Matrixx Initiatives: A Critical Test of Crisis Management

We have seen a decimation in the shares of Matrixx Intiatives (MTXX) as a result of the FDA’s June 16^th warning letter indicating anosmia experienced in a group of several hundred Zicam nasal product users. Initially Matrixx went into defensive mode, but has since “voluntarily” recalled the Zicam nasal products. The action on the part of the FDA not only jeopardizes approximately 40% of the company’s revenues, but also exposes the company to further product liability by suggesting that the FDA believes there may be merit to the complaints of anosmia.

However shares of Matrixx rebounded somewhat, and the July-August calls were very active, on Friday after the FDA released their investigation report. That 23 page report can be viewed here. The report is interesting in the low incidence of complaints and the appearance of doubt in the mind of the FDA investigator as to whether there is any validity to these claims. The report indicated that from 1999 to 2005 the incidence of anosmia complaints was at 3.6 per 100,000 units of product sold. Incidence was highest in 2004 at 6.7 per 100,000, which interestingly corresponds to the year that the program “Good Morning America” detailed complaints of anosmia with Zicam, raising the possibility of a psychosomatic response on the part of some complainants.

Matrixx indicated to the investigator its belief that the incidence of anosmia indicated by the complaints is relatively in-line with statistical incidence amongst the general population and also raised the possibility that the cold itself might be responsible for anosmia. The investigator himself writes “I said to Mr. Clarot (VP R&D and Product Quality) that when/if they have large sales figures for their other, non-zinc, nasal allergy or cold products, they should try sorting out anosmia complaints from non-zinc products and see if the anosmia levels are comparable.”

According to www.otcproductnews.com, Matrixx has been victorious in 10 prior Federal litigation cases based on expert testimony. Success in prior litigation combined with the low incidence indicated by the FDA investigation report, suggests to me that the jury is still out on the safety of Zicam nasal products and their alleged correlation with anosmia. The FDA’s warning letter can only be viewed as action out of an abundance of caution. It is unfortunate however, that further study could not have been conducted to determine whether statistical significance of side effects warranted this action that was clearly very destructive to fortunes of Matrixx Initiatives and its shareholders. We certainly saw a much better outcome in the case of acetaminophen which has a much higher incidence of serious side effects, including possible death from hepatic failure.

Of course the question now becomes what fate lies ahead for Matrixx and its shares. This is a critical make or break crisis management situation for Matrixx. Matrixx must manage the recall of its nasal products while conveying to the public that other Zicam products are not affected in a similar fashion, are safe, and will remain on the shelves. Matrixx must “play ball” with the FDA, attempting to convince the FDA that the nasal products are safe, that they will market the products in such a way as the FDA deems appropriate, and handle complaints in a manner more keeping with the FDA’s desires. It is possible that if handled appropriately the company can preserve the integrity of the Zicam brand and possibly even get the ok to bring back the nasal product line if the FDA can be convinced of the product’s safety.

Most importantly is that Matrixx manage public opinion and continue to effectively deal with the litigation that will result from these anosmia claims. Given the low incidence of such claims relative to product sold they may be without merit, as long as Matrixx can continue to convince juries that this is the case, Matrixx will have a profitable future.

Disclosure: Long MTXX

Comments

[edwards:]

That's stating the facts in a best-case scenario context. You talk about Matrixx winning 10 suits, but omit the fact that the company settle 300 suits for a whopping $12 million in 2006, and the company withheld 800 complaints from the FDA, acknowledging them only after the FDA forced the current recall. The first class action suits have been filed on behalf of injured consumers and more suits are likely, both by consumers and investors. The domain (web address) MatrixxClassAction.com has been registered (and is for sale), and it currently lists many law firms eager to provide free claim assessments and offer free legal counsel. The Matrixx story is just beginning to unfold, and the company's future is very much in doubt.

Jul 06 10:18 AM

[Mark Mansfield:]

Yes, they certainly did make a settlement, but in all the cases that did see their day in court MTXX was victorious.That being said you are right, there is plenty of risk here if the legal battles don't work out in MTXX favor, particularly given the size of MTXX.

Jul 06 11:33 AM

[Cynthia:]

I just found this interesting site about health problems and the loss of taste and smell from which some Zicam users have suffered. There is also important safety information here:
www.zicam-smell-loss-l.../

Jul 06 11:14 PM

[Zicam Victim:]

Zicam is a very dangerous product and should have never made it to the market. Im a Zicam victim and know all the truth about this extremely caustic product. Robert Davidson is the founder of Zicam and has stated in his testimony in my trial in April of 2008 that the efficacy of Zicam is "just a theory and has never been proven." Yet on the packaging of the Zicam product it states that it is "clinically proven." They are nothing but liars and it's about time that they are being held responsible for thier malicious and misleading demeanor. I can't wait to see Matrixx finally after all these years fall on thier faces. There is merit to the shareholder litigations being brought against Matrixx as well. First, they NEVER told the FDA back in 2004 that they changed the design of the applicator of the spray gel. And second, they NEVER told the FDA about the over 800 complaints that they recieved from victims of thier dangerous product. I'm wondering what else they are keeping from the eyes of these federal agencies. But i can guarantee you that any information that i find in my investigation of Matrixx will be brought out for the entire public to see. I won't stop until this company is brought to it's knees.

Jul 22 01:30 PM

[HBSS:]

Do you own Matrixx stock (Nasdaq - MTXX)?

I work with a law firm investigating reports of possible securities law violations by Matrixx Initiatives, Inc., the maker of Zicam.

In a letter to Matrixx, the FDA concluded certain Zicam products may pose serious risks to consumers.

When the letter was released, Matrixx stock plummeted from approximately $19 per share to less than $7 per share. Since December 2007, insiders have sold more than $2.7 million worth of Matrixx shares.

Learn more: hbsslaw.com/matrixx

Jul 24 06:03 PM