The Complaint brought forth claims for violations of the Securities Act of 1934 against Matrixx Initiatives, Inc. (“Matrixx” or the “Company”), and certain of its senior executives. The Complaint alleged that Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased or otherwise acquired Matrixx common stock during the Class Period.
Matrixx sells cold medicines, including Zicam Cold Remedy Nasal Spray and Cold Remedy Swab (collectively, “Zicam”). Since 2005, many lawsuits had been filed against the Company alleging that the Zicam Cold Remedy nasal gel product caused the permanent loss or diminishment of the sense of smell and/or taste, a condition formally known as anosmia. Defendants represented in their public filings with the SEC that they believed such claims were “scientifically unfounded and misleading.” Due to the nature of its active ingredient, zinc gluconate, Matrixx was able to sell Zicam as a homeopathic drug. As such, it did not need to go through the FDA’s extensive new drug application process, and prior to 2007, the FDA did not require non-prescription drug manufacturers to submit copies of adverse event reports (“AERs”). Then the Dietary Supplement and Non-Prescription Drug Consumer Protection Act (the “Act”), effective December 22, 2007, required manufacturers to report certain, but not all, AERs. Specifically, the Act required manufacturers to provide copies of AERs only if they constituted serious adverse event (“SAE”) reports.
The FDA was authorized to review consumers’ AERs, and reviewed Matrixx’s anosmia AERs in May 2005 and May 2009. In a June 16, 2009 warning letter the FDA stated it received more than 130 reports of anosmia associated with Zicam. Due to the AERs evidencing a safety risk, Matrixx would have to comply with the Act’s new drug approval requirement “regardless of [Zicam’s] homeopathic status.” On the same day the FDA issued the warning letter to Matrixx, the FDA also issued a health advisory warning of the risk of loss of smell related to Zicam. That same day, Matrixx pulled the Zicam products from the market and Matrixx’s stock price plummeted approximately 70 percent. In response to the Warning Letter, Matrixx acknowledged it had “regularly” received AERs regarding anosmia and Zicam, but the Company did “not classify and report anosmia (loss of smell) or loss of taste as a serious adverse event,” in not reporting the complaints to the FDA.
Specifically, the Complaint alleged that Defendants engaged in a fraudulent scheme to inflate Matrixx’s stock price by misrepresenting Matrixx had complied with FDA regulations and the Act’s SAE reporting requirement, and by concealing the number of anosmia AERs Matrixx received.
On July 28, 2010, the Court appointed Saxena White, P.A. as Co-Lead Counsel. Lead Plaintiffs filed the Amended Complaint on September 27, 2010. After Defendants’ Motion to Dismiss was fully briefed, the Court issued an order on September 26, 2011 denying Defendants’ motion in its entirety, finding, that as alleged in the Amended Complaint, the “Defendants’ statements and omissions were materially misleading, and not simply incomplete,” and that “Defendants’ past disclosures do not excuse subsequent misleading statements and omissions.” Additionally, the Court held Lead Plaintiffs successfully “alleged Defendants attempted to bolster the perceived financial strength of the Company by hiding a risk reasonable investors would deem important.” The Court then granted Plaintiff’s Motion to Certify the Class on July 31, 2012.
After over four years of hard-fought litigation, on October 19, 2012, the parties participated in an all-day mediation session. As a result of these discussions, Saxena White successfully negotiated an agreement to settle the claims for $4,500,000 for the benefit of the Class. On May 1, 2013, the Court preliminarily approved the settlement, and then on September 6, 2013, entered final judgment finding the settlement it to be fair, adequate and reasonable in all respects.