Published March 28, 2011 in Washington Drug Letter
The U.S. Supreme Court ruled in a unanimous decision that drug companies must report adverse events to shareholders even though they may not be statistically significant.
The high court’s decision Tuesday provides a new standard for what drug and device companies must disclose to investors, but some attorneys disagree over the impact the ruling will ultimately have.
The case, Matrixx Initiatives, Inc., et al., v. James Siracusano et al., stems from a lawsuit brought by Matrixx shareholders alleging the company received reports from users that its OTC cold remedy Zicam (zinc gluconate) impaired users’ sense of smell, a condition known as anosmia. However, Matrixx failed to disclose that information to investors or the public.
The Supreme Court said Matrixx should have told the public about cases of users losing their sense of smell to the public. It failed to do so, fearing a negative impact on its stock price.
“Medical experts and the Food and Drug Administration rely on evidence other than statistically significant data to establish an inference causation,” Justice Sonia Sotomayor wrote in the court’s opinion. “It thus stands to reason that reasonable investors would act on such evidence.”
As many as 130 reports of patients losing their sense of smell were cited in a 2009 warning letter, and the agency ordered the drug off the market (WDL, June 22, 2009). At the time, Zicam was a $4 billion OTC drug.
Investors initially filed a lawsuit in 2005 before a federal court tossed it out. The shareholders alleged violations of fiduciary duties, misrepresentation of Zicam’s safety and failure to warn consumers that the drug could cause anosmia.
Statistically Significant Data
But the Supreme Court agreed to hear the case in October 2009 after Matrixx started a partial recall, and the Ninth Circuit Court of Appeals reversed the lower court’s 2005 ruling.
In arguments before the court in January, Matrixx said disclosing information about adverse events without significant evidence would amount to disclosing unfounded, false allegations (WDL, Jan. 17).
Sotomayor noted the FDA may take regulatory action against drugs based on postmarket evidence that only gives a suspicion of causation. The court also found statistically significant data are not always available, but that doesn’t mean medical experts have no reliable basis for inferring a causal link.
“Not only does the FDA rely on a wide range of evidence of causation, it sometimes acts on the basis of evidence that suggests, but does not prove, causation,” Sotomayor wrote. “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.”
James Beck, a pharmaceutical liability attorney with Dechert in Philadelphia, said Tuesday’s ruling shouldn’t have much impact on drug company’s exposure in product liability lawsuits.
Beck said the Supreme Court’s new standard for how companies should act on adverse event data does not match the legal standard of proof in product liability cases.
Richard Samp, chief counsel for the Washington Legal Foundation, which filed an amicus brief supporting Matrixx, suspects there will be an increase in information companies release about the adverse events surrounding their products.
However, he called the additional information meaningless because the public and investors would have no way to separate significant from insignificant events. He also predicts an increase in securities fraud cases because the court took no hard-line standard definition on what makes and doesn’t make a case.
“There is no minimum hurdle the court is going to establish, as long as you are able to reasonably establish this is a significant event to an investor,” Samp told WDL.
Matrixx had no comment, a company spokeswoman said Tuesday afternoon.
The Supreme Court decision is available at www.supremecourt.gov/opinions/10pdf/09-1156.pdf. — David Pittman