: #8 (Last year: #9)
€15.45 Billion ($16.5 Billion)
Prior Fiscal: €14.72 Billion
Percentage Change: +4.96%
R&D Expenditure: €2.1B
Best FY22 Quarter: Q4 €5.4B
Latest Quarter: Q1 €4.2B
No. of Employees: 77,233
Global Headquarters: Amsterdam,
The Netherlands
KEY EXECUTIVES:
Roy Jakobs, CEO, Chairman of the Board of
Management and Executive Committee
Willem Appelo, Exec. VP, Chief Operations Officer
Abhijit Bhattacharya, Exec. VP, Chief Financial Officer
Deeptha Khanna, Exec. VP,
Chief Business Leader Personal Health
Bert van Meurs, Exec. VP, Chief Business Leader Image Guided Therapy and jointly responsible for Diagnosis & Treatment
Kees Wesdorp, Exec. VP, Chief Business Leader Precision Diagnostics and jointly responsible for Diagnosis & Treatment
Edwin Paalvast, Exec. VP, Chief of International Markets
Shez Partovi, Exec. VP, Chief Innovation & Strategy Officer
Roy Jakobs knew better.
He knew there was no way to sugar-coat Philips N.V.’s rough fiscal year, so he didn’t bother to try.
Instead, Jakobs was completely transparent, directly addressing the proverbial elephant in the room. He did not mince words or downplay the medtech giant’s troubles, nor did he make excuses for its failures.
No muss, no fuss.
“2022 was a very disappointing year for Philips and its stakeholders, and we are taking firm action to strengthen patient safety and quality, improve our execution, and step up performance with urgency in 2023,” Jakobs stated in Philips’ 2022 annual report. “Philips is a company with strong market leadership positions, an extensive customer base, strong innovation portfolio, talented employees, and a global purpose-driven brand. Yet, as our 2022 performance underlines, we are not extracting the full value of our businesses and have disappointed many stakeholders.”
The source of that disappointment is, of course, Philips’ now two-year-old Respironics recall—one of the largest and most disruptive in recent memory. The massive Class 1 revocation has damaged the company’s reputation, eroded customer trust, and reduced its market capitalization by approximately $30 billion.
And the nightmare is far from over.
As of May 31, (2023), Philips had produced more than 98% of the devices and repair kits needed to replace the 5.5 million ventilators and sleep apnea machines it pulled from the market beginning in April 2021. And while the company has shipped replacement products to 2.83 million users affected by the recall (with 2.36 million devices in patients’ hands), a New York Times article last fall nevertheless criticized the company’s slow response.
ANALYST INSIGHTS: How does one describe a self-inflicted trainwreck? Unfortunately, for the many good people across Philips’ other business units, the headlines are all about their respiratory product disasters (as they should be). Hopefully, 2024 will be the year Philips can put that behind them and begin to move forward with a greater growth strategy across its business units.
“Nearly a year and a half after the recall that involved more than five million devices worldwide, millions of Americans have endured a long wait for a device,” the article asserted. “Many have been forced to find alternative methods to ensure they can breathe at night without becoming deprived of oxygen or risking a heart attack.”
The Times piece also accused Philips of willfully ignoring safety issues with its sleep apnea machine foam for at least a half-dozen years before initiating the recall. Citing a U.S. Food and Drug Administration (FDA) review of company records, the Times argued that Philips was aware of the disintegrating foam as far back as 2015 but did not adequately evaluate the information or attempt to mitigate the problem.
The following year, the company discovered the foam could break down in as little as 12 months, FDA records indicate. Moreover, the FDA found 14 instances between 2016 and early 2021 in which Philips was either made aware of the foam issue or internally analyzed the problem, but made no effort to correct it, NPR reported last October.
One of those instances occurred in May 2018 via an email from foam supplier William T. Burnett, who told Philips, “We would not recommend use of polyester foam in such an environment...It will eventually decompose to a sticky powder,” according to a legal affidavit referenced by NPR.
