Supreme Court Agrees to Decide Securities Class Action with Significant Implications for the Pharmaceutical Industry and Other Issuers


On June 14, 2010, the Supreme Court agreed to consider Matrixx Initiatives, Inc. v. Siracusano, which addresses a stockholder’s claim that a pharmaceutical company improperly failed to disclose adverse drug reactions even though the events were not statistically significant. This case could significantly influence the ability of pharmaceutical, medical device, and other companies to obtain early dismissal of securities class actions.

The question presented for the Supreme Court’s resolution in Matrixx is whether a plaintiff adequately alleged “materiality” and “scienter” under the antifraud provisions of the securities laws on allegations that a pharmaceutical company omitted publicly disclosing adverse drug reactions that were not “statistically significant.” Although the issue to be decided arises on facts peculiar to the pharmaceutical industry, the decision is likely to have broader repercussions. The Supreme Court’s decision is likely to set a standard for when information is — or is not — “material” as a matter of law, and thus for when a securities class action can be dismissed at the threshold on the ground that allegedly omitted information was not substantially likely to influence investment decisions. In the case under review, the Ninth Circuit applied a standard that deferred issues of “materiality” to juries. If adopted by the Supreme Court, that test could significantly inhibit district court dismissals of securities fraud complaints at the outset of the litigation.

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