Facing ongoing lawsuits over mesh products used to treat urinary incontinence, its 2006 acquisition of Guidant Corp., and tax issues with the IRS, Boston Scientific has now set aside nearly $1 billion to pay legal expenses.
The Marlborough-based medical device company increased its litigation reserves by $139 million over the course of the three months that ended in September to total $945 million, CFO Dan Brennan said on a conference call with analysts on Wednesday. By contrast, the company’s cash on hand as of Sept. 30 was just $236 million.
Boston Scientific reported financial results for the third quarter, including revenue of $1.85 billion, up 6 percent from the same period in 2013 and exceeding its own guidance as well as most analysts’ estimates for the quarter. At the same time, the firm reported a net loss of $5 million, but excluding the company’s sizable costs related to acquisition, divestitures, restructuring and litigation, it saw a net income of $230 million. That works out to 17 cents a share, slightly less than the 20 cents a share analysts were expecting.
On the whole, investors took the news fairly well, increasing its shares by 2.4 percent by the end of the day Wednesday. But the various lawsuits the company is involved in was the topic of many questions directed at Brennan as well as CEO Mike Mahoney.
“We continue to manage our litigation risk and we are confident in our legal strategies,” said Mahoney on the call. “We believe we are appropriately reserved and have strong liquidity and a very manageable cadence of events should our legal strategies have unfavorable outcomes.”
When asked, Brennan declined to provide a update on the thousands of lawsuits the company is facing from women who claim they were hurt by vaginal mesh implants made by the company to treat pelvic organ prolapse. Five other makers of similar products are facing similar lawsuits from patients who say the devices caused pain.
Brennan said the company’s “accrual for all legal matters, of which mesh is a portion, is $945 million as of the end of September, but as you can appreciate I am not going to break that out specifically by individual litigation matter.”
After winning one case in July, last month the company lost its first such lawsuit last month and was ordered by a Dallas jury to pay $73 million. The company could face more than 20,000 cases, 12,000 of which have been consolidated into a single case.
Brennan was also asked when there might be a decision on a lawsuit brought by Johnson & Johnson over Boston Scientific’s acquisition of Guidant Corp. in 2006. Johnson & Johnson alleges that Guidant violated an earlier merger agreement with it which helped it get a higher price from Boston Scientific.
Brennan said that a bench trial is scheduled to start Nov. 20, and said, “we feel confident in our position heading into that. I feel like it’s a high bar that needs to be proven.”
Another analyst asked about ongoing litigation with the Internal Revenue Service, which says the company owes $1.5 billion more in taxes. Brennan said of the suit that “it has moved more slowly than we would have anticipated,” and the trial could be in 2016 at the earlier.