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U.S. Prematurely Cancels Ventilator Contracts with Three Makers

Aug. 31, 2020, 11:02 PM

The Trump Administration is canceling contracts for ventilators with three companies, including a $650 million deal signed in April with Royal Philips NV.

Vyaire Medical Inc. will deliver no more than 4,000 ventilators in a deal in which they contracted to provide 22,000 at a cost of $407.9 million, according to a spokesperson for the U.S. Department of Health and Human Services. Hamilton Medical will deliver no more than 4,518; the orginal agreement called for the company to provide 25,574 for $552 million.

Philips, meanwhile, said it supplied 12,300 ventilators to the U.S. Strategic National Stockpile by the end of August. However, HHS terminated the order for the remaining 30,700 devices without giving a reason, said Chief Executive Officer Frans van Houten.

“It’s very unusual to have a contract like this canceled,” van Houten said in a phone interview. Philips nevertheless sees positive growth for the year as the company’s order books are “at an all-time high,” he said.

The Strategic National Stockpile now has nearly 120,000 ventilators available, the HHS spokesperson said.

The Philips cancellation spurred the head of a U.S. House panel to say he plans to seek documentation on all contracts related to the Covid-19 pandemic by Trump administration trade adviser Peter Navarro.

The deal with Philips was “poorly negotiated,” said Raja Krishnamoorthi, a Democratic representative from Illinois who heads the Subcommittee on Economic and Consumer Policy,

Royal Philips lowered its full-year profit outlook after the U.S. government prematurely ended a $650 million contract for ventilators signed in April to combat the Covid-19 crisis.

The Dutch producer of medical equipment expects to deliver “modest comparable sales growth,” and an adjusted margin for earnings before interest, tax and amortization of around the same level as last year, it said in a statement Monday.

During the first months of the coronavirus pandemic, governments around the world scrambled to equip their health systems with ventilators to treat seriously-ill patients, with industries like the automobile sector also making the devices. Philips hired more employees, added lines and increased shifts to ensure around-the-clock manufacturing.

In April, the company based in Amsterdam said it was investing more than 100 million euros ($119 million) on increasing output of ventilators and other hospital equipment related to the virus, including by adding capacity and jobs in the U.S.

Philips, which earlier this month agreed to buy U.S. medical-device maker Intact Vascular for about $360 million, will continue to look for acquisitions in the sector to strengthen its portfolio and innovate treatment procedures, the CEO said.

--With assistance from Stefan Nicola and Frank Connelly.

To contact the reporter on this story:
Shira Stein in Arlington at sstein51@bloomberg.net

To contact the editors responsible for this story:
Brent Bierman at bbierman3@bloomberg.net

Reg Gale, Heather Smith

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

To contact the reporter on this story: Shira Stein in Washington at sstein@bloomberglaw.com

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