Biotech companies have one more potential legal liability to consider as they push a new drug to the marketplace. The U.S. Supreme Court has ruled that a failure to report relevant instances of adverse events among patients is legitimate fodder for a securities suit.
The case centered on Matrixx Initiatives, a maker of homeopathic remedies that marketed a nasal spray linked to a string of instances in which people using the treatment lost their sense of smell. The adverse events were reported back to the company by several medical professionals and patients, but never amounted to a statistically significant group. Once the news hit the network news, however, Matrixx's shares plunged and investors sued. Matrixx says it wasn't responsible for reporting scattered and unreliable anecdotal evidence of adverse events.
Not so, said the court. "Given that medical professionals and regulators act on the basis of evidence of causation that is not statistically significant," wrote Judge Sonia Sotomayor, "it stands to reason that in certain cases reasonable investors would as well."
The new standard for reporting these adverse events, legal experts say, is when a company has reports that a reasonable person would act on. In Matrixx's case, that several doctors had alerted the company appeared to play a key role in the ruling. But Sotomayor also notes, "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" the court's materiality requirement.