In Matrixx Initiatives, Inc. et al. v. Siracusano, et al., decided on March 22, 2011, the Supreme Court addressed the circumstances under which adverse event reports (“AERs”), i.e., reports by users of a drug that they experienced an adverse medical event at some point during or following the use of that drug, will be considered “material” for purposes of Rule 10b-5 fraud claims under the Securities Exchange Act of 1934. In a unanimous decision, the Court held that, in assessing the materiality of AERs, a court must engage in a fact-specific inquiry that considers the “source, content, and context of the reports.” In reaching this conclusion, the Court rejected a bright-line test that AERs are material only when, taken together, they provide “statistically significant” evidence that the drug caused the adverse event. Although the Court’s decision is, generally speaking, simply a reaffirmation of its previous decision in Basic v. Levinson – the fount of the fact-specific test for materiality – it does offer some useful guidance to companies. With respect to the disclosure of AERs, the decision indicates that causation is critical to the materiality inquiry and that plaintiffs, at the very least, must allege facts that plausibly indicate a “reliable” causal link between the drug and the adverse effect. And, as a more general matter, the decision underscores the fact that a company can control what it has to disclose by controlling what it says in the market.
The defendant-petitioner in the case was Matrixx Initiatives Inc. (“Matrixx”), a pharmaceutical company that sells over-the-counter cold-remedy products. One of its main products is Zicam Cold Remedy, which, during the relevant time period, accounted for 70% of Matrixx’s sales. From 1999 to 2004, Matrixx received several adverse event reports linking Zicam to “anosmia,” the loss of smell. Most of these reports came from three medical professionals and researchers who had treated or studied patients who had developed anosmia after using Zicam. In reporting their results, two of these professionals further informed Matrixx of prior studies linking Zicam’s key ingredient, zinc, to anosmia. As these reports were coming in, multiple plaintiffs filed product liability suits against the company, alleging that Zicam had damaged their sense of smell.
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