from Skadden Arps
Matrixx Initiatives, Inc. v Siracusano, No. 09-1156 (Mar. 22, 2011)
A unanimous United State Supreme Court this morning held that a securities fraud complaint, based on a pharmaceutical company's alleged failure to disclose reports of adverse events associated with a product, may state a claim, even if the complaint does not allege that the company knew of a statistically significant number of adverse events. In an opinion by Justice Sotomayor, the Court rejected a bright-line test that would require an allegation of statistical significance in order to satisfy the materiality and scienter requirements under Section 10(b) of the Exchange Act and Rule 10b-5.
In finding that the plaintiffs had adequately alleged material omissions, the Court noted that neither drug regulators nor medical professionals limit the evidence considered for purposes of assessing whether a product causes harm to statistically significant data. "Given that medical professionals and regulators act on the basis of evidence of causation that is not statistically significant, it stands to reason that investors would as well." The Court cautioned that its ruling would not require disclosure of all adverse events, but only those that would significantly alter the total mix of information.
In addressing the scienter issue, the Court first noted that it was assuming (but not deciding) that "deliberate recklessness" would satisfy the scienter element. This leaves for another day the question of whether recklessness constitutes scienter. The Court rejected the drug company's argument that, because plaintiffs did not allege that the company knew of statistically significant evidence that the drug at issue caused harm, there is no basis to infer scienter. The Court held that "Matrixx's proposed bright-line rule requiring an allegation of statistical significance to establish a strong inference of scienter is just as flawed as its approach to materiality."
