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infections, head trauma, anatomical obstructions, and environmental irritants.” Id., at 77a–78a (internal quotation
marks omitted).
The day after Matrixx issued this press release, its stock price bounced back to $13.40 per share.
On February 19, 2004, Matrixx filed a Form 8–K with the SEC stating that it had “ ‘convened a two-day meet-
ing of physicians and scientists to review current information on smell disorders' ” in response to Dr. Jafek's presen-
tation. Id., at 82a. According to the Form 8–K, “ ‘In the opinion of the panel, there is insufficient scientific evidence
at this time to determine if zinc gluconate, when used as recommended, affects a person's ability to smell.’ ” Ibid. A
few weeks later, a reporter quoted Matrixx as stating that it would begin conducting “ ‘animal and human studies to
rial misstatement or omission and scienter. The District Court granted the motion to dismiss. Relying on In re
Carter–Wallace, Inc., Securities Litigation, 220 F.3d 36 (C.A.2 2000), it held that respondents had not alleged a
“statistically significant correlation between the use of Zicam and anosmia so as to make failure to public[ly] dis-
close complaints and the University of Colorado study a material omission.” App. to Pet. for Cert. 50a. The District
Court similarly agreed that respondents had not stated with particularity facts giving rise to a strong inference of
S.Ct. 978, 99 L.Ed.2d 194 (1988); some internal quotation marks omitted; alterations in original), the Court of Ap-
peals held that the District Court had erred in requiring an allegation of statistical significance to establish materiali-
ty. It concluded, to the contrary, that the complaint adequately alleged “information regarding the possible link be-
tween Zicam and anosmia” that would have been significant to a reasonable investor. 585 F.3d, at 1179, 1180. Turn-
ing to scienter, the Court of Appeals concluded that “[w]ithholding reports of adverse effects of and lawsuits con-
tion of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest
or for the protection of investors.” 15 U.S.C. § 78j(b). SEC Rule 10b–5 implements this provision by making it un-
lawful to, among other things, “make any untrue statement of a material fact or to omit to state a material fact neces-
upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Stoneridge Investment Partners,
LLC v. Scientific–Atlanta, Inc., 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008). Matrixx contends that
respondents have failed to plead both the element of a material misrepresentation or omission and the element of
scienter because they have not alleged that the reports received by Matrixx reflected statistically significant evidence
that Zicam caused anosmia. We disagree.
leading as to a material fact.” FN4 Basic, 485 U.S., at 238, 108 S.Ct. 978. In Basic, we held that this materiality re-
quirement is satisfied when there is “ ‘a substantial likelihood that the disclosure of the omitted fact would have
been viewed by the reasonable investor as having significantly altered the “total mix” of information made availa-
ble.’ ” Id., at 231–232, 108 S.Ct. 978 (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct.
2126, 48 L.Ed.2d 757 (1976)). We were “careful not to set too low a standard of materiality,” for fear that manage-
Basic involved a claim that the defendant had made misleading statements denying that it was engaged in mer-
ger negotiations when it was, in fact, conducting preliminary negotiations. See 485 U.S., at 227–229, 108 S.Ct. 978.
The defendant urged a bright-line rule that preliminary merger negotiations are material only once the parties to the
negotiations reach an agreement in principle. Id., at 232–233, 108 S.Ct. 978. We observed that “[a]ny approach that
designates a single fact or occurrence as always determinative of an inherently fact-specific finding such as material-
establish a statistically significant risk that the product is in fact causing the events.FN6 Absent statistical signifi-
cance, Matrixx argues, adverse event reports provide only “anecdotal” evidence that “the user of a drug experienced
an adverse event at some point during or following the use of that drug.” Brief for Petitioners 17. Accordingly, it
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
contends, reasonable investors would not consider such reports relevant unless they are statistically significant be-
cause only then do they “reflect a scientifically reliable basis for inferring a potential causal link between product
use and the adverse event.” Id., at 32.
