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Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: Twitter: Dereklowe

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March 25, 2011

The Supreme Court Slams Big Pharma? Not Exactly.

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Posted by Derek

The Supreme Court came down with a decision the other day (Matrixx Initiatives v. Siracusano) that the headlines say will have an impact on the drug industry. Looking at it, though, I don't see how anything's changed.

The silly-named Matrixx is the company that made Zicam, the zinc-based over-the-counter cold remedy that was such a big seller a few years back. You may or may not remember what brought it down - reports that some people suffered irreversible loss of their sense of smell after using the product. That's a steep price to pay for what may or may not have been any benefit at all (I never found the zinc-for-colds data very convincing, not that there were a lot of hard numbers to begin with).

This case grew out of a shareholder lawsuit, which alleged (as shareholder lawsuits do) that the company knew that there was trouble coming and had insufficiently informed its investors in time to keep them from losing buckets of their money. To get a little more specific about it, the suit claimed that Matrixx had received at least a dozen reports of anosmia between 1999 and 2003, but had said nothing about them - and more to the point, had continued to make positive statements about Zicam the whole way. The suit alleges that these statements were, therefore, false and misleading.

And that's what sent this case up the legal ladder, eventually to the big leagues of the Supreme Court. At what point does a company have an obligation to report such adverse events to the public and to its shareholders? Matrixx contended that the bar was statistical significance, and that anything short of that was not a "material event" that had to be addressed, but the Court explicitly shut that down in their decision:

"Matrixx’s premise that statistical significance is the only reliable indication of causation is flawed. Both medical experts and the Food and Drug Administration rely on evidence other than statistically significant data to establish an inference of causation. It thus stands to reason that reasonable investors would act on such evidence. Because adverse reports can take many forms, assessing their materiality is a fact-specific inquiry, requiring consideration of their source, content, and context. . .

Assuming the complaint’s allegations to be true, Matrixx received reports from medical experts and researchers that plausibly indicated a reliable causal link between Zicam and anosmia. Consumers likely would have viewed Zicam’s risk as substantially outweighing its benefit. Viewing the complaint’s allegations as a whole, the complaint alleges facts suggesting a significant risk to the commercial viability of Matrixx’s leading product. It is substantially likely that a reasonable investor would have viewed this information “ ‘as having significantly altered the “total mix” of information made available.’ "

I think that's a completely reasonable way of looking at the situation. (Note: that "total mix" language is from an earlier decision, Basic, Inc. v. Levinson, that also dealt with disclosure of material information). The other issue in this case is what the law calls scienter, broadly defined as "intent to deceive". As the decision explains, this can be assumed to hold when a reasonable person would find it as good an explanation of a defendant's actions as any other that could be drawn. And in this case, since Zicam was Matrixx's entire reason to exist, and since a link with permanent damage to a customer's sense of smell would surely damage sales immensely (which is exactly what happened), a reasonable person would indeed find that the company had a willingness to keep such information quiet.

But here's the puzzling part - not the Court's decision, which is short, clear, and unanimous, but the press coverage. This is being headlined as a defeat for Big Pharma, but I don't see it. We'll leave aside the fact that Matrixx is not exactly Big Pharma, although I'm sure that they were, for a while, making the Big Money selling Zicam. No, the thing is, this decision leaves things exactly as they were before. (Nature's "Great Beyond" blog has it exactly right).

It's not like statistical significance was the cutoff for press-releasing adverse events before, and now the Supreme Court has yanked that away. No, Matrixx was trying to raise the bar up to that point, and the Court wasn't having it. "The materiality of adverse event reports cannot be reduced to a bright-line rule", the decision says, and there was no such rule before. The Court, in fact, had explicitly refused another attempt to make such a rule in that Basic case mentioned above. No, Matrixx really had a very slim chance of prevailing in this one; current practice and legal precedent were both against them. As far as I can tell, the Court granted certiorari in this case just to nail that down one more time, which should (one hopes) keep this line of argument from popping up again any time soon.

By the way, if you've never looked at a Supreme Court decision, let me recommend them as interesting material for your idle hours. They can make very good reading, and are often (though not invariably!) well-written and enjoyable, even for non-lawyers. I don't exactly have them on my RSS feed (do they have one?), but when there's an interesting topic being decided, I've never regretted going to the actual text of the decision rather than only letting someone else tell me what it means.

