Royal Philips falls under FDA probe over heart defibrillators

Bloomberg

Royal Philips NV’s health-equipment business in the US has come under scrutiny after the Dutch company disclosed a conflict with authorities over its heart defibrillators more than three years after the Food and Drug Administration warned about their reliability following a recall.
Philips is in talks with the Department of Justice, representing the FDA, on a civil matter related to inspections of the devices in 2015 and before, the Amsterdam-based company said in a statement on Tuesday. As a result, the company said it’s expecting a “meaningful impact” on the operations of the business, which has annual worldwide sales of about 290 million euros ($311 million), less than half in the US.
In December 2013, the FDA warned certain so-called HeartStart models made by Philips may not be able to properly deliver shocks needed in cardiac emergencies and recommended improved inspection and monitoring. Philips had recalled about 700,000 devices in 2012 due to a failure of an electrical component, the FDA said.
Philips shares fell as much as 4.8 percent, the most in almost seven months, and were trading down 2.6 percent at 27.16 euros at 11:10 a.m. in Amsterdam, giving it a market capitalization of 25 billion euros.

FOCUS ON HEALTH
Under Chief Executive Officer Frans van Houten, Philips has sharpened focus on growing as a health-care company by spinning off Philips Lighting NV through an initial public offering in May, and the sale of its lighting components unit Lumileds in December. The Dutch company aims to be seen as a provider of software and health equipment and technology, as opposed to a manufacturer of light bulbs and TVs that made up its core products during the company’s 125-year history.
“The defibrillator issue is in any case material, and these kind of issues are just not what you want to see any more, Philips should have a good performance,” said Bank Degroof Petercam analyst Marcel Achterberg.
The defibrillator business is “relatively small” in the US and it’s too early to know the magnitude of the impact, the CEO said in an interview with Bloomberg TV. The issue hasn’t affected financial guidance and is about compliance rather than equipment quality, he added later on a conference call.
Philips reported fourth-quarter adjusted earnings before interest, taxes and amortization rose 19 percent to 1 billion euros, meeting estimates, while sales increased 3 percent on a comparable basis to 7.2 billion euros.

GROWTH OUTLOOK
Looking ahead over the next three or four years, the company kept an outlook for comparable annual sales growth of 4 percent to 6 percent and an improvement by 100 basis points on average in the adjusted EBITA margin, which was 13.8 percent in the latest quarter compared with 11.9 percent a year earlier. “Our health technology activity really has momentum,” van Houten said in the interview. “That is our future.” The CEO also warned of a more unpredictable business environment in the US following the election of President Donald Trump.
“I am seeing heightened uncertainty — that is a concern — and we will just need to see what is going to come through in terms of policy adjustments,” the CEO said. The US is an important market for Philips, making up a third of its health technology business, and is also a manufacturing base, he added.