FN5. The FDA defines an “[a]dverse drug experience” as “[a]ny adverse event associated with the use of a
drug in humans, whether or not considered drug related.” 21 CFR § 314.80(a) (2010). Federal law imposes
certain obligations on pharmaceutical manufacturers to report adverse events to the FDA. During the class
period, manufacturers of over-the-counter drugs such as Zicam Cold Remedy had no obligation to report
adverse events to the FDA. In 2006, Congress enacted legislation to require manufacturers of over-the-
counter drugs to report any “serious adverse event” to the FDA within 15 business days. See 21 U.S.C. §§
379aa(b), (c).
FN6. “A study that is statistically significant has results that are unlikely to be the result of random error....”
difference is deemed “significant.” Id., at 124.
As in Basic, Matrixx's categorical rule would “artificially exclud [e]” information that “would otherwise be con-
sidered significant to the trading decision of a reasonable investor.” 485 U.S., at 236, 108 S.Ct. 978. Matrixx's ar-
gument rests on the premise that statistical significance is the only reliable indication of causation. This premise is
flawed: As the SEC points out, “medical researchers ... consider multiple factors in assessing causation.” Brief for
causal link between a drug and adverse events. As Matrixx itself concedes, medical experts rely on other evidence to
establish an inference of causation. See Brief for Petitioners 44–45, n. 22. FN7 We note that courts frequently permit
expert testimony on causation based on evidence other than statistical significance. See, e.g., Best v. Lowe's Home
Centers, Inc., 563 F.3d 171, 178 (C.A.6 2009); Westberry v. Gislaved Gummi AB, 178 F.3d 257, 263–264 (C.A.4
1999) (citing cases); Wells v. Ortho Pharmaceutical Corp., 788 F.2d 741, 744–745 (C.A.11 1986). We need not
ies; biological plausibility; consideration of alternative explanations; specificity (i.e., whether the specific
chemical is associated with the specific disease); the dose-response relationship; and the clinical and patho-
logical characteristics of the event. Brief for Petitioners 44–45, n. 22; Brief for Consumer Healthcare Prod-
ucts Assn. et al. as Amici Curiae 12–13. These factors are similar to the factors the FDA considers in taking
action against pharmaceutical products. See infra, at 13–14.
[5] Application of Basic's “total mix” standard does not mean that pharmaceutical manufacturers must disclose
all reports of adverse events. Adverse event reports are daily events in the pharmaceutical industry; in 2009, the
FDA entered nearly 500,000 such reports into its reporting system, see FDA, Reports Received and Reports Entered
232, 108 S.Ct. 978 (quoting TSC Industries, 426 U.S., at 449, 96 S.Ct. 2126; emphasis added). For the reasons just
stated, the mere existence of reports of adverse events—which says nothing in and of itself about whether the drug is
causing the adverse events—will not satisfy this standard. Something more is needed, but that something more is not
limited to statistical significance and can come from “the source, content, and context of the reports,” supra, at 1321.
This contextual inquiry may reveal in some cases that reasonable investors would have viewed reports of adverse
[6] Moreover, it bears emphasis that § 10(b) and Rule 10b–5(b) do not create an affirmative duty to disclose any
and all material information. Disclosure is required under these provisions only when necessary “to make ... state-
ments made, in the light of the circumstances under which they were made, not misleading. 17 CFR § 240.10b–5(b);
see also Basic, 485 U.S., at 239, n. 17, 108 S.Ct. 978 (“Silence, absent a duty to disclose, is not misleading under
Rule 10b–5”). Even with respect to information that a reasonable investor might consider material, companies can
more than 10 patients who had lost their sense of smell after using Zicam. Clarot told Linschoten that Matrixx had
received additional reports of anosmia. (In addition, during the class period, nine plaintiffs commenced four product
liability lawsuits against Matrixx alleging a causal link between Zicam use and anosmia.) FN11 Further, Matrixx
knew that Linschoten and Dr. Jafek had presented their findings about a causal link between Zicam and anosmia to a
national medical conference devoted to treatment of diseases of the nose.FN12 Their presentation described a patient
that, in one instance, a consumer who did not have a cold lost his sense of smell after using Zicam. More
importantly, to survive a motion to dismiss, respondents need only allege “enough facts to state a claim to
relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167
L.Ed.2d 929 (2007). For all the reasons we state in the opinion, respondents' allegations plausibly suggest
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
that Dr. Jafek and Linschoten's conclusions were based on reliable evidence of a causal link between Zicam
and anosmia.
