Statistical Significance is Nothing to be Sneezed at Says US Supreme Court

If you have ever had a stuffy nose or invested your hard-earned cash in the stock market, the facts of a recent Supreme Court case will probably disturb you.

The case, Matrixx Initiatives Inc. v. Siracusano involved the popular homeopathic nose spray – Zicam.

This product was responsible for the vast majority of Matrixx’s revenues, and investors loved the company because the nasal remedy sold well.  The stock price soared, but then the company learned that Zicam had caused some users to lose their sense of smell.  As it turned out,  approximately 130 users had reported the adverse side effect, the medical term for which is anosmia.

Although the common view of anosmia is that it is a trivial inconvenience, it can have a number of harmful effects.  Not only do patients find food less appetizing, their loss of smell can also be dangerous because it hinders the detection of gas leaks, fire, and spoiled food. Loss of smell may also lead to the loss of libido.

Matrixx, however, concerned that the news would lead to a loss in sales, decided not to report the rare side effect to investors.    The company’s reasoning?  The side effect was not the kind of “material information” that securities laws would require it to disclose because it was not statistically significant when considered in the context of the patients who had used the drug.

The problem for Matrixx arose when national news got wind of the anosmia side effect.  This lead to the issue of FDA warnings and ultimately Matrixx’s decision to take the drug off the market, causing stock prices to fall.

So, investors sued the company saying that the undisclosed information was indeed “material” and might have caused them to make a different decision about whether to buy Matrixx stock.

During the trial, in a brief to the court, PhRMA said, “A collection of adverse event reports that is not statistically significant does not permit a reasonable inference that a particular medicine actually caused the reported adverse event.”

The Supreme Court disagreed.  In a unanimous opinion by Justice Sotomayor, it made clear that the word “material” does not equate with “statistically significant”.  Instead, the Court said, the important consideration is what information a reasonable investor would regard as relevant to the decision to buy stock; such an inquiry would include questions about the source and reliability of the information.  While not all reports to authorities about side effects would be material under this test, the Court held, those about the Zicam side effect would have been because they came from medical experts.

While almost everyone involved in pharmaceutical marketing is aware of the FDA’s “Fair Balance” requirements it seems that full disclosure must now include all corporate, as well as product, information.  In fact, the Supreme Court ruling may have greater repercussions for adverse event reporting by the drug industry than any guidelines the FDA has ever issued!