March 23, 2011 in Nation/World

Drug maker faces fraud trial

Case involving non-disclosure of possible side effects can proceed, Supreme Court rules
David G. Savage Tribune Washington bureau
 

WASHINGTON – The Supreme Court dealt two more setbacks to business Tuesday, handing down rulings that made it easier to sue drug makers for stock fraud and allowing workers to sue their employers if they suffer retaliation after making an oral complaint.

The decisions continue a recent trend in which the high court has confounded its critics by siding with workers and plaintiffs in business cases. The Chamber of Commerce has been on the winning side in only one case decided this year, while suffering five losses, including in the stock fraud case decided Tuesday.

By a 9-0 vote, the justices said a drug maker can be sued for failing to disclose to investors the scattered medical reports that suggested a serious problem with a drug. The company said it should be shielded from lawsuits unless there was strong medical evidence or statistical proof of a serious problem.

In the workplace case, a Wisconsin plastic company had maintained that it could not be sued for firing Kevin Kasten, an employee who made an oral instead of a written complaint at work about the time clocks. Federal laws protect employees from retaliation for having “filed any complaint” alleging a violation.

The U.S. appeals court in Chicago agreed with the company and said an oral complaint did not qualify. But in a 6-2 decision, the high court revived the worker’s lawsuit and said an oral complaint deserves the same protection as a written one.

“To fall within the scope of the anti-retaliation provision, a complaint must be sufficiently clear and detailed for an employer to understand it,” said Justice Stephen G. Breyer. “This standard can be met by oral complaints, as well as by written ones.”

At issue in the stock fraud case was whether drug makers must disclose to investors any reports they receive of “adverse events” involving their products.

The pharmaceutical company Matrixx made and marketed Zicam Cold Remedy, a nasal spray and gel which used zinc gluconate and accounted for 70 percent of its sales. But by 2003, doctors had reported at least a dozen cases of patients who said they lost their sense of smell after using Zicam or similar products with zinc.

Despite knowing of these reports, Matrixx put out statements in 2003 saying Zicam was “poised for growth” and that the product gave the company “very strong momentum” for the year ahead. A few months later, news reports highlighted the stories of patients who lost their sense of smell, and the Matrixx stock price plunged.

A group of investors sued, contending they had been cheated by the company’s decision to tout its growth prospects while covering up the “adverse event” reports about its leading drug.

In the past decade, both Congress and the Supreme Court had made it harder to bring stock-fraud lawsuits against companies, and a federal judge dismissed the suit against Matrixx.

But the 9th U.S. Circuit Court of Appeals revived the suit and said a reasonable investor would likely consider it significant and “material” if patients had complained of a loss of smell after using Zicam.

The Supreme Court agreed and said the plaintiffs had cited enough evidence to proceed with the suit trying to show that Matrixx had deliberately deceived them.

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