Philips bids farewell to CEO amid massive recall

  • Van Houten leaves the helm after almost 12 years
  • To be replaced on October 15 by Connected Care head Jakobs
  • Shares up 2% but down more than 50% since product recall

AMSTERDAM, Aug. 16 (Reuters) – Philips (PHG.AS) Chief Executive Frans van Houten will leave the company in October, the Dutch health tech company said on Tuesday after a major product recall cut its market value by more than half from last year. last year.

Philips said Van Houten would be replaced on October 15 by Roy Jakobs, head of the company’s Connected Care business. Van Houten’s third term as CEO was to end in April.

Jakobs, 48, is currently overseeing the company’s recall of millions of ventilators and machines used to treat sleep apnea. That process has lowered the value of Philips nearly $30 billion as investors fear big claims.

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“The time is right for the change of leadership,” Philips said in a statement.

Philips shares rose 2% in midday trading, but are still down nearly 60% since the June 2021 warning that foam used for sound deadening could release toxic gases that could pose cancer risks. read more

When Philips began the recall in September last year, Philips said it expected to complete the replacement and repair of all affected machines within a year.

But after Philips expanded the scope of the operation to about 5.5 million devices worldwide, Philips said in June that the work was only halfway through.

ADDITIONAL TESTS

The U.S. Food and Drug Administration (FDA) classified the January recall as Class 1, or the most severe form, which carries a threat of injury or death.

The FDA said Tuesday that it received 48,000 new medical device reports from May 1 to July 31 of this year complaining of possible injuries related to the Philips devices, including 44 deaths. read more

That is more than twice as many reports as for the entire year until April 30, 2022, a total of more than 21,000. They include 124 deaths.

CEO Frans van Houten of Dutch health technology company Philips presents the company’s fourth quarter and full year 2018 financial results in Amsterdam, Netherlands, Jan. 29, 2019. REUTERS/Eva Plevier

The FDA said it would analyze the reports and investigate possible reasons for the increased number.

The complaints do not prove a causal relationship, but are an indicator of the seriousness of the problem.

Philips said in June it had provided the FDA with evidence from independent testing on the recalled devices that showed foam degradation was primarily related to the use of harsh, unauthorized ozone-based cleaning products. read more

It has promised to conduct additional testing to determine the potential toxicity of degraded foam parts, although the tests so far have shown that the parts have not left the machine.

Philips estimated the cost of the recall at 900 million euros ($915 million). That amount does not cover any legal costs. The company is facing more than a hundred class action lawsuits.

“If you have three recalls in ten years, that is too much. His position (Van Houten) would have become untenable,” says analyst Jos Versteeg of InsingerGilissen. He referred to a recall of defibrillators in 2017 and problems with medical scanners in 2014.

“I don’t think this situation is really under control, because we are still waiting for the final conclusion of the (safety) studies.”

While the blow to Philips’ reputation could have resulted in Philips choosing an outsider for the top position, the chairman of the supervisory board, Feike Sijbesma, said Jakobs was the right man to solve the company’s problems.

“He led the ramp-up of production after the recall and knows a lot about patient safety and product quality, so he’s the right person from that perspective too,” he said.

During his nearly 12 years at the helm, 62-year-old Van Houten oversaw the sales of Philips’ lighting and consumer electronics divisions.

Philips now focuses on medical imaging, monitoring and diagnostic equipment and competes with General Electric (GE.N) and Siemens Healthineers (SHLG.DE).

($1 = 0.9833 euros)

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Report by Bart Meijer; Additional coverage by Ahmed Aboulenein in Washington; Editing by Matt Scuffham, Emelia Sithole-Matarise and Richard Pullin

Our Standards: The Thomson Reuters Trust Principles.

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