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Class Certification Obtained in Matrixx/Zicam Case

February 24, 2012

A year after a unanimous favorable decision at the United States Supreme Court, and eight years after the case was first filed, a class of stock-purchasing plaintiffs was finally certified by District of Arizona Judge Neil V. Wake in the shareholder lawsuit against Matrixx Initiatives, Inc.

Matrixx marketed its Zicam Cold Remedy containing zinc gluconate in gel and nasal spray forms. The case against Matrixx was initiated in 2004 after Matrixx’s stock price dropped over 23% in one day. The drop was the alleged result of news reports that Matrixx knew that doctors had treated more than a dozen purchasers of its Zicam nasal products who, after using the product, subsequently lost their sense of smell (a malady known as anosmia), and also that product liability lawsuits had been filed. Despite this, the company warned medical professionals in 2003 against mentioning any link between Zicam and anosmia, and also reassured investors that Zicam’s safety was “well established” in clinical trials.

When plaintiffs’ consolidated complaint was dismissed in district court, the judge held that the allegations did not meet materiality or scienter requirements, as the number of consumer complaints regarding Zicam did not reach a threshold of statistical significance. On appeal, the Ninth Circuit disagreed with the district court, reinstating the proposed class action complaint and holding that statistical significance was not an appropriate materiality standard. Additionally, the Ninth Circuit held that scienter had been adequately pleaded by plaintiffs as “the inference that [Matrixx] withheld the information regarding Zicam and anosmia … is at least as compelling as any plausible nonculpable explanation.”

Defendants petitioned the Supreme Court in an effort to overturn the Ninth Circuit’s ruling, but the justices held, in a 9-0 decision, that the “statistically significant” standard was, indeed, incorrect. In rejecting defendants’ reasoning, the Court noted that neither the Food and Drug Administration nor doctors in general require statistical significance before acting on alarming inferences in data, and there was no reason a reasonable investor would have to do so either. Justice Sotomayor wrote that Matrixx’s position on statistical significance “to establish a strong inference of scienter [was] just as flawed as its approach to materiality.”

In its return to the district court, the case is now before Judge Wake, who certified a class of investors who purchased Matrixx’s securities between October 22, 2003 and February 6, 2004. Lead plaintiff NECA-IBEW Pension Fund (The Decatur Plan) was appointed as representative of the class and Robbins Geller Rudman & Dowd LLP was appointed class counsel. Said partner Scott Saham, “We are currently conducting document discovery and look forward to the commencement of depositions in May.”

Siracusano v. Matrixx Initiatives, Inc., No. 2:04-cv-00886, Order (D. Ariz. Feb. 27, 2012).

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