A MATRIXX Revolution? Is there a need to describe all adverse event reports in SEC filings of life sciences companies?

The U.S. Supreme Court has scheduled oral argument for January 10, 2011, in the case of Matrixx Initiatives et al v. Siracusano, Case Number 09-1156, on appeal from the decision of the Ninth Circuit in Siracusano v. Matrixx Initiatives, Inc., 585 F3d 1167 (9th Cir. 2008). The court granted certiorari on July 14, 2010.

In this case, plaintiff NECA-IBEW Pension Fund and the named plaintiff James Siracusano alleged that Matrixx and certain executives failed to describe in required SEC filings reports of adverse events associated with its nasal spray product ZICAM® Cold Remedy. Plaintiffs alleged that the reports in question were material and the failure to report them in 10-K's, 10-Q's and other SEC filings violated the Securities Exchange Act of 1934 (“the Act”).

The case has created a large degree of consternation in the pharmaceutical, medical device and biotechnology sectors, as the Ninth Circuit declined to adopt a scientific standard for a determination of “materiality” of reports, holding instead that the determination of materiality is a question of fact that should be left to the trier of fact. Id, at 1178. The District Court below had applied a statistical significance standard previously set forth in other cases[1], and found that the plaintiffs had not sufficiently pleaded materiality, an essential element of a violation of Section 10b of the Act and Rule 10b-5.[2] The issue of whether scienter was sufficiently pleaded was also reviewed by the Ninth Circuit, but the issue that has prompted the filing of numerous amicus briefs by life sciences industry groups is when adverse events become sufficiently material that they must be reported in SEC filings.

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