Philips sinks beneath the foam

A bad situation gets worse – again – and rivals seek to capitalise.

Philips is working hard to get its respiratory technologies back on track, but its efforts have been set back again. After its ventilators were recalled in the summer when the polyester-based polyurethane foam used to quieten them was found to be potentially dangerous the FDA said on Friday that an alternative, silicone-based foam used in one device had failed a safety test.

Shares in the Dutch group are down 12% so far today, and some analysts had warned that other ventilator players could be hit by the controversy since they use similar silicone foam components. In fact the opposite has occurred: Philips’ main respiratory rival Resmed is up 6% in premarket trading, and New Zealand-listed Fisher & Paykel closed up 5%. Philips might have a hard time winning shareholder and customer confidence back. 

The issues started for Philips in June, when it recalled some of its ventilators and sleep apnoea devices. The recall was prompted by the discovery that the polyester-based polyurethane foam used to dampen sound made by the machines, many of which are used as the patient sleeps, can break down in ways that might be dangerous. The foam could degrade into particles which might be ingested or inhaled by the user, or could give off chemicals that might be toxic.

In July the FDA designated the recall class 1, the most serious kind. 

Foam party

Following the initial recall, Philips devised a plan to replace the faulty foam with a different, silicone-based foam. The FDA approved this plan on the back of results of tests on the new foam Philips provided to the agency in June.

During an inspection of one of Philips’ manufacturing sites, however, the FDA found that the new silicone-based foam used in a device sold outside the US had failed a safety test for the release of volatile organic compounds. 

Devices authorised for marketing in the US had passed similar tests, the agency said.

The FDA has requested that Philips retain an independent laboratory to determine what risks may be posed to patients by the silicone-based foam. Philips said yesterday that it was already working with independent labs. 

In the mean time, devices with this silicone foam are already in use by patients in the US. The FDA said that it does not yet have enough data to be able to say how risky these products might be; for now it has stopped short of recommending that patients stop using them. 

Timeline of Philips' ventilator troubles
Date Event
Jun 14, 2021 Philips voluntarily withdraws certain ventilators, bi-level positive airway pressure and continuous positive airway pressure machines after the sound abatement foam they use is found to be potentially toxic
Jun 30, 2021 The FDA issues a safety alert about the devices
Jul 22, 2021 The FDA designates the recall class 1, the most serious kind
Nov 12, 2021 The FDA releases the findings of an inspection of one of Philips' manufacturing sites, stating that the new foam used to replace the foam previously identified as faulty has also failed a safety test
Nov 14, 2021 Philips responds to the FDA's findings, saying it will will work closely with the agency to resolve the situation, and pointing out that it is working with independent labs to conduct further testing of its products.
Source: FDA and company communications.

While Philips might have avoided another recall for now, its stock has taken a battering. Berenberg analysts wrote that the FDA’s request for further study of the foam could have “wider connotations” for all sleep apnoea device players, including Resmed, which they say is the major adopter of silicone-based foam components today. 

So far any connotations appear to be positive. Investors in Resmed and Fisher & Paykel clearly believe that these groups can step in to the gap left by Philips, as today’s stock jumps show. 

Even before the latest development, sales of Resmed’s respiratory technologies had been forecast to grow at an annual rate of 10% out to 2026, according to Evaluate Medtech’s sellside consensus data, and F&P’s at 5%. Philips’s respiratory business, meanwhile, is forecast to grow at 3% per year. 

Share This Article