Philips CEO Frans Van Houtento Step Down Company: Jakobs Named Successor
After more than 11 years in the position, Philips CEO Frans van Houten will leave on October 15 amidst ongoing controversy surrounding the firm’s recall of millions of ventilators and sleep apnea machines.
His successor was announced to be Roy Jakobs, who oversees Philips’ connected care business. Van Houten will work for the business until April 30, 2023, in an advisory role and help with the transition, Philips said in a statement on Tuesday. Next month, on September 30, an extraordinary general meeting of shareholders will be held to elect Roy Jakobs as president and CEO, effective as of October 15, 2022.
Van Houten’s departure comes at a trying time for the business. In July, Philips disclosed that it was negotiating a consent decree with the US Department of Justice regarding the recall of its ventilator and sleep apnea machines. The announcement came after facility inspections and a request for the recall from the Food and Drug Administration.
In addition, Philips is facing difficulties across all of its businesses as a result of macroeconomic factors like tightened supply chains and rising costs. Revenue for the company fell by 7% from the same period last year to 4.2 billion euros ($4.27 billion). Sales at the company’s connected care division, which Jakobs will be leaving, fell 13% in the previous three months. The company reduced its forecast for full-year sales growth from 3% to 5% to between 1% and 3% while predicting second-half growth of 6% to 9% based on a healthy order backlog.
Last month, the company reported a larger-than-expected drop in second-quarter core earnings, citing supply shortages and lockdowns in China as factors. Philips issued a recall for ventilator and sleep apnea machines in June 2021, citing user health risks. The foam used to quiet machines may break into small particles that patients may ingest or breathe in, potentially exposing them to toxic chemicals.
The sleep apnea and ventilator recall, which has affected over 5.5 million machines over the past 15 months, prompted an FDA facility inspection, a DOJ subpoena, and, most recently, talks with the regulator about a consent decree. The recall and repairs will most likely cost around 900 million euros, according to the company, which recently stated that they were about half completed.
Additionally, the FDA instructed that the business notify all customers—including users, healthcare professionals, and suppliers—of the recall in March after determining that the business’s prior communication efforts had fallen short and left some customers in the dark about the recall.
The ongoing problems have prevented Philips from entering the market, providing a special opportunity for rival ResMed. On August 11, ResMed announced that it had generated between $60 million and $70 million in revenue during the fourth quarter of its fiscal year 2022 as a result of the recall, bringing the total to between $230 million and $250 million.
Philips will still need to answer some questions in the future. Wall Street analysts stated in July that the consent decree discussions with the DOJ increase the uncertainty surrounding when Philips can re-enter the market and could result in the shutdown of manufacturing. Multiple lawsuits that the company is dealing with could raise the cost of the recall.
In early morning trading, the share of Dutch medical equipment maker increased 1.3% to $20.35. Philips has been dealing with the fallout from a massive ventilator recall for the past year, and its market value has dropped by around $15 billion since June 2021.
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