Supreme Court rules against makers of Zicam

The Supreme Court unanimously sided yesterday with investors suing Matrixx Industries, makers of Zicam, for failing to reveal indications of the over-the-counter cold remedy's dangerous side effects--including loss of smell.

The shareholders, in a 2004 lawsuit against Matrixx, argued that by withholding reports of adverse events, the company had defrauded investors. The company's defense was that early reports of Zicam's side-effects were statistically insignificant. (Consumer Reports Health experts and other medical professionals had warned of Zicam's adverse effects prior to the Food and Drug Administration's official warning in 2009, which lead to the drug's removal from store shelves.)

Justice Sonia Sotomayor wrote for the court:

Given that medical professionals and regulators act on the basis of evidence of causation that is not statistically significant, it stands to reason that in certain cases reasonable investors would as well.

The Supreme Court's decision allows the shareholder lawsuit to continue, allowing the lower courts to decide if Matrixx's failure to release such adverse events reports to investors is tantamount to securities fraud. Wrote Sotomayor:

The inference that Matrixx acted recklessly (or intentionally, for that matter) is at least as compelling, if not more compelling, than the inference that it simply thought the reports did not indicate anything meaningful about adverse reactions.

However, in its decision for the shareholders, the Supreme Court Justices also said their ruling "does not mean that pharmaceutical manufacturers must disclose all reports of adverse events."

See our recent report on flu supplements.

Matrixx Initiatives, Inc., et al. v. Siracusano et al. (PDF) [US Supreme Court]
Supreme Court Rules Against Zicam Maker [NY Times]

Drugmaker Investor Lawsuits Backed by U.S. Supreme Court [Bloomberg]

—Paul Eng