Philips formally began investigating the problems with its ventilator and CPAP/BiPAP machine foam in 2019, FDA records show, but did not issue a recall for another two years.
“The way Philips was handling it was just, in my opinion, very, very poor and that made me angry,” Tom Wilson, a retired personal care product executive who runs a Facebook page about the device problems, told the Times. “This is a big recall. And it’s a dangerous recall.”
It’s also been an unending recall. Philips Respironics first provided a one-year timeline for repairing or replacing all affected continuous and non-continuous ventilators, CPAP, and BiPAP units, but that estimate eventually stretched into 2023 as the recall expanded.
Philips marked the recall’s first anniversary with a Class 1 designation—the FDA’s most serious—for several ventilator models, and gained a second such classification in early fall for 386 ventilators distributed between Aug. 6, 2020, and Sept. 1, 2021. Last September, the company warned of potential issues with its CPAP and BiPAP therapy masks containing magnetic headgear clips or straps, and in November informed the FDA of possible trouble with its reworked Philips Respironics Trilogy ventilators (those models were eventually recalled).
Then this past winter, Philips Respironics recalled some reworked DreamStation units over incorrect or duplicate serial numbers—a flub that could produce factory default settings, the wrong prescription therapy delivery, or no therapy delivery at all. The recall earned a Class 1 designation in early April. (See “Philips Respironics Recall Recap” on page 106 for a timeline of the company’s recall woes).
“I think this recall shows us how bad things can go when we don’t get it right,” Vinay Rathi, MD, an otolaryngologist at Massachusetts Eye and Ear Hospital (Boston), and medical device regulation scholar, told CBS News in March. “You basically bought a device, you find out that, actually, it could harm you. And then you struggle to find a replacement device...If I were a patient, I would be livid.”
Many patients are beyond livid: Thousands have filed suit against the company, seeking compensation for personal injuries or reimbursement for their breathing machines. Philips has earmarked $630 million for legal payouts, though that sum could fluctuate depending on the total number of lawsuits filed.
Regardless of the total, new CEO Roy Jakobs, appointed last fall, is hoping to settle economic damage claims in 2023. “I think that at least this year, we can reach a settlement on compensation for economic damage,” he told Dutch newspaper Het Financieele Dagblad in late March. Personal injury suits, he noted, could take longer to resolve. “That process is more complicated and is still at an earlier stage. We probably won’t be able to clarify that until next year,” he said, “but maybe by the end of this year.”
That disbursement could be quite debilitating for Philips’ finances, based on the 104,000 medical device reports (MDR) filed in response to the recall (April 2021 through March 31, 2023) and 346 patient deaths associated with it. The deaths, however, cannot be definitively linked to the recalled respirators because MDRs are not thoroughly vetted by the FDA.
Nevertheless, the implications are staggering, considering the pecuniary wreckage already wrought by Philips’ ever-expanding recall—namely, a workforce cut of 10,000 (former CEO Frans van Houten was among those out of a job); a 70% plunge in share price; the forfeiture of management bonuses, and market share abdication to rival ResMed.
While not as obvious in fiscal 2022, the recall still had a dampening effect on Philips’ finances. Revenue climbed 4% on a nominal basis to €17.83 billion, but declined 3% on a comparable basis, though the company blamed the loss on “operational and supply challenges, lower sales in China, the consequences of the Respironics field action, and the Russia-Ukraine war.”
Philips posted a €1.53 billion operating loss for the year, and a €1.62 billion net income deficit. Comparable order intake dropped 3% in contrast to 4% growth in 2021, due to a decrease in the company’s Connected Care business, which allows hospitals and other healthcare sites to share data securely with doctors and nurses.
Not surprisingly, the Respironics recall negatively impacted Connected Care sales last year despite the addition of Cardiologs’s technology and a patch-based, clinical-grade electrocardiogram (ECG) to its lineup.
