Philips Announces Discontinuation of Respiratory Devices in the United States

In a recent announcement, global healthcare technology company Philips revealed its decision to halt the sale of respiratory devices in the United States. This move has significant implications for the market, prompting questions about the potential for domestic brands to fill the gap. Let's delve into the details and explore the potential consequences of this decision.

The respiratory device market is experiencing a period of upheaval, with a surge in demand and a shifting landscape. Philips, a prominent player in the industry, recently disclosed its financial performance for the year 2023 and the fourth quarter. The company reported annual sales of €18.17 billion (approximately RMB 141.3 billion), representing a 6% year-on-year growth. However, the fourth-quarter sales of €5.06 billion (around RMB 39.3 billion) experienced a 1% decline. Notably, the diagnostics and treatment segment witnessed significant growth, with annual sales reaching €8.818 billion (approximately RMB 68.6 billion), reflecting an 11% increase. The connected care division recorded annual sales of €5.138 billion (around RMB 39.9 billion), indicating a 5% growth, while personal health sales amounted to €3.602 billion (approximately RMB 28 billion), showing a 3% increase. Philips projects a comparable sales growth of 3-5% for 2024, with an adjusted EBITA profit margin of 11-11.5%.

Under the context of major restructuring efforts, Philips has already eliminated approximately 8,000 positions and plans to reduce a total of 10,000 jobs by 2025, resulting in a total annual savings of €956 million. In the fourth quarter of 2023, the company achieved savings of €149 million through operational productivity, €64 million through procurement, and €58 million through other productivity initiatives, amounting to a total of €271 million. Prior to the recent announcement, Philips had already disclosed its plan to adjust the product structure of its sleep and respiratory business line in the United States. The company stated that it would cease the sale of critical products within the respiratory business line, including medical and home ventilators. However, Philips Respironics will continue to provide sleep and respiratory care equipment services, accessories, consumables, and replacement parts to healthcare providers and patients in the United States until they comply with the agreed-upon requirements of the authorities. Philips Respironics will refrain from selling new CPAP or BiPAP sleep therapy devices or other respiratory care equipment in the United States until then.

Financially, Philips allocated €363 million in provisions for costs related to settlement agreements in the fourth quarter of 2023. It is expected that costs associated with remediation activities and recall-related payments will amount to approximately 100 basis points by 2024. Roy Jakobs, the CEO of Philips, emphasized that patient safety and quality remain the company's top priorities. Philips is committed to addressing the consequences of the Respironics recall for patients and customers and is dedicated to compliance with regulatory requirements.

The adjustment in Philips' business operations in the United States is likely to bring about significant changes in the existing market landscape. Other manufacturers have the opportunity to increase their market share and achieve rapid growth. ResMed, another leading global player in the respiratory device industry, has already indicated its expansion plans due to the global recall of Philips' respiratory devices. In the fourth quarter of 2023, ResMed achieved sales revenue of $1.163 billion, reflecting a year-on-year growth rate of 12.48%. The sleep and respiratory care equipment segment accounted for $606 million of the revenue, with a growth rate of 11.64%. Capitalizing on their mature overseas presence, domestic representatives in the respiratory device field, such as BMC Medical and BMC-Yihaikang, have also gained a significant market share. In 2022, BMC Medical reported total revenue of ¥1.415 billion, with overseas revenue accounting for 85% of the total. According to the company's investor relations activity record, their home non-invasive ventilator's global market share and ranking increased from 4.5% (fourth place) in 2020 to 17.7% (second place) in 2022, while their domestic market share rose from 21.6% in 2020 to 25.8% in 2022, securing the top spot among domestic brands.

Furthermore, the global demand for home non-invasive ventilators is expected to grow steadily, primarily driven by the increasing number of patients with chronic obstructive pulmonary disease (COPD) and obstructive sleep apnea (OSA). Sullivan data projects that the global market for home respiratory devices was valued at $2.71 billion in 2020 and anticipates it to reach $5.58 billion by 2025, with a compound annual growth rate (CAGR) of 15.5%. This growth presents a significant opportunity for domestic brands to capitalize on the ongoing market dynamics and expand their presence.

Philips' decision to discontinue the sale of respiratory devices in the United States has sparked a wave of changes in the market. The void created by this move opens up opportunities for domestic brands to step in and fill the gap. With the growing demand for respiratory devices worldwide, manufacturers like ResMed and domestic players such as BMC Medical are well-positioned to seize this opportunity and expand their market share. As the industry continues to evolve, it will be interesting to see how these changes shape the future of the respiratory device market in the United States and beyond.