Critically, both Dr. Hirsch and Linschoten had also drawn Matrixx's attention to previous studies that had
demonstrated a biological causal link between intranasal application of zinc and anosmia.FN13 Before his conversa-
tion with Linschoten, Clarot, Matrixx's vice president of research and development, was seemingly unaware of these
studies, and the complaint suggests that, as of the class period, Matrixx had not conducted any research of its own
relating to anosmia. See, e.g., App. 84a (referencing a press report, issued after the end of the class period, noting
that Matrixx said it would begin conducting “ ‘animal and human studies to further characterize these post-
marketing complaints' ”). Accordingly, it can reasonably be inferred from the complaint that Matrixx had no basis
for rejecting Dr. Jafek's findings out of hand.
sufficient to survive a motion to dismiss.
We believe that these allegations suffice to “raise a reasonable expectation that discovery will reveal evidence”
satisfying the materiality requirement, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167
L.Ed.2d 929 (2007), and to “allo[w] the court to draw the reasonable inference that the defendant is liable for the
ity 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.’ ” Basic, 485 U.S., at 232, 108 S.Ct. 978 (quoting TSC Indus-
tries, 426 U.S., at 449, 96 S.Ct. 2126). Matrixx told the market that revenues were going to rise 50 and then 80 per-
cent. Assuming the complaint's allegations to be true, however, Matrixx had information indicating a significant risk
Id., at 82a.
Assuming the facts to be true, these were material facts “necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading.” 17 CFR § 240.10b–5(b). We therefore
affirm the Court of Appeals' holding that respondents adequately pleaded the element of a material misrepresenta-
opposing inference one could draw from the facts alleged.” Id., at 324, 127 S.Ct. 2499. We conclude, in agreement
U.S.,2011.
Matrixx Initiatives, Inc. v. Siracusano
131 S.Ct. 1309, 179 L.Ed.2d 398, 79 USLW 4187, Fed. Sec. L. Rep. P 96,249, 11 Cal. Daily Op. Serv. 3426, 2011
Daily Journal D.A.R. 4123, 22 Fla. L. Weekly Fed. S 880
END OF DOCUMENT
tion of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest
or for the protection of investors.” 15 U.S.C. § 78j(b). SEC Rule 10b–5 implements this provision by making it un-
lawful to, among other things, “make any untrue statement of a material fact or to omit to state a material fact neces-
upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” Stoneridge Investment Partners,
LLC v. Scientific–Atlanta, Inc., 552 U.S. 148, 157, 128 S.Ct. 761, 169 L.Ed.2d 627 (2008). Matrixx contends that
respondents have failed to plead both the element of a material misrepresentation or omission and the element of
scienter because they have not alleged that the reports received by Matrixx reflected statistically significant evidence
that Zicam caused anosmia. We disagree.
leading as to a material fact.” FN4 Basic, 485 U.S., at 238, 108 S.Ct. 978. In Basic, we held that this materiality re-
quirement is satisfied when there is “ ‘a substantial likelihood that the disclosure of the omitted fact would have
been viewed by the reasonable investor as having significantly altered the “total mix” of information made availa-
ble.’ ” Id., at 231–232, 108 S.Ct. 978 (quoting TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct.