Gained through acquisition, Cardiologs’ solutions further strengthened Philips’ cardiac monitoring and diagnostics offering with software technology, ECG analysis, and reporting services. The deal—announced in November 2021—gave Philips a vendor-neutral heart disorder screening tool and ECG analysis applications based on machine learning algorithms. The French firm’s technology accelerates diagnostic reporting, decreases the occurrence of reporting errors, and streamlines clinician workflow and patient care, thus empowering clinicians to deliver expert cardiac care faster and more efficiently.
Shortly after closing the Cardiologs deal in January (2022), Philips introduced the industry’s first full-service, at-home, 12-lead ECG solution for use in decentralized clinical trials. The clinical-grade solution is the most advanced patient-centric ECG offering within the company’s cardiac monitoring portfolio, pairing data readings comparable to clinical, site-based ECGs with Philips’ cloud-based data collection and analysis services.
“Our customers are seeking solutions that will help them address key challenges that can stand in the way of extracting meaningful insights from their clinical trials,” Andy Broadway, general manager of Ambulatory Monitoring and Diagnostics at Philips, said upon the 12-lead ECG solution’s debut. “Our growing portfolio of remote monitoring solutions help to curb patient attrition by reducing the amount of site visits required during the trial period, helping to improve both the quality of the outcome and the patient experience overall.”
In March, Philips received FDA 510(k) clearance for the latest Philips Capsule Surveillance solution. Capable of utilizing streaming data from virtually any connected medical device, the solution aggregates patient data, analyzes it to generate actionable insights and alerts, and sends timely notifications to the patient’s caregivers so they can intervene before deterioration progresses further. The latest Philips Capsule Surveillance release includes expanded interoperability into hospitals’ existing mobile clinical communication and collaboration tools and electronic intensive care units and virtual care population health management systems, offering more visibility on live streaming data, waveforms, device alarms, and contextual alerts.
Unfortunately, none of Connected Care’s portfolio enhancements helped boost revenue in 2022. Sales slipped 3.7% to €4.4 billion on a nominal basis, subverted by both the recall and supply chain headwinds.
Those particular forces, however, had little impact on Philips’ Personal Health and Diagnosis & Treatment businesses, which expanded sales 14.2% and 6.2% to €1.74 billion and €9.17 billion, respectively, in FY22. The company attributed the Diagnosis & Treatment business increase to mid-single-digit growth in Image-Guided Therapy and low single-digit growth in Enterprise Diagnostics Informatics, though both gains were offset by declines in Ultrasound and Diagnostic Imaging due to specific electronic component shortages.
Like Connected Care, the Diagnosis & Treatment business enhanced its portfolio through acquisition, closing a deal for Vesper Medical Inc. in Q1 2022. The minimally-invasive peripheral vascular device developer helps expand Philips’ roster of diagnostic and therapeutic products with an advanced venous stent portfolio for treating deep venous disease.
Besides the Vesper Medical deal, Philips augmented its Diagnosis & Treatment lineup last year through various product clearances and introductions. They included:
€15.45 Billion ($16.5 Billion)
Prior Fiscal: €14.72 Billion
Percentage Change: +4.96%
R&D Expenditure: €2.1B
Best FY22 Quarter: Q4 €5.4B
Latest Quarter: Q1 €4.2B
No. of Employees: 77,233
Global Headquarters: Amsterdam,
The Netherlands
KEY EXECUTIVES:
Roy Jakobs, CEO, Chairman of the Board of
Management and Executive Committee
Willem Appelo, Exec. VP, Chief Operations Officer
Abhijit Bhattacharya, Exec. VP, Chief Financial Officer
Deeptha Khanna, Exec. VP,
Chief Business Leader Personal Health
Bert van Meurs, Exec. VP, Chief Business Leader Image Guided Therapy and jointly responsible for Diagnosis & Treatment
Kees Wesdorp, Exec. VP, Chief Business Leader Precision Diagnostics and jointly responsible for Diagnosis & Treatment
Edwin Paalvast, Exec. VP, Chief of International Markets
Shez Partovi, Exec. VP, Chief Innovation & Strategy Officer
Roy Jakobs knew better.
