Boston Scientific Corporation (BSX) yesterday announced that it will settle fourteen patent infringement lawsuits against Johnson & Johnson (JNJ) related to the use of stents in treating heart disease for $716.3 million. The company will make use of cash held in its legal reserve to make the payment.
The payment will be made to Johnson & Johnson’s subsidiary, Cordis Corporation. Boston will report a substantial portion of the payment as a special item in the fourth quarter of 2009.
Boston is a market leader in the stent market. A stent is a metal tube used in surgical operations to open-up blocked arteries. Some of these fourteen settled lawsuits are related to Boston’s famous Palmaz-NIR suit, particularly the NIR suit.
We think that despite the huge settlement charges Boston will benefit from settling these long-pending litigations, which had created an overhang on the company’s operations. Furthermore, the company has already hedged itself against such expenses by creating a legal reserve. Boston reported revenues of $2,074 million in the second quarter of 2009, an increase of roughly 2% year over year.
Boston Scientific is a manufacturer of medical devices and products used in a broad range of interventional medical specialties. The company faces significant competition across its product portfolio. The primary competitors include Johnson & Johnson, Medtronic Inc. (MDT), Abbott Laboratories (ABT) and St. Jude Medical Inc. (STJ). Based on the company’s performance, we have assigned a Neutral recommendation to the stock.
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