The Supreme Court held today in Matrixx Initiatives v. Siracusano 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 its 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.