Supreme Court Rebuffs Big Pharma In Zicam Suit The high court ruled unanimously that investors can sue the maker of Zicam, a popular cold medicine. Experts on both sides agree the ruling is a clear defeat not just for the drugmaker but for corporate America.
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Supreme Court Rebuffs Big Pharma In Zicam Suit

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Supreme Court Rebuffs Big Pharma In Zicam Suit


Supreme Court Rebuffs Big Pharma In Zicam Suit

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From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

There was a unanimous ruling from the Supreme Court today with significance for the drug industry and beyond. The court has allowed investors to sue the maker of a popular cold medicine.

As NPR's Nina Totenberg reports, the decision firmly rebuffs an effort by corporations who want to make it more difficult for investors to bring lawsuits.

NINA TOTENBERG: Usually, when we talk about lawsuits against a drug manufacturer, they are brought by consumers who allege they were harmed by the product in some way.

But today's case involves a class action brought by investors against Matrixx Initiatives, the maker of Zicam cold remedies. The investors allege that they were defrauded because the company failed to disclose early reports that Zicam nasal spray and gel had caused a permanent loss of smell in some consumers.

When a case like this goes to court, the people who are suing have to make an initial showing that there's enough evidence to justify the suit going forward. So how do you do that? What do you have to show? Matrixx tried to raise the bar so that adverse reports would have to be statistically significant and reliably linked to the product.

But today, the Supreme Court rejected that argument as flawed. To go back to the facts here, Matrixx stock was booming in the years 2003 and '04. Seventy percent of its sales came from Zicam products, and in January of 2004, the company raised its revenue guidance, predicting an increase of 80 percent in the coming year.

The company, however, did not disclose that three medical researchers had told Matrixx of a possible link between its nasal spray and gel and a loss of smell in at least 10 patients.

The company also did not disclose three lawsuits had been filed charging its product resulted in a loss of smell, nor did the company disclose that the FDA was conducting an investigation.

When the Dow Jones newswire disclosed some of this in late January of 2004, the company's stock plummeted. Matrixx promptly issued a press release, suggesting that clinical studies showed no connection between its product and a loss of smell.

The stock price rebounded, only to fall again when news organizations reported more information suggesting a potential link.

The investors who bought stock during this period went to court claiming that the company's actions amounted to fraud, an attempt to keep the company's stock price artificially high by failing to disclose material facts that, if known, would have affected the market.

The company sought to have the case dismissed as too speculative, but today the Supreme Court said there was ample evidence to justify the case going forward.

Writing for the court, Justice Sonia Sotomayor said medical researchers and the FDA often reach initial conclusions based on evidence that is not statistically significant. Drug manufacturers do not have to report every adverse event, she said. Something more is required. But there was plenty of that something more here.

The allegations viewed as a whole, she said, suggest a significant risk to the commercial viability of Matrixx's leading product. What's more, the allegations, taken collectively, suggest that Matrixx elected not to disclose the reports of adverse events not because the company believed they were meaningless but because it understood their likely effect on the market.

Experts on both sides of the case agreed today's ruling was a clear defeat not just for Matrixx but for corporate America. James Martin filed a brief on behalf of lawyers who represent corporations.

JAMES MARTIN: I would say it's going to make their compliance with the securities laws more difficult.

TOTENBERG: David Frederick argued and won the case on behalf of the investors.

DAVID FREDERICK: It's the class access-to-justice kind of case. The court has let the courthouse doors remain open for these kinds of claims.

TOTENBERG: The court's decision was a surprise to some. After all, the current court is widely viewed as pro-business. But Columbia law professor John Coffee, a securities expert, says the business community tried to push the envelope too far.

JOHN COFFEE: What this case shows is while the Supreme Court may be pro-business, they are not the running dogs of the defendant community, and they are not going to change settled law.

TOTENBERG: The Zicam case now goes back to the lower courts for trial. Since it was brought, hundreds of personal injury suits have been brought against Matrixx over its products, as well. Some have been settled, while others are still pending. The FDA ordered the problem products taken off the market, and Matrixx has been bought by a private investment firm called HIG Capital.

Nina Totenberg, NPR News, Washington.

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