2126, 48 L.Ed.2d 757 (1976)). We were “careful not to set too low a standard of materiality,” for fear that manage-
Basic involved a claim that the defendant had made misleading statements denying that it was engaged in mer-
ger negotiations when it was, in fact, conducting preliminary negotiations. See 485 U.S., at 227–229, 108 S.Ct. 978.
The defendant urged a bright-line rule that preliminary merger negotiations are material only once the parties to the
negotiations reach an agreement in principle. Id., at 232–233, 108 S.Ct. 978. We observed that “[a]ny approach that
designates a single fact or occurrence as always determinative of an inherently fact-specific finding such as material-
establish a statistically significant risk that the product is in fact causing the events.FN6 Absent statistical signifi-
cance, Matrixx argues, adverse event reports provide only “anecdotal” evidence that “the user of a drug experienced
an adverse event at some point during or following the use of that drug.” Brief for Petitioners 17. Accordingly, it
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
contends, reasonable investors would not consider such reports relevant unless they are statistically significant be-
cause only then do they “reflect a scientifically reliable basis for inferring a potential causal link between product
use and the adverse event.” Id., at 32.
FN5. The FDA defines an “[a]dverse drug experience” as “[a]ny adverse event associated with the use of a
drug in humans, whether or not considered drug related.” 21 CFR § 314.80(a) (2010). Federal law imposes
certain obligations on pharmaceutical manufacturers to report adverse events to the FDA. During the class
period, manufacturers of over-the-counter drugs such as Zicam Cold Remedy had no obligation to report
adverse events to the FDA. In 2006, Congress enacted legislation to require manufacturers of over-the-
counter drugs to report any “serious adverse event” to the FDA within 15 business days. See 21 U.S.C. §§
379aa(b), (c).
FN6. “A study that is statistically significant has results that are unlikely to be the result of random error....”
difference is deemed “significant.” Id., at 124.
As in Basic, Matrixx's categorical rule would “artificially exclud [e]” information that “would otherwise be con-
sidered significant to the trading decision of a reasonable investor.” 485 U.S., at 236, 108 S.Ct. 978. Matrixx's ar-
gument rests on the premise that statistical significance is the only reliable indication of causation. This premise is
flawed: As the SEC points out, “medical researchers ... consider multiple factors in assessing causation.” Brief for
causal link between a drug and adverse events. As Matrixx itself concedes, medical experts rely on other evidence to
establish an inference of causation. See Brief for Petitioners 44–45, n. 22. FN7 We note that courts frequently permit
expert testimony on causation based on evidence other than statistical significance. See, e.g., Best v. Lowe's Home
Centers, Inc., 563 F.3d 171, 178 (C.A.6 2009); Westberry v. Gislaved Gummi AB, 178 F.3d 257, 263–264 (C.A.4
1999) (citing cases); Wells v. Ortho Pharmaceutical Corp., 788 F.2d 741, 744–745 (C.A.11 1986). We need not
ies; biological plausibility; consideration of alternative explanations; specificity (i.e., whether the specific
chemical is associated with the specific disease); the dose-response relationship; and the clinical and patho-
logical characteristics of the event. Brief for Petitioners 44–45, n. 22; Brief for Consumer Healthcare Prod-
ucts Assn. et al. as Amici Curiae 12–13. These factors are similar to the factors the FDA considers in taking
action against pharmaceutical products. See infra, at 13–14.
[5] Application of Basic's “total mix” standard does not mean that pharmaceutical manufacturers must disclose
all reports of adverse events. Adverse event reports are daily events in the pharmaceutical industry; in 2009, the
FDA entered nearly 500,000 such reports into its reporting system, see FDA, Reports Received and Reports Entered
232, 108 S.Ct. 978 (quoting TSC Industries, 426 U.S., at 449, 96 S.Ct. 2126; emphasis added). For the reasons just
stated, the mere existence of reports of adverse events—which says nothing in and of itself about whether the drug is
causing the adverse events—will not satisfy this standard. Something more is needed, but that something more is not
limited to statistical significance and can come from “the source, content, and context of the reports,” supra, at 1321.
