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High Court Rejects "Statistical Significance" Materiality Argument

By Jim Hamilton

A unanimous Supreme Court upheld a decision by a 9th Circuit panel in Matrixx Initiatives Inc. v. Siracusano. The appellate court had previously rejected claims by the maker of Zicam Cold Remedy, an over-the-counter product, that the number of users who suffered from a loss of smell (anosmia) was statistically insignificant, and the company therefore had no duty to disclose the complaints it had received because these were immaterial as a matter of law.

Justice Sotomayor wrote for the court that the company's categorical statistical significance rule would ?artificially exclude information that would otherwise be considered significant to the trading decision of a reasonable investor.? A lack of statistically significant data does not mean that medical experts have no reliable basis for inferring a causal link between a drug and adverse events, she noted.

The FDA does not limit the evidence it considers in its review of drugs to statistically significant data, observed Justice Sotomayor, and the FDA also relies on a wide range of evidence of causation, including evidence that suggests, but does not prove, causation. "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," she concluded.

The court cautioned that pharmaceutical manufacturers need not disclose all reports of adverse events. The existence of such adverse events, which can be common occurrences, "says nothing in and of itself about whether the drug is causing the adverse events." Something more than the mere existence of adverse events is necessary, she stated, but that "something more" need not be statistical significance.

She called for the use of a contextual inquiry, which could reveal in some cases that reasonable investors would have viewed reports of adverse events as material even though the reports did not provide statistically significant evidence of a causal link.

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Full post as published by Jim Hamilton's World of Securities Regulation on March 22, 2011 (boomark / email).