By JON KAMP
Boston Scientific Corp. said Monday it would pay Johnson & Johnson a hefty $1.73 billion to end more disputes in long-running legal battles over patents for heart stents.

The deal clears away some major legal exposure for Boston Scientific, but it carries a surprisingly large price tag that could reduce the company’s ability to make deals to bolster its product pipeline and spur sales growth. Monday’s announcement follows $716 million Boston Scientific paid to J&J following a settlement in September on 14 other patent-infringement suits.

“We have recently made a concerted effort to mitigate risk throughout the company, including litigation risk,” said Ray Elliott, who took over as Boston Scientific’s president and chief executive in July.

Analysts, however, said the cost of that mitigation is surprising.

“We think most investors will be surprised and concerned,” by the new deal, Leerink Swann analyst Rick Wise said. He added that it’s “obviously a near-term setback in driving an improved balance sheet” at Boston Scientific.

Wells Fargo analyst Larry Biegensen said he continues to believe Boston Scientific will announce restructuring plans soon. A Boston Scientific spokesman said the company does not comment on speculation.

Boston Scientific is paying $1 billion to Johnson & Johnson on Monday, $800 million of which comes from cash on hand and $200 million of which comes from borrowings under its credit facilities, the spokesman said. At the end of September, Boston Scientific reported $1.38 billion in cash and cash equivalents.

The company will pay the $725 million balance on or before the first week of January 2011. It plans to post a $745 million letter of credit to cover this balance and interest.

The payments won’t have an appreciable impact on Boston Scientific’s debt covenants, and after the payments, the company said it will retain significant liquidity under its credit facilities. It still plans to refinance its 2011 debt maturities in the middle of this year.

“We believe today’s settlement—while substantial—is in the best interest of the company and its shareholders,” Elliott added. “It resolves major litigation without exposing Boston Scientific to the uncertainties of a jury trial and a potential damages award that was impossible to predict.”

He noted that with these matters resolved, there are now no material judgments or jury verdicts pending against the company.

The legal wrangling over heart stents isn’t over, however. J&J’s stent-making Cordis unit noted in a release that other litigation between the companies continue, including lawsuits Cordis filed regarding Boston Scientific’s Promus-brand stents. The settlements Monday cover Boston Scientific’s Taxus Express and Taxus Liberte stents.

Promus stents are made by Abbott Laboratories, which sells the same devices under the name Xience, and sold by Boston Scientific under a profit-sharing deal. Boston Scientific now sells new home-grown Promus Element stents in Europe that don’t come from Abbott.

The new settlement covers patent spats dating back to 2003 and involve three patents, including a key one known as the Palmaz patent that covers the concept of expanding stents—which are tiny metal scaffolds—with balloons. The disputes at issue included a Boston Scientific claim that J&J devices infringed its patent.

In 2005, both parties were found to have infringed each others’ patents. Damages claims were scheduled to be decided by two jury trials slated for this month in the U.S. District Court in Delaware, but those trials have been called off.

A trial regarding J&J’s claim that Boston Scientific’s Taxus Liberte stents infringed the Gray patent also has been canceled.

Write to Jon Kamp at jon.kamp@dowjones.com

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