holding that plaintiffs alleged a strong inference when defendant issued a misleading press release suggesting its over-the-counter pharmaceutical product did not cause anosmia, defendant had not tested its product for anosmia, there was insufficient scientific evidence at the time to determine whether it caused anosmia, and defendant had informed an independent scientist that it had hired a consultant to review the product out of concern over anosmia, asked that scientist to participate in animal studies, prohibited another scientist from using the product’s name when he presented a study showing that the product caused anosmia, and organized a “a panel of physicians and scientists in response to [his] presentation”
How later courts described this case
- holding that plaintiffs alleged a strong inference when defendant issued a misleading press release suggesting its over-the-counter pharmaceutical product did not cause anosmia, defendant had not tested its product for anosmia, there was insufficient scientific evidence at the time to determine whether it caused anosmia, and defendant had informed an independent scientist that it had hired a consultant to review the product out of concern over anosmia, asked that scientist to participate in animal studies, prohibited another scientist from using the product’s name when he presented a study showing that the product caused anosmia, and organized a “a panel of physicians and scientists in response to [his] presentation”
- holding that plaintiffs had adequately pled a Rule 10b-5 claim -- where defendant had disputed the sufficiency of the allegations with respect to the elements of scienter and materiality -- by alleging that defendant had forestalled a stock price drop by making affirmative statements confirming the market’s impression that defendant’s leading product was safe, despite defendant’s awareness of evidence suggesting a significant risk that the nasal spray led to loss of sense of smell; when the risk was finally (belatedly) disclosed, the stock price plummeted
- holding, even under a special statutory heightened pleading standard requiring a “strong inference” of scienter, that plaintiffs claim could not be dismissed where it pleaded facts “sufficient to render the inference of scienter at least as compelling as the inference” of innocent conduct; and stating that determining guilty knowledge requires courts to review “all the allegations holistically” (quotation-marks and citation omitted)
- stating, in the context of § 10(b) claims, that the “materiality requirement is satisfied when there is ‘a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available’ ” (quoting Basic Inc. v. Levinson, 485 U.S. 224, 232, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988))
Written by the judges who cited it.
The opinion
(Slip Opinion) OCTOBER TERM, 2010 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
MATRIXX INITIATIVES, INC., ET AL. v. SIRACUSANO
ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE NINTH CIRCUIT
No. 09–1156. Argued January 10, 2011—Decided March 22, 2011
Respondents filed this securities fraud class action, alleging that peti
tioners (hereinafter Matrixx) violated §10(b) of the Securities Ex
change Act of 1934 and Securities and Exchange Commission Rule
10b–5 by failing to disclose reports of a possible link between Ma
trixx’s leading product, Zicam Cold Remedy, and loss of smell (anos
mia), rendering statements made by Matrixx misleading. Matrixx
moved to dismiss the complaint, arguing that respondents had not
pleaded the element of a material misstatement or omission and the
element of scienter. The District Court granted the motion, but the
Ninth Circuit reversed. It held that the District Court erred in re
quiring an allegation of statistical significance to establish material
ity, concluding instead that the complaint adequately alleged infor
mation linking Zicam and anosmia that would have been significant
to a reasonable investor. It also held that Matrixx’s withholding of
information about reports of adverse effects and about pending law
suits by Zicam users gave rise to a strong inference of scienter.
Held: Respondents have stated a claim under §10(b) and Rule 10b–5.
Pp. 8–22.
(a) To prevail on their claim, respondents must prove, as relevant
here, a material misrepresentation or omission by Matrixx and sci
enter. See Stoneridge Investment Partners, LLC v. Scientific-Atlanta,
Inc., 552 U. S. 148, 157. Matrixx contends that they failed to plead
these required elements because they did not allege that the reports
Matrixx received reflected statistically significant evidence that Zi
cam caused anosmia. Pp. 8–9.
(b) Respondents have adequately pleaded materiality. Pp. 9–19.
(1) Under Basic Inc. v. Levinson, 485 U. S. 224, §10(b)’s material
2 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Syllabus
ity requirement is satisfied when there is “ ‘a substantial likelihood
that the disclosure of the omitted fact would have been viewed by the
reasonable investor as having significantly altered the “total mix” of
information made available.’ ” Id., at 231–232. The Court declined to
adopt a bright-line rule for determining materiality in Basic, observ
ing that “[a]ny approach that designates a single fact or occurrence as
always determinative of an inherently fact-specific finding such as
materiality, must necessarily be overinclusive or underinclusive.”