This contextual inquiry may reveal in some cases that reasonable investors would have viewed reports of adverse
[6] Moreover, it bears emphasis that § 10(b) and Rule 10b–5(b) do not create an affirmative duty to disclose any
and all material information. Disclosure is required under these provisions only when necessary “to make ... state-
ments made, in the light of the circumstances under which they were made, not misleading. 17 CFR § 240.10b–5(b);
see also Basic, 485 U.S., at 239, n. 17, 108 S.Ct. 978 (“Silence, absent a duty to disclose, is not misleading under
Rule 10b–5”). Even with respect to information that a reasonable investor might consider material, companies can
more than 10 patients who had lost their sense of smell after using Zicam. Clarot told Linschoten that Matrixx had
received additional reports of anosmia. (In addition, during the class period, nine plaintiffs commenced four product
liability lawsuits against Matrixx alleging a causal link between Zicam use and anosmia.) FN11 Further, Matrixx
knew that Linschoten and Dr. Jafek had presented their findings about a causal link between Zicam and anosmia to a
national medical conference devoted to treatment of diseases of the nose.FN12 Their presentation described a patient
that, in one instance, a consumer who did not have a cold lost his sense of smell after using Zicam. More
importantly, to survive a motion to dismiss, respondents need only allege “enough facts to state a claim to
relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167
L.Ed.2d 929 (2007). For all the reasons we state in the opinion, respondents' allegations plausibly suggest
© 2011 Thomson Reuters. No Claim to Orig. US Gov. Works.
that Dr. Jafek and Linschoten's conclusions were based on reliable evidence of a causal link between Zicam
and anosmia.
Critically, both Dr. Hirsch and Linschoten had also drawn Matrixx's attention to previous studies that had
demonstrated a biological causal link between intranasal application of zinc and anosmia.FN13 Before his conversa-
tion with Linschoten, Clarot, Matrixx's vice president of research and development, was seemingly unaware of these
studies, and the complaint suggests that, as of the class period, Matrixx had not conducted any research of its own
relating to anosmia. See, e.g., App. 84a (referencing a press report, issued after the end of the class period, noting
that Matrixx said it would begin conducting “ ‘animal and human studies to further characterize these post-
marketing complaints' ”). Accordingly, it can reasonably be inferred from the complaint that Matrixx had no basis
for rejecting Dr. Jafek's findings out of hand.
sufficient to survive a motion to dismiss.
We believe that these allegations suffice to “raise a reasonable expectation that discovery will reveal evidence”
satisfying the materiality requirement, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167
L.Ed.2d 929 (2007), and to “allo[w] the court to draw the reasonable inference that the defendant is liable for the
ity 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.’ ” Basic, 485 U.S., at 232, 108 S.Ct. 978 (quoting TSC Indus-
tries, 426 U.S., at 449, 96 S.Ct. 2126). Matrixx told the market that revenues were going to rise 50 and then 80 per-
cent. Assuming the complaint's allegations to be true, however, Matrixx had information indicating a significant risk
Id., at 82a.
Assuming the facts to be true, these were material facts “necessary in order to make the statements made, in the
light of the circumstances under which they were made, not misleading.” 17 CFR § 240.10b–5(b). We therefore
affirm the Court of Appeals' holding that respondents adequately pleaded the element of a material misrepresenta-
opposing inference one could draw from the facts alleged.” Id., at 324, 127 S.Ct. 2499. We conclude, in agreement
U.S.,2011.
Matrixx Initiatives, Inc. v. Siracusano
131 S.Ct. 1309, 179 L.Ed.2d 398, 79 USLW 4187, Fed. Sec. L. Rep. P 96,249, 11 Cal. Daily Op. Serv. 3426, 2011
Daily Journal D.A.R. 4123, 22 Fla. L. Weekly Fed. S 880
END OF DOCUMENT
