Dutch multinational Philips soared a remarkable 43% on Monday after settling a protracted class-action lawsuit in the US over allegedly faulty sleep apnea devices.
Millions of the devices were recalled over fears that the polyester-based polyurethane foam used to reduce noise could break down and become toxic, potentially causing cancer.
According to the Food and Drug Administration, 561 deaths have been reported since 2021 relating to the use of recalled devices.
In today’s first-quarter earnings release, Philips announced the claims were settled for US$1.1 billion.
The settlement was “much milder than feared and shall mark the end of litigation uncertainty”, said Jefferies analysts, who suggested up to US$4 billion was on the line.
Philips also revealed that insurers will pay €540 million (US$579 million) to cover product-liability claims related to the recalls.
The settlement payments are expected in 2025 and will be funded from Philips’ cash flow generation.
Earlier this month, Philips signed a ‘consent decree’ with the FDA spelling out a roadmap for bringing improved sleep apnea devices back to the market.
The controversy has severely impacted Philips’ share price. Despite today’s rally, the stock is still down 44% since April 2021, when the issue first came to light.
Philips kept its full-year outlook unchanged in today’s earnings release, having hit firm-wide sales targets of €4.1 billion and a 9.4% EBITA margin.