Comments (20) + TrackBacks (0) | Category: Business and Markets | Regulatory Affairs | Toxicology


1. Brian Utterback on March 25, 2011 10:06 AM writes...

The answer is yes:

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2. Flooey on March 25, 2011 11:18 AM writes...

Another option is, which has an RSS feed of all their content, including various analyses and previews of upcoming cases.

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3. RB Woodweird on March 25, 2011 11:20 AM writes...

Matrixx deserved to be slapped down.

I saw my PCP a few years ago and pointed out to him that I had developed some toenail fungus. He said it could be cured with oral terbinafine. I would have to have blood work done to monitor the plasma level as there were some reports of liver failure.

It took me zero time to decide that my liver was worth way more to me than my vanity. I could live with an ugly toe but not with no liver.

If I had lost my sense of smell using that stupid cold "remedy" after Matrixx knew about the problem, I would have been quite upset.

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4. barry on March 25, 2011 12:33 PM writes...

the relaxed criteria for legal standing to bring a suit are a big deal. The particulars of Matrixx's liability are not.

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5. dave w on March 25, 2011 4:14 PM writes...

The stockholders' case - while (I agree with the court here) valid - seems almost frivolous in context: Matrixx was continuing to market the product for several years after the emergence of apparent probable cause for clinical concern about the adverse effects, causing overt biological injury to their customers (who should be entitled to expect that an over-the-counter medical product won't be a "cure worse than the disease"!)

The court case at issue here merely alleges that "you didn't warn us that you might not make as much money as you said you were hoping to", which is a risk anyone should expect to be inherent in the act of buying stock in a given firm.

Not that I condone misrepresentation in such cases either, but a class-action suit from stock-buyers, complaining that they didn't get as rich as they thought they'd been led to expect, ought to be the -least- of Matrixx's worries, compared to the one that (in a just world at least) would be incoming from the injured customers.

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6. Hap on March 25, 2011 5:56 PM writes...

I wonder if a stock fraud case could "pierce the corporate veil" in a way that a product liability lawsuit could not. While you might be able to hose the people you sell to (maybe they should have known better, or could have looked out for their best interests?), you might not be able to hose so blithely the ones you work for (who purchased, presumably, your work for their behalf, rather than for your own). When you sell stock, aren't you making a promise to work for them as well as yourself, and not for yourself at their cost?

It's not the kind of justice you're looking for, but it might do.

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7. Still Scared of Dinosaurs on March 25, 2011 6:30 PM writes...

One of the most important ideas real statisticians must get into their heads is "Thou shalt not worship the 0.05 threshold". The whole concept of "statistical significance" for AEs is idiotic and the fact that Matrixx based any part of their defense on it indicates that their stupidity did not end when they named the company.

I once worked on a project with a 600-page AE table. Stats tell you that it should have had 30 pages of "significant" line items.

Any time someone says something is "significant" ask them what it signifies. Sometimes it means "keep an eye on this while you use the drug to deal with something a lot worse". Other times it means "I wouldn't give it to my kid". If you can't translate it into a real-world statement it does not signify anything.

Matrixx. Matrixxxxxxxxxxxxxxxxxxxx. Just can't have enough x's. Idiots.

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8. gippgig on March 25, 2011 8:11 PM writes...

Anecdotal evidence: Based on my experience, Zicam seemed to cut the duration of a cold by half (from 10 to 5 days).

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9. MIMD on March 25, 2011 9:27 PM writes...

I think this raises the issue of the ignoring of "anecdotal" evidence regarding some possible medication or medical device harm.

I think the Supreme Court's saying "you simply can't dismiss it because it's not peer reviewed, statistically significant data."

See my quasi-tongue in cheek but deadly serious essay on that issue "How Academic and Government Eggheads Kill People" at this link.

(The Big Pharma connection also seems a bit off base to me.)

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10. metaphysician on March 26, 2011 9:05 AM writes...

So, how long before the Anti-vaxxers use this court decision to claim that thimerosol really does cause autism?

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11. Luigi on March 27, 2011 9:46 AM writes...

Since the Supreme Court has noted "Both medical experts and the Food and Drug Administration rely on evidence other than statistically significant data to establish an inference of causation." - then the various decisions by the Agency that have left many biotechs in the unfunded wilderness when Phase III endpoints don't make the magic P value of less than 0.05 are in error?
Significance then becomes a whim?