He knew there was no way to sugar-coat Philips N.V.’s rough fiscal year, so he didn’t bother to try.
Instead, Jakobs was completely transparent, directly addressing the proverbial elephant in the room. He did not mince words or downplay the medtech giant’s troubles, nor did he make excuses for its failures.
No muss, no fuss.
“2022 was a very disappointing year for Philips and its stakeholders, and we are taking firm action to strengthen patient safety and quality, improve our execution, and step up performance with urgency in 2023,” Jakobs stated in Philips’ 2022 annual report. “Philips is a company with strong market leadership positions, an extensive customer base, strong innovation portfolio, talented employees, and a global purpose-driven brand. Yet, as our 2022 performance underlines, we are not extracting the full value of our businesses and have disappointed many stakeholders.”
The source of that disappointment is, of course, Philips’ now two-year-old Respironics recall—one of the largest and most disruptive in recent memory. The massive Class 1 revocation has damaged the company’s reputation, eroded customer trust, and reduced its market capitalization by approximately $30 billion.
And the nightmare is far from over.
As of May 31, (2023), Philips had produced more than 98% of the devices and repair kits needed to replace the 5.5 million ventilators and sleep apnea machines it pulled from the market beginning in April 2021. And while the company has shipped replacement products to 2.83 million users affected by the recall (with 2.36 million devices in patients’ hands), a New York Times article last fall nevertheless criticized the company’s slow response.
ANALYST INSIGHTS: How does one describe a self-inflicted trainwreck? Unfortunately, for the many good people across Philips’ other business units, the headlines are all about their respiratory product disasters (as they should be). Hopefully, 2024 will be the year Philips can put that behind them and begin to move forward with a greater growth strategy across its business units.
—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors
“Nearly a year and a half after the recall that involved more than five million devices worldwide, millions of Americans have endured a long wait for a device,” the article asserted. “Many have been forced to find alternative methods to ensure they can breathe at night without becoming deprived of oxygen or risking a heart attack.”
The Times piece also accused Philips of willfully ignoring safety issues with its sleep apnea machine foam for at least a half-dozen years before initiating the recall. Citing a U.S. Food and Drug Administration (FDA) review of company records, the Times argued that Philips was aware of the disintegrating foam as far back as 2015 but did not adequately evaluate the information or attempt to mitigate the problem.
The following year, the company discovered the foam could break down in as little as 12 months, FDA records indicate. Moreover, the FDA found 14 instances between 2016 and early 2021 in which Philips was either made aware of the foam issue or internally analyzed the problem, but made no effort to correct it, NPR reported last October.
One of those instances occurred in May 2018 via an email from foam supplier William T. Burnett, who told Philips, “We would not recommend use of polyester foam in such an environment...It will eventually decompose to a sticky powder,” according to a legal affidavit referenced by NPR.
Philips formally began investigating the problems with its ventilator and CPAP/BiPAP machine foam in 2019, FDA records show, but did not issue a recall for another two years.
“The way Philips was handling it was just, in my opinion, very, very poor and that made me angry,” Tom Wilson, a retired personal care product executive who runs a Facebook page about the device problems, told the Times. “This is a big recall. And it’s a dangerous recall.”
It’s also been an unending recall. Philips Respironics first provided a one-year timeline for repairing or replacing all affected continuous and non-continuous ventilators, CPAP, and BiPAP units, but that estimate eventually stretched into 2023 as the recall expanded.
Philips marked the recall’s first anniversary with a Class 1 designation—the FDA’s most serious—for several ventilator models, and gained a second such classification in early fall for 386 ventilators distributed between Aug. 6, 2020, and Sept. 1, 2021. Last September, the company warned of potential issues with its CPAP and BiPAP therapy masks containing magnetic headgear clips or straps, and in November informed the FDA of possible trouble with its reworked Philips Respironics Trilogy ventilators (those models were eventually recalled).
