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Matrixx Initiatives, Inc. v. Siracusano
What’s at stake?
Preventing pharmaceutical companies from artificially inflating the price of their stock by covering up known problems with a drug.
Whether a drug company violates a law requiring disclosure of “adverse event” reports when the number of adverse reactions is not alleged to be statistically significant.
March 22, 2011
9-0 in favor of Siracusano. Justice Sotomayor delivered the opinion.
What the court held:
The court held that a drug company that fails to report adverse events that their products cause may still be liable to investors even if the adverse events were statistically insignificant. Matrixx Initiatives manufactured Zicam, a nasal gel used to treat colds. As early as 1999, Matrixx was aware that Zicam was causing some patients to experience severe nasal burning followed by anosmia, the permanent loss of smell. Nonetheless, the company denied clinician requests to study the issue further. To artificially inflate the price of Matrixx stock, Matrixx did not reveal this risk in its disclosures to shareholders, nor did it inform shareholders that it had already been sued over the issue. In fact, the court noted that Matrixx even “issued a press release that suggested that studies had confirmed that Zicam does not cause anosmia when, in fact, it had not conducted any studies relating to anosmia and the scientific evidence at that time, according to the panel of scientists, was insufficient to determine whether Zicam did or did not cause anosmia.” Matrixx claims that it had no duty to tell shareholders about these problems because experiencing loss of smell was not a statistically significant risk.
The court rejected Matrixx’s proposed statistical significance requirement for materiality and reiterated the current standard. The standard, which the court believes the anosmia information to have met, states that a plaintiff must show that the defendant demonstrates “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available.” The court stated that “Matrixx’s categorical rule would artificially exclude information that would otherwise be considered significant to the trading decision of a reasonable investor.” The opinion also analogized the case to other circumstances, stating that courts frequently permit expert testimony on causation based on evidence other than statistical significance and that the Food and Drug Administration “similarly does not limit the evidence it considers for purposes of assessing causation and taking regulatory action to statistically significant data.” The ruling affirmed the Court of Appeals’ holding that the plaintiffs adequately pleaded the element of a material representation or omission.
- Wall Street Journal Law Blog: Securities-Fraud Plaintiffs Get Rare Win at Supreme Court
- Seattle Post-Intelligencer: Court says lawsuit over Zicam can continue
- Brief for Petitioner Matrixx Initiatives, Inc., et al.
- Brief for Respondent James Siracusano and NECA-IBEW Pension Fund
- Reply Brief for Petitioner Matrixx Initiatives, Inc., et al.
- Brief for Medical Researchers Dr. Tonia M. Young-Fadok (Mayo Clinic), Dr. Curt D. Furberg (Wake Forest), Dr. Eric J. Topol (Scripps), and Dr. David A. Etzioni (Mayo Clinic) In Support of Respondents Urging Affirmance
- Brief for the Consumer Healthcare Products Association and the Council for Responsible Nutrition in Support of Petitioner
- Brief for the Securities Industry and Financial Markets Association and the Chamber of Commerce of the United States of America in Support of Petitioner
- Brief for the Product Liability Advisory Council in Support of Petitioner
- Brief for the National Products Association in Support of Petitioner
- Brief for DRI-The Voice of the Defense Bar in Support of Petitioner
- Brief for BayBio in Support of Petitioner
- Brief for Pharmaceutical Research and Manufacturers of America and Biotechnology Industry Organization in Support of Petitioner
- Brief for the Advanced Medical Technology Association in Support of Petitioner
- Brief for the Washington Legal Foundation in Support of Petitioner
- Brief for AARP and the North American Securities Administrators Association, Inc., in Support of Respondent
- Brief for Professors at Law and Business Schools in Support of Respondent
- Brief for the United States of America in Support of Respondent
- Brief for Economists Robert E. Litan and Joseph R. Mason in Support of Respondent
- Brief for Statistics Experts Professors Dierdre M. McCloskey and Stephen T. Ziliak in Support of Respondent