Id., at 236. Here, Matrixx’s bright-line rule—that adverse event re
ports regarding a pharmaceutical company’s products are not mate
rial absent a sufficient number of such reports to establish a statisti
cally significant risk that the product is causing the events—would
“artificially exclud[e]” information that “would otherwise be consid
ered significant to [a reasonable investor’s] trading decision.” Ibid.
Matrixx’s premise that statistical significance is the only reliable in
dication of causation is flawed. Both medical experts and the Food
and Drug Administration rely on evidence other than statistically
significant data to establish an inference of causation. It thus stands
to reason that reasonable investors would act on such evidence. Be
cause adverse reports can take many forms, assessing their material
ity is a fact-specific inquiry, requiring consideration of their source,
content, and context. The question is whether a reasonable investor
would have viewed the nondisclosed information “ ‘as having signifi
cantly altered the “total mix” of information made available.’ ” Id., at
232. Something more than the mere existence of adverse event re
ports is needed to satisfy that standard, but that something more is
not limited to statistical significance and can come from the source,
content, and context of the reports. Pp. 9–16.
(2) Applying Basic’s “total mix” standard here, respondents ade
quately pleaded materiality. The complaint’s allegations suffice to
“raise a reasonable expectation that discovery will reveal evidence”
satisfying the materiality requirement, Bell Atlantic Corp. v.
Twombly, 550 U. S. 544, 556, and to “allo[w] the court to draw the
reasonable inference that the defendant is liable,” Ashcroft v. Iqbal,
556 U. S. ___, ___. Assuming the complaint’s allegations to be true,
Matrixx received reports from medical experts and researchers that
plausibly indicated a reliable causal link between Zicam and anos
mia. Consumers likely would have viewed Zicam’s risk as substan
tially outweighing its benefit. Viewing the complaint’s allegations as
a whole, the complaint alleges facts suggesting a significant risk to
the commercial viability of Matrixx’s leading product. It is substan
tially likely that a reasonable investor would have viewed this infor
mation “ ‘as having significantly altered the “total mix” of informa
tion made available.’ ” Basic, supra, at 232. Assuming the
Cite as: 563 U. S. ____ (2011) 3
Syllabus
complaint’s allegations to be true, Matrixx told the market that reve
nues were going to rise 50 and then 80 percent when it had informa
tion indicating a significant risk to its leading revenue-generating
product. It also publicly dismissed reports linking Zicam and anos
mia and stated that zinc gluconate’s safety was well established,
when it had evidence of a biological link between Zicam’s key ingre
dient and anosmia and had conducted no studies to disprove that
link. Pp. 16–19.
(c) Respondents have also adequately pleaded scienter, “ ‘a mental
state embracing intent to deceive, manipulate, or defraud,’ ” Tellabs,
Inc. v. Makor Issues & Rights, Ltd., 551 U. S. 308, 319. This Court
assumes, without deciding, that the scienter requirement may be sat
isfied by a showing of deliberate recklessness. Under the Private Se
curities Litigation Reform Act of 1995, a complaint adequately pleads
scienter “only if a reasonable person would deem the inference of sci
enter cogent and at least as compelling as any opposing inference one
could draw from the facts alleged.” Id., at 324. Matrixx’s proposed
bright-line rule requiring an allegation of statistical significance to
establish a strong inference of scienter is once again flawed. The
complaint’s allegations, “taken collectively,” give rise to a “cogent and
compelling” inference that Matrixx elected not to disclose adverse
event reports not because it believed they were meaningless but be
cause it understood their likely effect on the market. Id., at 323, 324.
“[A] reasonable person” would deem the inference that Matrixx acted
with deliberate recklessness “at least as compelling as any [plausible]
opposing inference.” Id., at 324. Pp. 19–22.
585 F. 3d 1167, affirmed.
SOTOMAYOR, J., delivered the opinion for a unanimous Court.
Cite as: 563 U. S. ____ (2011) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 09–1156
_________________
MATRIXX INITIATIVES, INC., ET AL., PETITIONERS v.
JAMES SIRACUSANO ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[March 22, 2011]
JUSTICE SOTOMAYOR delivered the opinion of the Court.
