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Zicam Maker Faces Investor Suit

Jul 21, 2009 | Parker Waichman LLP

Although Zicam maker, Matrixx Initiatives Inc., maintains its nasal cold remedy products are safe despite a massive recall, looming lawsuits and ongoing consumer reports of adverse reactions, another class action suit was just filed against the company on behalf of stockholders, BizJournals reports. The suit alleges Matrixx “failed to disclose material facts about its operational well-being and future prospects.”

Matrixx Initiatives is facing six other class action lawsuits connected to recalled nasal versions of its controversial cold remedy. Those lawsuits, which involve at least 117 plaintiffs, claim—among other things—that the company concealed or omitted material information regarding the safety of the nasal gel products. BizJournals also noted that Matrixx has been the subject of a number of consumer lawsuits that allege “product liability, negligence, fraud, and breach of warranties.”<!--more-->

Last month, the U.S. Food & Drug Administration (FDA) warned consumers not to use three Zicam nasal cold remedies. The agency said it had received 130 reports of anosmia—loss of sense of smell—in people who had used the product. Following the FDA alert, Matrixx Initiatives recalled two of the products: Zicam Cold Remedy Nasal Gel and Zicam Cold Remedy Swabs. The company had already withdrawn Zicam Cold Remedy Swabs, Kids Size, the third product named by the FDA.

Following announcements of the recalls and the initial six class actions lawsuits, Matrixx Initiatives stocks took a beating to less than $5 per share from over $19 before the FDA issued its notice. Matrixx shares plummeted a whopping 70 percent the day of the FDA warning.

At the time the FDA issued its Zicam warning, it also disclosed that Matrixx had failed to inform it of 800 anosmia reports linked to the recalled cold remedies. Matrixx has admitted that it did not pass along those reports to the FDA, but has maintained that its legal counsel advised it was not required to forward those reports to the agency. In a letter to Matrixx, the FDA warned the firm that the products cannot be marketed without agency approval and also stated that the three Zicam nasal remedies did not include adequate warnings about the risk of loss of sense of smell.

During a conference call to announce the Zicam alert, the FDA also said Matrixx Initiatives had received an additional 800 anosmia reports it hadn’t made available to the agency. The FDA discovered those reports during a routine inspection in May. The agency pointed out that under a 2007 regulation, Matrixx should have forwarded them to the FDA.

Despite its insistence that Zicam nasal remedies are safe, this is not the first time the products have caused problems for Matrixx. As we reported previously, in 2006 the company reached a settlement with 300 Zicam users who claimed the remedies had caused them to lose the sense of smell. Also, last month, Matrixx Initiatives said it received an informal inquiry from the Securities Exchange Commission (SEC) over the FDA’s warning on several Zicam nasal cold remedies.

Zicam is Matrixx’s most popular product line, and accounts for about 40 percent of its sales. In addition to the nasal remedies named in the FDA warning, the company also markets melting tablet and liquid forms of Zicam, which were not included in the warning.


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