Then this past winter, Philips Respironics recalled some reworked DreamStation units over incorrect or duplicate serial numbers—a flub that could produce factory default settings, the wrong prescription therapy delivery, or no therapy delivery at all. The recall earned a Class 1 designation in early April. (See “Philips Respironics Recall Recap” on page 106 for a timeline of the company’s recall woes).
“I think this recall shows us how bad things can go when we don’t get it right,” Vinay Rathi, MD, an otolaryngologist at Massachusetts Eye and Ear Hospital (Boston), and medical device regulation scholar, told CBS News in March. “You basically bought a device, you find out that, actually, it could harm you. And then you struggle to find a replacement device...If I were a patient, I would be livid.”
Many patients are beyond livid: Thousands have filed suit against the company, seeking compensation for personal injuries or reimbursement for their breathing machines. Philips has earmarked $630 million for legal payouts, though that sum could fluctuate depending on the total number of lawsuits filed.
Regardless of the total, new CEO Roy Jakobs, appointed last fall, is hoping to settle economic damage claims in 2023. “I think that at least this year, we can reach a settlement on compensation for economic damage,” he told Dutch newspaper Het Financieele Dagblad in late March. Personal injury suits, he noted, could take longer to resolve. “That process is more complicated and is still at an earlier stage. We probably won’t be able to clarify that until next year,” he said, “but maybe by the end of this year.”
That disbursement could be quite debilitating for Philips’ finances, based on the 104,000 medical device reports (MDR) filed in response to the recall (April 2021 through March 31, 2023) and 346 patient deaths associated with it. The deaths, however, cannot be definitively linked to the recalled respirators because MDRs are not thoroughly vetted by the FDA.
Nevertheless, the implications are staggering, considering the pecuniary wreckage already wrought by Philips’ ever-expanding recall—namely, a workforce cut of 10,000 (former CEO Frans van Houten was among those out of a job); a 70% plunge in share price; the forfeiture of management bonuses, and market share abdication to rival ResMed.
While not as obvious in fiscal 2022, the recall still had a dampening effect on Philips’ finances. Revenue climbed 4% on a nominal basis to €17.83 billion, but declined 3% on a comparable basis, though the company blamed the loss on “operational and supply challenges, lower sales in China, the consequences of the Respironics field action, and the Russia-Ukraine war.”
Philips posted a €1.53 billion operating loss for the year, and a €1.62 billion net income deficit. Comparable order intake dropped 3% in contrast to 4% growth in 2021, due to a decrease in the company’s Connected Care business, which allows hospitals and other healthcare sites to share data securely with doctors and nurses.
Not surprisingly, the Respironics recall negatively impacted Connected Care sales last year despite the addition of Cardiologs’s technology and a patch-based, clinical-grade electrocardiogram (ECG) to its lineup.
Gained through acquisition, Cardiologs’ solutions further strengthened Philips’ cardiac monitoring and diagnostics offering with software technology, ECG analysis, and reporting services. The deal—announced in November 2021—gave Philips a vendor-neutral heart disorder screening tool and ECG analysis applications based on machine learning algorithms. The French firm’s technology accelerates diagnostic reporting, decreases the occurrence of reporting errors, and streamlines clinician workflow and patient care, thus empowering clinicians to deliver expert cardiac care faster and more efficiently.
Shortly after closing the Cardiologs deal in January (2022), Philips introduced the industry’s first full-service, at-home, 12-lead ECG solution for use in decentralized clinical trials. The clinical-grade solution is the most advanced patient-centric ECG offering within the company’s cardiac monitoring portfolio, pairing data readings comparable to clinical, site-based ECGs with Philips’ cloud-based data collection and analysis services.