This case presents the question whether a plaintiff can
state a claim for securities fraud under §10(b) of the Secu
rities Exchange Act of 1934, 48 Stat. 891, as amended, 15
U. S. C. §78j(b), and Securities and Exchange Commission
(SEC) Rule 10b–5, 17 CFR §240.10b–5 (2010), based on a
pharmaceutical company’s failure to disclose reports of
adverse events associated with a product if the reports do
not disclose a statistically significant number of adverse
events. Respondents, plaintiffs in a securities fraud class
action, allege that petitioners, Matrixx Initiatives, Inc.,
and three of its executives (collectively Matrixx), failed to
disclose reports of a possible link between its leading
product, a cold remedy, and loss of smell, rendering state
ments made by Matrixx misleading. Matrixx contends
that respondents’ complaint does not adequately allege
that Matrixx made a material representation or omission
or that it acted with scienter because the complaint does
not allege that Matrixx knew of a statistically significant
number of adverse events requiring disclosure. We con
clude that the materiality of adverse event reports cannot
2 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
be reduced to a bright-line rule. Although in many cases
reasonable investors would not consider reports of adverse
events to be material information, respondents have al
leged facts plausibly suggesting that reasonable investors
would have viewed these particular reports as material.
Respondents have also alleged facts “giving rise to a
strong inference” that Matrixx “acted with the required
state of mind.” 15 U. S. C. A. §78u–4(b)(2)(A) (Feb. 2011
Supp.). We therefore hold, in agreement with the Court of
Appeals for the Ninth Circuit, that respondents have
stated a claim under §10(b) and Rule 10b–5.
I
A
Through a wholly owned subsidiary, Matrixx develops,
manufactures, and markets over-the-counter pharmaceu
tical products. Its core brand of products is called Zicam.
All of the products sold under the name Zicam are used to
treat the common cold and associated symptoms. At the
time of the events in question, one of Matrixx’s products
was Zicam Cold Remedy, which came in several forms
including nasal spray and gel. The active ingredient in
Zicam Cold Remedy was zinc gluconate. Respondents
allege that Zicam Cold Remedy accounted for approxi
mately 70 percent of Matrixx’s sales.
Respondents initiated this securities fraud class action
against Matrixx on behalf of individuals who purchased
Matrixx securities between October 22, 2003, and Febru
ary 6, 2004.1 The action principally arises out of state
ments that Matrixx made during the class period relating
to revenues and product safety. Respondents claim that
Matrixx’s statements were misleading in light of reports
that Matrixx had received, but did not disclose, about
——————
1 According to the complaint, Matrixx securities were traded on the
NASDAQ National Market. App. 99a.
Cite as: 563 U. S. ____ (2011) 3
Opinion of the Court
consumers who had lost their sense of smell (a condition
called anosmia) after using Zicam Cold Remedy. Respon
dents’ consolidated amended complaint alleges the follow
ing facts, which the courts below properly assumed to be
true. See Ashcroft v. Iqbal, 556 U. S. ___, ___ (2009) (slip
op., at 14).
In 1999, Dr. Alan Hirsch, neurological director of the
Smell & Taste Treatment and Research Foundation, Ltd.,
called Matrixx’s customer service line after discovering a
possible link between Zicam nasal gel and a loss of smell
“in a cluster of his patients.” App. 67a–68a. Dr. Hirsch
told a Matrixx employee that “previous studies had dem
onstrated that intranasal application of zinc could be
problematic.” Id., at 68a. He also told the employee about
at least one of his patients who did not have a cold and
who developed anosmia after using Zicam.
In September 2002, Timothy Clarot, Matrixx’s vice
president for research and development, called Miriam
Linschoten, Ph.D., at the University of Colorado Health
Sciences Center after receiving a complaint from a per
son Linschoten was treating who had lost her sense of
smell after using Zicam. Clarot informed Linschoten that
Matrixx had received similar complaints from other cus
tomers. Linschoten drew Clarot’s attention to “previous
studies linking zinc sulfate to loss of smell.” Ibid. Clarot
gave her the impression that he had not heard of the
studies. She asked Clarot whether Matrixx had done any
studies of its own; he responded that it had not but that it
had hired a consultant to review the product. Soon there
after, Linschoten sent Clarot abstracts of the studies she
had mentioned. Research from the 1930’s and 1980’s had
confirmed “[z]inc’s toxicity.” Id., at 69a. Clarot called
Linschoten to ask whether she would be willing to partici
pate in animal studies that Matrixx was planning, but she
declined because her focus was human research.
