INNsight article by Alan Klein

On March 22, the U.S. Supreme Court in Matrixx Initiatives, Inc. v. Siracusano decided that drug companies whose securities are traded on American stock exchanges must disclose to shareholders and to potential investors adverse event reports even if they do not demonstrate a statistically significant increased risk of adverse events from product use. Failure to disclose such information, the 9-member Court ruled unanimously, exposes the drug manufacturer to civil liability and penalties under the federal Securities Exchange Act.

In Matrixx, an OTC pharmaceutical manufacturer agreed that its nasal spray and gel cold remedy, Zicam, responsible for 70% of the company’s sales, was the subject of adverse event reports from consumers complaining that the use of the product had taken away their sense of smell (called anosmia). But the company argued that this evidence failed to establish a statistically significant correlation between the use of Zicam and anosmia to create a “material omission” from its public disclosure requirements under the Securities Exchange Act. The Supreme Court disagreed, finding that such information was important to investors and the public, and rejected Matrixx’s “bright line” test of “materiality” (a statistically significant, and scientifically reliable, causal link between the adverse event and use of the suspect medication).

Statistical Significance Not Key to Disclosure of Adverse Events

Noting that scientific causation can be established in the absence of statistical significance if the assembly of a data set is difficult, or if ethical constraints prevent researchers  from obtaining necessary information in traditional ways, the Supreme Court adopted a broader  disclosure rule for drug companies: “Given that medical professionals and regulators act on the basis of evidence of causation that is not statistically significant, it stands to reason that in certain cases reasonable investors would as well.” What is key, the Justices found, is “whether a reasonable investor would have viewed the non-disclosed information as having significantly altered the ‘total mix’ of information made available” by the drug company to the investing public.

Drug companies, therefore, will need to pay careful attention to disclosures in securities filings and in publicly disseminated information to ensure that adverse event reports are considered if their omission could prove material to reasonable investors.

Generic Drug Preemption Next on the Court’s Agenda

On March 30, the Supreme Court heard oral argument on the important issue of generic drug preemption. At stake is whether failure-to-warn claims against generics are barred by federal law. Such claims, the Court has previously ruled in Wyeth v. Levine, are not prevented against brand drug companies, which have a non-delegable duty to ensure the safety of their drugs at all times after market approval.

Before the Court are appeals in two cases, Pliva, Inc. v. Mensing and Actavis, Inc. v. Demahy, in which two federal Circuit Courts of Appeal concluded that generics have the ability and obligation to seek label changes when they learn of circumstances that increase a drug’s known risks. Almost twenty separate briefs were filed in the Supreme Court on these issues by the parties to the appeals, industry and consumer groups, academics, physicians, legislators and others, supporting the plaintiffs or the generic drug companies.

One aspect of these appeals that has attracted considerable attention from the generic drug industry and commentators is an extraordinary and somewhat unexpected concession made by the FDA through the U.S. Solicitor General, the government’s top lawyer, in its brief to the Court and at oral argument. The key drug regulatory agency in the U.S., the FDA, has admitted that its current regulatory scheme does not provide a mechanism for generics to either implement or request label changes. Generics, the FDA says, under the Hatch-Waxman Act need to have their labels remain “the same as” the brand label unless and until the FDA says otherwise. However, the FDA contends that when a generic believes that a label change is warranted, it should make a request of the FDA, and the FDA will then determine if the labeling of a drug for both brand and generics should be changed.

How the Supreme Court addresses these issues, and whether the FDA’s argument will prove persuasive to the Court, remain open questions. Are products liability lawsuits against generics preempted? If they are, did the U.S. Congress in enacting Hatch-Waxman contemplate the continued availability of a tort remedy for brand drug users but no similar tort remedy for patients opting for generic equivalents? It’s anyone’s guess at this point until the Court announces its ruling, which is expected no later than July.