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Old 23rd March 2011, 06:41 AM
Pharma Newshound Pharma Newshound is offline
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Default Supreme Court Allows Investors to Sue Pharmacos Over AE Reporting Lapses

Source: NPR

Supreme Court Rebuffs Big Pharma In Zicam Suit

In a unanimous ruling with particular significance for the pharmaceutical industry, the U.S. Supreme Court has allowed investors to sue the maker of Zicam cold remedies.

The decision firmly rebuffs an effort by corporations seeking to make it more difficult to bring investor lawsuits.

Usually, lawsuits against a drug manufacturer are brought by consumers who allege they were harmed by the product. But Tuesday's case involved a class action brought by investors against Matrixx Initiatives Inc., the maker of Zicam products.

The investors charge that they were defrauded because the company failed to disclose early reports that Zicam nasal spray and gel 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 is enough evidence to justify the suit's 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 the Supreme Court rejected that argument as "flawed."

The case stems from events in 2003 and 2004 when Matrixx's stock was booming. Seventy percent of its sales came from Zicam products, and in January 2004, the company raised its revenue guidance, predicting an 80 percent increase in the coming year.

Matrixx did not disclose, however, that it had received reports from three medical researchers about a possible link between Zicam and a loss of smell in at least 10 patients. The company also failed to disclose that three lawsuits had been filed charging its products resulted in a loss of smell. Nor did it disclose that the Food and Drug Administration was conducting an investigation into complaints.

When the Dow Jones Newswires disclosed some of this information in late January 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 the Supreme Court said there was ample evidence to justify the case's going forward.

Writing for the unanimous court, Justice Sonia Sotomayor said that 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 she said there was plenty of that "something more" in this case.

The allegations here, viewed as a whole, said Sotomayor, suggest "a significant risk to the commercial viability of Matrixx's leading product."

What's more, she said, the allegations, taken collectively, suggest that "Matrixx elected not to disclose the reports of adverse events not because it believed they were meaningless but because it understood their likely effect on the market."

Experts on both sides of the case agreed Tuesday's ruling was a clear defeat not just for Matrixx but for corporate America.

"The decision will make compliance with the securities laws more difficult" for corporations, said James Martin, who filed a brief in the case on behalf of lawyers who represent corporations.

This is "a classic access to justice kind of case," said David Frederick, who argued and won the case on behalf of the investors in Tuesday's case. "The court has let the courthouse doors remain open for these kinds of claims."

The decision may have come as a surprise to those who view the current court as pro-business. But Columbia law professor John Coffee, a securities law expert, says the business community tried to push the envelope too far.

"What this case shows is while the Supreme Court may be pro-business, they are not the running dogs" of the corporate community, he says. "They are not going to change ... settled law."

The case now goes back to the lower courts for trial. Since it was first brought, hundreds of personal injury suits have been filed against Matrixx alleging a loss of smell; some have been settled while others are still pending.

In the years since this case was filed, the FDA has ordered the problem products taken off the market, and Matrixx has been bought by private investment firm H.I.G. Capital LLC.

Worker Complaints

In a second decision Tuesday, the court ruled that workers do not have to make written complaints about unlawful wage-and-hour practices in order to be protected from retaliation by their employers.

Kevin Kasten voiced complaints to a shift supervisor at Saint-Gobain Performance Plastics that the company was placing time clocks in a location that illegally prevented workers from getting paid for the time they spent putting on and taking off their work gear.

Kasten says he was fired in retaliation for his complaints.

But two lower courts ruled that an employee must file a written complaint in order to get protection from retaliation.

By a 6-2 vote, the Supreme Court disagreed.

Writing for the majority, Justice Stephen Breyer said that employees who make a formal complaint, even if it is oral, are protected from retaliation by federal labor laws.

This broader interpretation is more consistent with the objectives of the federal wage-and-hour laws, he said, because it protects "those who would find it difficult to reduce their complaints to writing, particularly the illiterate, less educated, or overworked workers."

Justices Antonin Scalia and Clarence Thomas dissented from the opinion. They believed that neither oral nor written complaints to employers were protected. Instead, they would have ruled that only those employees who file "an official grievance ... with a court or agency" are protected from retaliation.
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Old 23rd March 2011, 08:10 AM
Pharma Newshound Pharma Newshound is offline
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Default Supreme Court Rules Against Zicam Maker

Source: NYT

[See ruling attached.]

Supreme Court Rules Against Zicam Maker

WASHINGTON — The Supreme Court unanimously ruled on Tuesday that investors suing a drug company for securities fraud may rely on its failure to disclose scattered reports of adverse affects from an over-the-counter cold remedy that fell short of statistical significance.

Use of Zicam was linked to a loss of smell, a condition known as anosmia.
The case involved Zicam, a nasal spray and gel made by Matrixx Initiatives and sold as a homeopathic medicine. From 1999 to 2004, the plaintiffs said, the company received reports that the products might have caused some users to lose their sense of smell, a condition called anosmia.

Matrixx did not disclose the reports and in 2003, the company said it was “poised for growth” and had “very strong momentum” though, by the plaintiffs’ calculations, Zicam accounted for about 70 percent of its sales.

After a link between Zicam and anosmia was reported on “Good Morning America” in 2004, the company’s stock price dropped significantly. In 2009, the Food and Drug Administration warned consumers not to use the products, and Matrixx recalled them.

In the case before the justices, Matrixx Initiatives Inc. v. Siracusano, No. 09-1156, lawyers for Matrixx argued that it should not have been required to disclose small numbers of unreliable reports, which were the only ones available in 2004, they said. They added that the company should face liability for securities fraud only if the reports had been collectively statistically significant.

“All drug companies receive on an almost daily basis anecdotal hearsay reports about alleged adverse health events following the use of their products,” Jonathan Hacker, a lawyer for Matrixx, told the justices when the case was argued in January.

The Supreme Court has said that companies may be sued under the securities law for making statements that omit material information, and it has defined material information as the sort of thing that reasonable investors would believe significantly alters the “total mix” of available information.

Justice Sonia Sotomayor, writing for the court on Tuesday, roundly rejected Matrixx’s proposal that information can be material only if it meets standards of statistical significance.

“Given that medical professionals and regulators act on the basis of evidence of causation that is not statistically significant,” she wrote, “it stands to reason that in certain cases reasonable investors would as well.”

On the other hand, she said, “the mere existence of reports of adverse events — which says nothing in and of itself about whether the drug is causing the adverse events — will not satisfy” the requirement of materiality. Instead, she said, companies and courts must consider “the source, content and context of the reports.”

Here, Justice Sotomayor wrote, the plaintiffs had accused Matrixx of having received information from “three medical professionals and researchers about more than 10 patients who had lost their sense of smell after using Zicam.” That was enough to allow the case to go forward in its earliest stages, she wrote.

If the accusations are proved true, she said, “Matrixx received information that plausibly indicated a reliable causal link between Zicam and anosmia.”

Reasonable investors would want to know about the reports, she said, particularly given the importance of the product to the company and the risk-benefit calculation consumers might make after hearing of the possibility that using a cold remedy could result in lasting injuries.

In rejecting the proposed categorical rule in favor of a contextual inquiry, the court provided only limited guidance to companies and lower courts.

“What’s the test?” asked Ronald J. Allen, a law professor at Northwestern, referring to the analysis that companies and courts must make. “The test is what a reasonable person would react to given all the evidence.”
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