“Our customers are seeking solutions that will help them address key challenges that can stand in the way of extracting meaningful insights from their clinical trials,” Andy Broadway, general manager of Ambulatory Monitoring and Diagnostics at Philips, said upon the 12-lead ECG solution’s debut. “Our growing portfolio of remote monitoring solutions help to curb patient attrition by reducing the amount of site visits required during the trial period, helping to improve both the quality of the outcome and the patient experience overall.”
In March, Philips received FDA 510(k) clearance for the latest Philips Capsule Surveillance solution. Capable of utilizing streaming data from virtually any connected medical device, the solution aggregates patient data, analyzes it to generate actionable insights and alerts, and sends timely notifications to the patient’s caregivers so they can intervene before deterioration progresses further. The latest Philips Capsule Surveillance release includes expanded interoperability into hospitals’ existing mobile clinical communication and collaboration tools and electronic intensive care units and virtual care population health management systems, offering more visibility on live streaming data, waveforms, device alarms, and contextual alerts.
Unfortunately, none of Connected Care’s portfolio enhancements helped boost revenue in 2022. Sales slipped 3.7% to €4.4 billion on a nominal basis, subverted by both the recall and supply chain headwinds.
Those particular forces, however, had little impact on Philips’ Personal Health and Diagnosis & Treatment businesses, which expanded sales 14.2% and 6.2% to €1.74 billion and €9.17 billion, respectively, in FY22. The company attributed the Diagnosis & Treatment business increase to mid-single-digit growth in Image-Guided Therapy and low single-digit growth in Enterprise Diagnostics Informatics, though both gains were offset by declines in Ultrasound and Diagnostic Imaging due to specific electronic component shortages.
Like Connected Care, the Diagnosis & Treatment business enhanced its portfolio through acquisition, closing a deal for Vesper Medical Inc. in Q1 2022. The minimally-invasive peripheral vascular device developer helps expand Philips’ roster of diagnostic and therapeutic products with an advanced venous stent portfolio for treating deep venous disease.
Besides the Vesper Medical deal, Philips augmented its Diagnosis & Treatment lineup last year through various product clearances and introductions. They included:
- Expanded FDA 510(k) clearance for Collaboration Live for remote diagnostic use on additional mobile platforms. Available on Philips Ultrasound Systems EPIQ and Affiniti, Collaboration Live enables clinicians to collaborate in real-time with colleagues to complete image acquisition and diagnosis, regardless of location.
- The launch of Ultrasound Workspace, a vendor-neutral echocardiography image analysis and reporting solution that can be accessed remotely via a browser.
- FDA 510(k) clearance for the MR 7700 3.0T MR system, which enables radiologists to obtain six different clinically relevant nuclei across anatomies. In addition to seamless integration of multi-nuclei capabilities for enhanced anatomical and metabolic/functional imaging, the MR 7700 system reportedly achieves 20% more functional magnetic resonance imaging (fMRI) volume and 50% more diffusion tensor imaging (DTI) directions, facilitating an improved level of detail with high-resolution images, according to Philips. The system’s XP gradient coils also allow radiologists to reduce scanning times by 35% and bolster signal-to-noise ratios by up to 35%.
- FDA 510(k) clearance for its newest 5000 Compact Series compact ultrasound system, which delivers cart-based premium image quality in a compact form. It features a wide range of diagnostic solutions for point of care, cardiology, general imaging, and obstetrics/gynecology. The Ultrasound 5000 Compact Series features real-time collaboration and remote consultations and training via Philips Ultrasound Collaboration live tele-ultrasound, and has integrated connectivity to streamline workflows.
- Introduction of the next-generation Advanced Visualization Workspace platform with AI-enabled algorithms and workflows. This latest innovation is vendor-neutral, providing a single, advanced platform for multiple modalities across cardiology, oncology, neurology, and radiology with a suite of advanced visualization solutions to support care teams, and tailored to fit the needs of any hospital network, from a single workstation to an enterprise solution.