It is not often that the concept of statistical significance reaches the status of headline news. But such was the situation after March 22, 2011, when the United States Supreme Court announced its decision in Matrixx Initiatives, Inc. v. Siracusano (1, 2). In a unanimous decision, the Supreme Court held that the lack of a statistically significant association between Matrixx's product Zicam and reports of adverse-drug events could not be used as justification to withhold important information from stockholders. The pharmaceutical industry has questioned whether the Matrixx decision will have broader implications for drug products. The authors summarize the statistical and regulatory implications of the Matrixx decision on pharmaceutical quality and manufacturing.
Matrixx is a securities-fraud class-action suit filed by investors against Matrixx Initiatives, Inc., a pharmaceutical company headquartered in Scottsdale, Arizona, and three of the company's executives, for violating federal securities laws by failing to disclose reports of a potential link between its leading product, Zicam Cold Remedy, and anosmia (i.e., loss of smell) (3). The investors alleged that Matrixx's past statements to the market, in which the company predicted revenue increases between 50 and 80%, were misleading in light of information available to Matrixx regarding the risk to its main revenue-generating product (4). While providing optimistic sales estimates, Matrixx allegedly failed to disclose adverse-event reports regarding consumers who had lost their sense of smell after using Zicam Cold Remedy (5).Procedural history. On Dec. 15, 2005, the US District Court for the District of Arizona granted Matrixx's motion to dismiss the suit based on the investors' failure to properly plead the elements of a "material misstatement or omission" and knowledge of wrongdoing (6). In reaching this decision, the District Court relied in part on a ruling made by the US Second Circuit Court of Appeals in the case In re Carter-Wallace, Inc. (7). The In re Carter-Wallace decision affirmed the dismissal of a securities-fraud class action suit based upon the investors' failure to sufficiently allege knowledge of wrongdoing on the part of the pharmaceutical company due to the absence of a statistically significant connection between the targeted drug and aplastic anemia (8).
Seizing on the language in In re Carter-Wallace, the District Court in Matrixx noted that, "courts have found adverse information related to the safety of a product is not material unless such reports provide reliable statistically significant information that a drug is unsafe" (9). In September 2003, a study conducted by the University of Colorado School of Medicine identified 11 Zicam users who suffered from anosmia (10). According to the investors in Matrixx, not only did the pharmaceutical company fail to disclose the University of Colorado study, but it continued to make positive public statements regarding the product's growth potential and safety (11). Nonetheless, the District Court held that the investors "failed to present evidence of a statistically significant correlation between the use of Zicam and anosmia so as to make failure to publically disclose complaints and the University of Colorado study a material omission" (12).
The US Ninth Circuit Court of Appeals, however, reversed the District Court's decision in favor of the investors, stating that the District Court erred in requiring statistical significance to establish materiality (13). Relying on the Supreme Court's rulings in Basic Inc. v. Levinson and TSC Industries, Inc. v. Northway, Inc., the Circuit Court rejected the "bright-line" rule (i.e., a simple or straightforward judicial rule of decision) to determine materiality in favor of fact-specific inquiry in which an omission is material "if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote" (14–16).
Thus, based on the factual allegations, the Circuit Court held the investors had sufficiently pleaded materiality to survive Matrixx's motion to dismiss (17). Thereafter, Matrixx filed a petition for certiorari, which was granted by the US Supreme Court.