(Bloomberg) -- Royal Philips NV slumped after a US regulator warned about a safety issue involving the company’s DreamStation 2 sleep apnea machine, whose predecessor is already the subject of a major product recall.

The Food and Drug Administration has received a surge in reports of signs of overheating including fire, smoke and burns while using the device, it said late Tuesday. The faults deepen the company’s existing issues with similar products where disintegrating foam sparked health concerns.

The DreamStation 2 issues could still lead to a “more punitive outcome” for Philips such as a recall or new testing requirements, Morgan Stanley analyst Robert Davies said in a note.

The Dutch manufacturer has long struggled with its sleep therapy products and more than two years ago began recalling some devices over health concerns related to disintegrating noise-dampening foam. The FDA classified those problems — which mainly affected the predecessor of the DreamStation 2 — the most serious type of issue.

Philips has so far set aside about €1 billion ($1.1 billion) for the recall, and in September agreed to pay at least $479 million to resolve some of the litigation. But the company is still facing class-action and potentially thousands of individual lawsuits in the matter, and it’s being investigated in the US and may have to cease some of its operations there until it completes corrective actions. Chief Executive Officer Roy Jakobs, who took over in October of last year, has warned that the company may feel the consequences for years.

Read more: Philips May Deal With Recall Fallout for 7 More Years, CEO Says 

The FDA issued a safety communication related to the DreamStation 2 late Tuesday, saying it received a “sharp increase” of more than 270 reports linked to thermal issues with the device since August. Prior to that, it had received fewer than 30 such reports since the machine that’s used to treat obstructive sleep apnea was cleared for marketing in July 2020. The regulator said it doesn’t believe the new issue is related to foam used in the product.

Philips fell as much as 7.7% in Amsterdam, the steepest intraday drop since Oct. 6, wiping out around $1.3 billion in market capitalization. Since the company first flagged quality issues with certain sleep and respiratory-care products in April 2021, the shares have tumbled 62%, a drop in market value of about $29 billion. They’ve gained more than a third this year.

ING analyst Marc Hesselink said he expects the impact of the latest problems to be “limited” given the very low incidence rate among the roughly 1.5 million DreamStation 2 machines the company has shipped so far.

But even if the issues are limited to a specific batch or faulty components, they again put Philips in the spotlight over quality and safety, Jefferies analyst James Vane-Tempest said in a separate note.

Philips said it’s in talks with the FDA regarding the new reports its Respironics division filed over the last three months, which cover a three-year period following a retrospective review since the launch. It said the devices can continue to be used if safety instructions are followed.

Read more: Philips Slides as Order Drop Raises Doubts Over Sales Growth

The FDA said the DreamStation 2 machines are manufactured with a silicone-based foam and not polyester-based polyurethane foam used in the recalled devices. Some of these products were, however, distributed as replacements for users whose machines were affected by the recall.

The regulator said reports it has analyzed indicate the thermal issues may be related to an electrical or a mechanical malfunction of the product.

--With assistance from Lisa Pham and Thyagaraju Adinarayan.

(Updates with details on share move in seventh paragraph.)

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