Zicam Investor Lawsuit
Supreme Court Ruling on Matrixx
In a narrow judgment, the U.S. Supreme Court has declared that the class-action lawsuit filed by investors against Matrixx Initiatives Inc can proceed, declaring that the plaintiffs had shown enough of a claim for the case to go forward. The court ruling deals the pharmaceutical company a big defeat, declaring that the drugmaker had failed to reveal initial reports of adverse side effects from its Zicam remedy.
The Supreme Court of the United States has rejected limits to lawsuits against drug makers. The court ruled in favor of investors, who had filed a securities fraud class action against the manufacturer of the now-discontinued Zicam nasal cold remedies, alleging that the company violated the §10(b) Securities Exchange Act of 1934 and Securities and Exchange Commission Rule10b–5 by concealing 23 reports of people who had complained of loss of sense of smell after using Zicam as early 2004.
The investors alleged that the pharmaceutical company issued misleading statements on the possible link between Zicam Cold Remedy and loss of sense of smell. The U.S. Supreme Court judgment gives shareholders more leeway to file a lawsuit against pharmaceutical and biotechnology companies for not disclosing reports of dangerous side effects of drugs manufactured by them.
In a unanimous judgment, the justices ruled that the petitioners had every right to be informed of the side effects of the Zicam nasal spray and gel, manufactured by Matrixx. The judges declared that Matrixx should defend against these accusations of fraud, which claimed that it failed to disclose the side effects of its spray and gel. The high court ruled that, under the federal securities law, even less definitive evidence of side effects is enough to require disclosure.
The lawsuit also cites nine other lawsuits filed by people affected by recalled Zicam nasal products from October 2003 to January 2004, alleging that the drug maker either omitted or concealed material information about the safety of the Zicam products. Numerous consumer lawsuits have also been filed against the pharmaceutical company for “product liability, negligence, fraud, and breach of warranties.”
The Supreme Court ruling has made it easier for investors to take pharmaceutical companies court for deliberately withholding information about a drug or product.
Earlier, the investors had filed an appeal against Matrixx with the Ninth Circuit Court of Appeals, which declared that the district court erred in dismissing claims by the shareholders, stating that the side effects were statistically insignificant to be disclosed. The country’s highest court affirmed the 9th U.S. Circuit Court of Appeals’ ruling to allow a securities fraud lawsuit against the pharmaceutical company to go forward.
A group of investors had filed a lawsuit against the Scottsdale, Arizona-based pharmaceutical company, alleging that Matrixx made misleading statements about Zicam. Matrixx argued against the complaint, saying that sales of the drug were expected to rise and that reports of loss of smell were completely “misleading” and “unfounded."
Justice Sonia Sotomayor declared that requirement of “concrete data” is not mandatory for the pharmaceutical companies to share with investors. The justice declared that “reasonable investors” had every right to require information about the basis of evidence of causation, even if it is not statistically significant. The court ordered that the allegations against Matrixx give rise to a compelling inference that it chose to conceal information of adverse events because it was aware their possible effect on the share market.
Earlier, a federal judge had decided in the favor of Matrixx, saying that the company did not have statistical proof that Zicam was the causative factor for the loss of sense of smell. However, the Supreme Court ruling overrides this judgment, saying that statistical proof is not always required and that less definitive evidence is enough to require disclosure, though the court declared that the ruling does not mean that drugmakers must disclose all reports of adverse events or “daily events” in the pharmaceutical industry.
The court declares that the pharmaceutical company allegedly “received information” plausibly pointing toward a causative link between Zicam and loss of smell. The judgment also pointed toward the allegations that three medical reports claimed that at least 10 patients had lost their sense of smell after using Zicam. The court decided that Matrixx is to be blamed for acting either recklessly or intentionally in concealing the information from the public.
The case now moves to a federal trial court in Arizona.
Earlier, in June 2009, the Food and Drug Administration warned patients not to use Zicam Cold Remedy Swabs and Zicam Cold Remedy Gel over the fear of permanent damage to the sense of smell or anosmia. FDA also disclosed that the pharmaceutical company had failed to inform it of 800 reports of loss of smell linked to its recalled Zicam cold remedies. FDA also blamed Matrixx for not placing adequate warning labels about the risk of anosmia on the products. FDA, barring Matrixx from marketing the product without seeking the agency’s permission, rebuked the pharmaceutical company for violating the 2007 regulation that required it to forward consumer complaints to the FDA.
Following the FDA warning, Matrixx was forced to recall its Zicam nasal spray and gel, though it continues to flay FDA’s findings and reiterates that its controversial nasal cold remedy is safe.
Earlier Complaints Against Matrixx
In 2006, Matrixx reached a settlement with 340 plaintiffs for $12 million to keep away from the legal cost of defending each lawsuit. The company has been receiving numerous complaints from customers about the Zicam side effects. It has faced over 400 lawsuits in this regard over the past decade.
Earlier Similar Lawsuits
Earlier, the Supreme Court relaxed deadlines for investor fraud lawsuits, ruling that shareholders had the right to go forward with the accusations that Merck & Co failed to disclose the risks posed by its Vioxx painkiller. The unanimous ruling gave more flexibility for investors to sue a pharmaceutical company and extended the time period for which companies are vulnerable to lawsuits over alleged misconduct. In 2007, Merck reached a settlement of $4.85 billion to resolve more than 26,000 injury claims over the drug.
In September 2010, stock purchasers filed securities fraud class action lawsuit against Acura Pharmaceuticals for purportedly issuing misleading and concocted statements about Acurox tablets.
In another securities violation case, an investor sued Arena Pharmaceuticals for offering wrong information about the lorcaserin New Drug Application. The plaintiff claimed that the company asserted that the drug was safe for weight management as its information was based on extensive data. The complaints asserted that the defendant concealed information from the investors that the drug caused cancer in rats during preclinical trials.