Philips to Reopen Plant to Boost Ailing Healthcare Biz

Dutch electronics multinational Koninklijke Philips is turning to its Cleveland medical imaging production facility to rejuvenate the struggling healthcare side of its business.Philips voluntarily closed the plant in April "to remediate certain quality controls in manufacturing and procurement and in the design transfers," company chairman Frans van Houten told analysts Tuesday during a post-earnings-release telephone call, transcribed by Seeking Alpha.Philips executives blamed the plant closing and unfavorable exchange rates for poor second-quarter results. Net profit was down 23% from EUR242 million ($328 million), compared with EUR317 million in the same quarter a year earlier.The FDA in 2011 sent Philips a warning letter about the Cleveland facility, which makes computed tomography scanners and molecular imaging machines. A 2012 letter from the agency said the company had addressed the issues, but it promised to revisit its concerns in future inspections.Van Houten told analysts the company plans to reopen the plant in the third quarter. Philips believes it is on track to resolve problems with the first product and will continue to work on others, he said."We have taken the Cleveland situation as a trigger to double scrutinize every other healthcare facility," van Houten added.Healthcare is Philips' largest unit by revenue, and was its poorest performer in the second quarter. In the second quarter, Philips' total sales were flat compared to the same quarter in 2013, at EUR5.3 billion. In healthcare, comparable sales were down 4%, to $2.4 billion.

Van Houten predicted that stronger healthcare sales in China and Europe would help boost results in the second half of the year.Philips signed a couple of deals last quarter to boost healthcare performance long-term. It formed a strategic alliance with Salesforce.com to create a cloud-based healthcare IT platform, and forged a partnership with New Karolinska Hospital in Sweden to improve patient care at lower cost.None of this was enough for investors. Philips stock dipped more than 1% in early NYSE trading. Philips' stock has dropped nearly 14% since the beginning of the year, making it one of the worst-performing stocks among major medical device companies.

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Nancy Crotti is a contributor to Qmed and MPMN.

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