Ruling in Matrixx case may lead to other securities class actions
The Supreme Court ruled this week on a case that we have been watching closely. The Court’s decision in Matrixx Initiatives, Inc. et al. v. Siracusano et al. came down solidly on the side of the plaintiffs and leaves the biopharma industry (and all others) without a “bright line” test for reporting adverse events. Writing for the court, Justice Sotomayor, in a unanimous opinion, rejected the argument of Matrixx that adverse product reports must be “statistically significant” in order for a manufacturer to have an obligation to disclose the reports to investors. As a result of the Court’s decision, shareholders claims against Matrixx for its alleged failure to disclose reports that its product, Zicam, caused certain side effects for users will now be going forward through litigation.
Justice Sotomayor wrote that medical experts and the FDA rely on evidence other than statistically significant data to establish an inference of causation – “[i]t thus stands to reason that reasonable investors would act on such evidence.”
Matrixx’s argument to the Court urged the adoption of the “bright line” test that reports of adverse events with a pharmaceutical company’s product cannot be material absent a sufficient number of reports to establish statistical significance. Matrixx further argued that statistical significance is the only reasonable indicator of causation.
The Court declined to adopt the “bright line” test urged by Matrixx, reasoning that such a categorical rule would “artificially exclude evidence that would otherwise be considered significant to the trading decision of a reasonable investor.”
The Court also rejected the notion that only statistical significance is the only reasonable indicator of causation, noting that medical professionals and the FDA regularly infer a causal event between a drug and adverse event. The Court’s decision stated that “[g]iven that medical professionals and regulators regularly act on the basis of evidence of causation that is not statistically significant, it stands to reason that in certain cases reasonable investors would as well.”
This decision does not, however, mean that pharmaceutical companies have to disclose every adverse event. Rather, an adverse event is material and must be disclosed, the Court said citing its test for materiality, if it would “significantly alter the total mix of information.” The “mere existence” of adverse reports “will not satisfy this standard”; but rather, “something more is needed — but ‘something more’ is not limited to statistical significance and can come from the source, context and context of the reports.” The Court found that, “with respect to information that a reasonable investor might consider material, companies can control what they have to disclose under these provisions by controlling what they say to the market.”
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