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Tuesday, July 23, 2024 | Back issues
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Zicam Investors Can Sue Over Hidden Side Effects

WASHINGTON (CN) - The unanimous Supreme Court ruled Tuesday that a class of shareholders can proceed with securities fraud claims against Arizona-based Matrixx Initiatives and three executives for their alleged decision to conceal statistically insignificant side effects associated with their Zicam nasal gels and sprays.

Affirming the October 2009 decision of the 9th Circuit, the high court justices found that the shareholders adequately defended their claim that reasonable investors could have been concerned if they were notified that Zicam Cold Remedy, which accounts for 70 percent of the company's sales, caused some users to lose their sense of smell - a condition called anosmia.

While researchers had notified Zicam that they were publishing studies about the side effect in 2003, Zicam told the public that it was "poised for growth" and had "very strong momentum."

A federal judge granted Zicam summary judgment, but the 9th Circuit revived the shareholders' complaint.

Justice Sonia Sotomayor authored the Supreme Court's unanimous opinion, which affirms the San Francisco-based federal appeals panel's finding.

"A lack of statistically significant data does not mean that medical experts have no reliable basis for inferring a causal link between a drug and adverse events," Sotomayor wrote. "As Matrixx itself concedes, medical experts rely on other evidence to establish an inference of causation. We note that courts frequently permit expert testimony on causation based on evidence other than statistical significance."

The justices noted that the Food and Drug Administration warned Zicam about the risk of anosmia in its product by pointing to 130 complaints it had received and the growing body of studies about nasal sprays and gels in scientific journals.

"Given that medical professionals and regulators act onthe basis of evidence of causation that is not statistically significant, it stands to reason that in certain cases reasonable investors would as well," Sotomayor wrote.

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