By Dhirendra Tripathi
Investing.com – Philips (NYSE:PHG) shares fell close to 5% in Monday’s premarket trading following the company’s decision to voluntarily recall certain breathing devices and ventilators on concerns they could harm the patients.
It is recalling Bi-Level Positive Airway Pressure (Bi-Level PAP), Continuous Positive Airway Pressure (CPAP), and mechanical ventilator devices.
A certain kind of foam, polyester-based polyurethane, is used to muffle the noise generated during use of these devices.
Philips said the PE-PUR foam may degrade into particles which may enter the device’s air pathway and be ingested or inhaled by the user, and the foam may off-gas certain chemicals.
The foam degradation may be exacerbated by use of unapproved cleaning methods. High heat and high humidity environments may also contribute to foam degradation, the company said in a note.
Philips will replace the current sound abatement foam with a new material and has already begun the preparations, which include obtaining the relevant regulatory clearances.
The company has advised patients to consult their physician before taking any action and weigh between the risks of continuing the therapy and those identified in the recall notification.
The Dutch medical and consumer group had in its April 26 communication said it had "identified a quality issue in a component that is used in certain sleep and respiratory care products, and are initiating all precautionary actions to address this issue, for which we have taken a EUR 250 million ($302.5 million) provision".
The recall notwithstanding, the company is sticking to its April 26 forecast of delivering “low-to-mid-single-digit comparable sales growth for the group in 2021 with an adjusted EBITA margin improvement of 60-80 basis points." Adjusted earnings before interest, taxes, depreciation and amortization margin in fiscal 2020 was 13.2%.
The company said the corrective action has inflated costs by 250 million euros ($302 million), on top of the 250 million euros already provisioned.