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12. Anonymous on March 27, 2011 1:08 PM writes...

The threshold is indeed getting more complicated. Apart from the basis for litigition, which in the US is a deplorable situation, firms are facing more decision risks (and maybe opportunities.) Real time scanning of online information can provide "signals" of unanticipated AE's as well as new indication possibilities. Combine that wih data convergence and mining techniques, and you have increased instances of decision points beyond "statistically significant" clinical trial results.

I was involved with a pilot of semantic interpretation of the initial launch of a new drug to uncover such "signals" which was quickly shut down by the legal department. Not because they had evidence of any AE's (which prior to this ruling, would have been inadmissible and lacking statistical proof.) However any new information technology that could arguably have provided the mfgr with any grey area, "prior knowledge" was seen as a categorical threat to litigation. Reminded me of the "see no evil..." monkeys. The altruistic high minded goal of using such tools to get an early warning was emasculated by the threat of potential lawsuits. Another unfortunate result of the situation in the US, as is excessively defensive medicine practices here.

Ironically, I wondered if they were just ignoring something the regulators themselves might use themselves in the future. Seeing potential AE'S "signals" could then prompt question.s in a more organized, earlier fashion to the mfgr. Could uncover issues like Vioxx at an earlier stage, and perhaps save lives.

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13. Anonymous anion on March 27, 2011 1:53 PM writes...

However any new information technology that could arguably have provided the mfgr with any grey area, "prior knowledge" was seen as a categorical threat to litigation.

And a threat to profits from unfettered sales of the drug? Ignorance is bliss?

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14. Chinabonding on March 27, 2011 7:35 PM writes...

Will this send shivers down the nutriceutical spines?

Supreme Court decisions are very interesting,
especially if your classmate is one of the lawyers
but not so much if you have actually have a horse in the race.

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15. oleginger on March 28, 2011 3:59 AM writes...

The Cochrane Collaboration recently published an analysis of data on "Zinc for the common cold" ( While this has no impact on the judgement of the case above the author's conclusions still come as a surprise in the Zinc discussion. However, with the risk of loosing my sense of smell, I'd rather have a runny nose.

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16. Still Scared of Dinosaurs on March 28, 2011 7:59 AM writes...


No, the biotechs that fail to hit their endpoints mostly deserve to die. This is a basic point of experimental design - the trials are designed to hit the endpoints at the 0.05 (or whatever) level. At a certain power level but industry trials almost always exceed their nominal power levels. Failure to hit them means the treatment does not work as expected, the trials were not competently run, or the sponsors got really unlucky.

AEs and other findings not pre-specified cannot be "statistically significant" in any meaningful sense of the term. If some of them pop up at the 0.05 level that's not really unlucky, it's normally unlucky.

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17. Vader on March 28, 2011 9:15 AM writes...

"This case grew out of a shareholder lawsuit, which alleged (as shareholder lawsuits do) that the company knew that there was trouble coming and had insufficiently informed its investors in time to keep them from losing buckets of their money."

I'm not sure I get this. If the shareholders found out the company was in trouble, what were they going to to about it, other than sell off their shares before word got around so that someone else could take the hit?

Am I missing something? Always a possibility; I'm not a big stock market player.

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18. dave w on March 28, 2011 5:48 PM writes...

#17: I think that sums it up, really - the litigating shareholders are basically complaining that the company sat on the bad news about adverse effects, which was unfair to them, because they missed out on their chance to dump their stock before it lost market value.

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19. diverdown on March 28, 2011 7:15 PM writes...

At 17: let's assume you were deciding whether to purchase, or not purchase, Matrixx shares. I'll bet if you decided to purchase the shares and later found out that the company (at the time of your purchase) was aware of, but didn't disclose, otherwise well-founded adverse events, that you'd probably feel like that was information that would have been "in the total mix" of information material to your decision to purchase the shares. But besides, this decision is really about whether Matrixx shareholders can keep their claim alive long enough to collect on the D&O insurance policy.

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20. John David Galt on March 28, 2011 10:17 PM writes...

There is an RSS feed at that tracks Supreme Court cases; don't know if it's official, but it's thorough and fairly objective.

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