Winning One for the Little Guy

Hooray! On March 22, 2011 the Supreme Court of the United States, considered by many as conservative and pro-corporate, decided one for the people! Or did they? At first glance, the unanimous decision to allow investors to sue the maker of Zicam cold remedies would seem to be a victory for the consumer. But alas, protection of users of the over-the-counter drug is not at the heart of this matter – protection of the shareholders is.

In 2004 the future seemed bright for Matrixx, the manufacturer of Zicam Nasal Gel and Cold Remedy Swabs. 70 percent of its income came from the products and stock was booming. In January the company predicted an 80 percent increase in earnings for the following year. But while cigars and champagne were passed around in the boardroom, one tiny issue remained unresolved. As early as 1999 Matrixx had received reports from at least three medical researchers about a possible link between Zicam and a loss of smell in at least ten patients. The company failed to disclose the reports and the Federal Drug Administration (FDA) investigation that resulted from them. But as 2004 progressed the lid came off; complaints increased and information was disclosed by the Dow Jones Newswires. Stock prices took a dive. Predictably, Matrixx issued a press release saying that no connection between Zicam and anosmia, or loss of smell, had been scientifically established and the stock rebounded, then fell again as further information suggesting a causal link surfaced.

By 2009 class action lawsuits on behalf of consumers were filed in California and Missouri. The FDA finally stepped in and issued a warning that sales and use of the product should be discontinued. By then some 130 reports involving anosmia and Zicam had been submitted to the agency. On June 16 of that year Matrixx issued a report emphasizing that “consumer safety is and always has been the company’s top priority.” The FDA action was “unwarranted,” said Matrixx representatives because, as everyone in the medical and scientific communities knew, “the most common cause of anosmia is the common cold.” Of course! Anyone with a cold and stuffed nose can’t smell a thing. Or taste anything, for that matter. But wait a minute. Consumers weren’t bringing lawsuits based on temporary cold-related cases of anosmia. These people had lost their sense of smell and, in some cases, their sense of taste after using Zicam – permanently. One woman who emailed Snopes.com with her Zicam story in 2006 reported an “intense, horrible burning in [her] nasal/sinus passages” and that “the skin on [her] face hurt to touch and [she] had pain and burning so that it hurt to move [her] head.” Ear, nose and throat specialists subsequently told her she had suffered “chemical trauma” to the olfactory nerve. She would be treated with high doses of Prednisone to reduce the inflammation but the damage, they said, was not likely to be reversed.

The 2009 FDA inspections ultimately revealed about 800 consumer complaints. According to Aboutlawsuits.com, inspectors estimated that 3.6 out of every 100,000 users experienced Zicam problems with loss of smell. Reports peaked in 2004, with 6.7 people complaining for every 100,000 units sold. Matrixx reps countered the statistics by reporting that 35 million retail units representing over 1 billion doses had been sold, demonstrating “both the safety and efficacy of Zicam…under conditions of ordinary use.” The issue that came before the Supreme Court rested on the statistical significance of the number of claims of harm. Matrixx couldn’t be expected to disclose reports filed by every Tom, Dick and Harry, their lawyers argued. Disclosing every little claim would harm the company, never mind the consumers. But in a 2011 story by NPR it was reported that, “The investors who bought stock…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.”

In her decision, Justice Sonia Sotomayor said that medical researchers and the FDA often reach initial conclusions based on evidence that is not statistically significant. Pharmaceutical companies don’t have to report every adverse side effect ever experienced, said Sotomayor. “Something more” is necessary. But the collective allegations in this case suggest “a significant risk to the commercial viability of Matrixx’s leading product. Matrixx elected not to disclose reports of adverse events not because it believed they were meaningless but because it understood their likely effect on the market.”

While the good Justices have found the stock portfolios of investors to have been adversely affected by Zicam, what about the damage to delicate nasal tissues of the consumers? If Goliath has indeed slain Goliath in the highest court in the land, how will David fare? Perhaps a requirement making drug companies report adverse reactions to their products in order to protect investors will, in turn, protect those who buy the products. Or maybe what we have here is just a case of some fat cat investors taking big-money drug makers to court and coming out on top. Perhaps hoping that the Court’s decision on behalf of those investors will also benefit consumers is like hoping for tax cuts for the wealthy to trickle down to the working class: pure voodoo.

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