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XMFHelical (< 20)

A Pharma Legal Battle Worth Watching



January 11, 2011 – Comments (2) | RELATED TICKERS: MTXX.DL , SO , BAC

Recommendations: 0 There is a legal battle on going which could ripple through the investing community. It involves a small cap pharma operation, Matrixx Initiatives, maker of some OTC cold remedies.

Here is the Pharamlot recap.

Like many things of this nature, it may be a poor test case. I don't think Matrixx was correct to withhold the information. Scientifically, the potential for zinc to effect sense of smell had been known, and Matrixx was remiss in reporting the complaints, not just to shareholders but to the FDA as well.

But this case is about a shareholder lawsuit, and what should have been reported as material. If 'every complaint' that is only 'potentially material' should be disclosed, it could get a little ludicrous. This has repercussions well beyond pharma reporting of adverse events. Should Southern (SO) report if the Farmers Almanac expects a hotter than normal summer? How about BAC reporting on an article stating its model for valuing MBS doesn't account for changes in lending practices? I exaggerate (both ways) to make the point that this case bears watching. We know which side the legal profession is likely on. Yes, it would be nice to decide for ourselves if information truly was material to our owning a stock, but behavior being what it is, over disclosure could be a problem,. I want management reacting to problems that may actually be truly material, not ones that may be truly a just a 'threat of litigation'.

But .. no question there is wide swath of gray area here.

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2 Comments – Post Your Own

#1) On January 11, 2011 at 1:00 PM, MegaEurope (< 20) wrote:

Ideally, it seems to me that the FDA should receive all the data and decide when negative data becomes material.  Of course they don't have enough budget for that.

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#2) On January 11, 2011 at 1:04 PM, MegaEurope (< 20) wrote:

“I’m an investor in Matrixx,” Chief Justice John Roberts Jr. posited, according to The National Law Journal. “I worry whether my stock price is going to go down. You can have some psychic come out and say ‘Zicam is going to cause a disease’ with no support whatsoever, but if it causes the stock to go down 20%, it seems to me that’s material.”

Definitely disagree with that.  Stock prices inherently fluctuate, so the standard should be whether information has a material effect on business operations, not on the stock price.

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