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Philips sees profit hit from U.S. defibrillator blow
October 11, 2017 / 5:30 AM / a month ago

Philips sees profit hit from U.S. defibrillator blow

AMSTERDAM (Reuters) - Health technology company Philips is suspending the manufacture of some defibrillators in the United States and will make others under heightened scrutiny following criticisms from U.S. regulators, in a move it said would dent profits.

The Dutch company said on Wednesday it expected a hit of 20 million euros ($24 million) to earnings before interest, taxes and amortization (EBITA) in the fourth quarter of 2017, and a 60 million euro impact for the whole of 2018.

The company made 2.2 billion euros of EBITA in 2016.

“Philips defibrillators currently in use by customers are recommended by Philips to remain in use, and should not be taken out of service as Philips has no reason to believe they pose a risk to patients,” it said.

The U.S. Food and Drug and Administration (FDA) has been raising concerns about defibrillators, which use an electric shock to restore a malfunctioning heart’s rhythm, since at least 2013.

Philips disclosed details of the current dispute in January, which focuses on “compliance with good manufacturing practice requirements” in and before 2015 at its facilities in Andover, Massachusetts, and in Bothell, Washington.

Despite the modest reduction in forecast earnings, the latest announcement may unnerve investors. Philips issued a similar warning in 2014 about FDA concerns over how it made medical scanners at its factories in Cleveland, Ohio.

That eventually led to further profit warnings and two years of production delays.

CEO Frans van Houten said the current situation was “quite different” because Philips had invested in quality control in recent years.

The scanner problems in Cleveland forced product redesigns and changes to the company’s supply chain - neither of which were relevant in the current case, Van Houten said. He said FDA concerns centered on the company being able to document that products had been manufactured correctly.

“We have made tremendous progress since 2015 but that didn’t matter,” he said. “This is a consequence of past sins.”

At 0720 GMT, Philips shares were down 0.2 percent at 35.01 euros.

Van Houten said the impact on earnings would be “limited”, as Philips’ global defibrillator sales amount to about 300 million euros a year, compared with group sales in 2016 of 24.5 billion euros.

The company said affected product lines had 2016 sales of around 140 million euros.

In March, the FDA ordered the recall of 47,000 Philips defibrillators manufactured between 2004 and late 2016.

The company will continue making some defibrillator lines, as well as parts, to ensure the products remain publicly available. It will also resume exports of defibrillators from the affected plants “once certain requirements have been met”.

Van Houten said manufacturing of the suspended product lines would resume “in the course of 2018,” likely in the third quarter.

Reporting by Toby Sterling. Additional reporting by Bart Meijer.; Editing by Sherry Jacob-Phillips and Mark Potter

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