PHOENIX — Shareholders of a Scottsdale-based firm are entitled to sue over what company officials knew about potential dangers from its popular Zicam cold remedy, the U.S. Supreme Court ruled Tuesday.
In a unanimous decision, the justices said that Matrixx Initiatives had some evidence that there was a link between two of its Zicam products and anosmia, the inability to perceive smells. More to the point, they concluded that information should have been made available to shareholders.
Tuesday's ruling does not guarantee that the shareholders, who contend they lost money because of the withheld information, will ever collect a dime. Instead, the decision simply gives them their day in court, something that was denied to them when a federal judge in Phoenix threw out the 2004 securities fraud lawsuit.
Company officials had argued that the reports of loss of sense of smell were not meaningful. And that, they said, meant they were under no obligation to disclose the information to investors.
Justice Sonia Sotomayor disagreed.
“This is not a case of a handful of anecdotal reports, as Matrixx suggests,” she wrote for the court. Sotomayor said assuming the claims by investors are true, the company received information that “plausibly indicated a reliable causal link between Zicam and anosmia.”
That information, the judge said, included reports from three different medical professionals and researchers about losing their sense of smell after using Zicam. And Sotomayor said two of them had drawn the company's attention to previous studies that had drawn a link between spraying zinc into the nose and loss of smell.
The Zicam product, which has since been withdrawn from the market, was zinc gluconate.
And Sotomayor also brushed aside the company’s motives in refusing to make the reports public. She said that the information presented so far, provide a “cogent and compelling inference that Matrixx elected not to disclose the reports of adverse events not it believed they were meaningless but because it understood their likely effect on the market.”
The ruling is the latest setback for Matrixx, which withdrew two forms of Zicam — its nasal gel and nasal swabs — from the market following warnings from the U.S. Food and Drug Administration about the link of the product to anosmia. And the company announced in two years ago it was paying out $12 million to settle 340 lawsuits brought by customers who purchased the over-the-counter medication.
Despite that, company officials have continued to insist there is “no reliable scientific evidence” that the product is linked to anosmia, saying that any loss of smell is caused by a cold virus, which Zicam is designed to treat.
Calls to a company spokesman seeking comment about the court ruling were not immediately returned.
The lawsuit involves people who bought shares of Matrixx in 2003 and 2004. At the time Zicam Cold Remedy amounted to about 70 percent of the company's total sales.
Company officials were aware that numerous users of the product had developed anosmia but they failed to disclose the risk, and issued misleading statements, according to the claim.
Much of the case surrounds research done at the University of Colorado of 10 patients who had developed anosmia following Zicam use. The researchers were planning to present their findings at a presentation on Sept. 20, 2003 to the American Rhinologic Society.
Matrixx, however, informed one of the researchers that he did not have permission to use the Zicam name and the report was presented absent the brand identification.
It was not until Feb. 6, 2004, that the findings, and the specific mention of Zicam, were disclosed to the general public on the television show Good Morning America.