Boston Scientific Corp said on Monday it will pay $1.73 billion to Johnson and Johnson to settle three patent disputes involving heart stents that date back to 2003.

The deal comes as medical device maker Boston Scientific tries to reduce its financial risk by cutting down on the volume of litigation in which it is involved, though the hefty price tag surprised analysts.

Typically you don't see this size of a settlement. That is unusual, said Morningstar analyst Debbie Wang.

The company expects to record an additional charge to earnings for the settlement, after disclosing a $237 million charge last April, said spokesman Paul Donovan, who had no further details on the size or timing of the future charge.

Boston Scientific. which announced a separate $716 million stent settlement with J&J in September, said it has now settled 17 lawsuits with its rival, as well as disputes with other competitors and the U.S. government, and there are no remaining material judgments pending against it.

Stents are small mesh tubes used to prop open arteries that have been cleared of blockages via angioplasty.

We believe today's settlement -- while substantial -- is in the best interest of the company and its shareholders, Boston Scientific Chief Executive Ray Elliott said in a statement. 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.

Under the settlement with J&J, Boston Scientific will pay out $1 billion now and the remainder by the first week of January 2011. Boston Scientific plans to post a $745 million letter of credit to cover the balance and interest.

The company will use $800 million in cash on hand and $200 million in borrowings from credit facilities to fund the initial payment, with the balance to come from cash flow generated this year, Donovan said.

Boston Scientific said it does not expect the payments will have a significant effect on its debt covenants and said it still plans to refinance its 2011 debt maturities in mid-2010.

Wells Fargo Securities analyst Larry Biegelsen said the settlement, together with debt from the company's $27 billion purchase of Guidant in 2006, could hamper Boston Scientific's ability to supplement its pipeline with acquisitions.

We also continue to believe that BSX (Boston Scientific) will announce another restructuring in the near future, he said.

J&J and Boston Scientific were the first two companies to bring drug-coated stents to market. Their products now also compete against stents from Medtronic Inc and Abbott Laboratories Inc .

The dispute between Boston Scientific and J&J centered on J&J's claim that its Palmaz and Gray patents were infringed upon by Boston Scientific's Express, Taxus Express and Liberte stents.

Boston Scientific also claimed that its Jang patent was infringed upon by J&J's Cypher, BX Velocity and Genesis stents.

Both parties were found to have infringed on each others' patents in 2005, and damage claims were set to be decided by two jury trials this month in U.S. District Court in Delaware. The trials will no longer take place, Boston Scientific said.

J&J said it continues to assert several patents against Boston Scientific's latest-generation Promus stent products, as well as against Abbott, which shares in profits from Promus.

A third dispute was set to go to court in September, but that trial will also be canceled.

Shares of J&J were off 1 cent to $62.85 in afternoon trading on the New York Stock Exchange, while Boston Scientific shares fell 11 cents or 1.3 percent to $8.52.

(Additional reporting by Lewis Krauskopf, Michele Gershberg and Ransdell Pierson, editing by Gerald E. McCormick, Dave Zimmerman)

Medicine Settlement