By September 2003, one of Linschoten’s colleagues at
4 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
the University of Colorado, Dr. Bruce Jafek, had observed
10 patients suffering from anosmia after Zicam use.
Linschoten and Jafek planned to present their findings at
a meeting of the American Rhinologic Society in a poster
presentation entitled “Zicam® Induced Anosmia.” Ibid.
(internal quotation marks omitted). The American Rhi
nologic Society posted their abstract in advance of the
meeting. The presentation described in detail a 55-year
old man with previously normal taste and smell who
experienced severe burning in his nose, followed immedi
ately by a loss of smell, after using Zicam. It also reported
10 other Zicam users with similar symptoms.
Matrixx learned of the doctors’ planned presentation.
Clarot sent a letter to Dr. Jafek warning him that he did
not have permission to use Matrixx’s name or the names
of its products. Dr. Jafek deleted the references to Zicam
in the poster before presenting it to the American Rhi
nologic Society.
The following month, two plaintiffs commenced a prod
uct liability lawsuit against Matrixx alleging that Zicam
had damaged their sense of smell. By the end of the class
period on February 6, 2004, nine plaintiffs had filed four
lawsuits.
Respondents allege that Matrixx made a series of public
statements that were misleading in light of the foregoing
information. In October 2003, after they had learned of
Dr. Jafek’s study and after Dr. Jafek had presented his
findings to the American Rhinologic Society, Matrixx
stated that Zicam was “ ‘poised for growth in the upcoming
cough and cold season’ ” and that the company had “ ‘very
strong momentum.’ ”2 Id., at 72a–74a. Matrixx further
——————
2 At oral argument, counsel for the United States, which submitted an
amicus curiae brief in support of respondents, suggested that some of
these statements might qualify as nonactionable “puffery.” Tr. of Oral
Arg. 51–52. This question is not before us, as Matrixx has not ad
vanced such an argument.
Cite as: 563 U. S. ____ (2011) 5
Opinion of the Court
expressed its expectation that revenues would “ ‘be up in
excess of 50% and that earnings, per share for the full year
[would] be in the 25 to 30 cent range.’ ” Id., at 74a. In
January 2004, Matrixx raised its revenue guidance, pre
dicting an increase in revenues of 80 percent and earnings
per share in the 33-to-38-cent range.
In its Form 10–Q filed with the SEC in November 2003,
Zicam warned of the potential “ ‘material adverse effect’ ”
that could result from product liability claims, “ ‘whether
or not proven to be valid.’ ” Id., at 75a–76a. It stated that
product liability actions could materially affect Matrixx’s
“ ‘product branding and goodwill,’ ” leading to reduced
customer acceptance.3 Id., at 76a. It did not disclose,
however, that two plaintiffs had already sued Matrixx for
allegedly causing them to lose their sense of smell.
On January 30, 2004, Dow Jones Newswires reported
that the Food and Drug Administration (FDA) was “ ‘look
ing into complaints that an over-the-counter common-cold
medicine manufactured by a unit of Matrixx Initiatives,
Inc. (MTXX) may be causing some users to lose their sense
of smell’ ” in light of at least three product liability law
suits. Id., at 79a–80a. Matrixx’s stock fell from $13.55 to
$11.97 per share after the report. In response, on Febru
ary 2, Matrixx issued a press release that stated:
“All Zicam products are manufactured and mar
keted according to FDA guidelines for homeopathic
medicine. Our primary concern is the health and
safety of our customers and the distribution of fac-
tual information about our products. Matrixx believes
statements alleging that intranasal Zicam products
caused anosmia (loss of smell) are completely un
——————
3 Respondents also allege that Matrixx falsely reported its financial
results in the Form 10–Q by failing to reserve for or disclose potential
liability, in violation of Generally Accepted Accounting Principles. The
Court of Appeals did not rely on these allegations.
6 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
founded and misleading.
“In no clinical trial of intranasal zinc gluconate gel
products has there been a single report of lost or di
minished olfactory function (sense of smell). Rather,
the safety and efficacy of zinc gluconate for the treat
ment of symptoms related to the common cold have
been well established in two double-blind, placebo
controlled, randomized clinical trials. In fact, in nei
ther study were there any reports of anosmia related
to the use of this compound. The overall incidence of
adverse events associated with zinc gluconate was ex
tremely low, with no statistically significant difference
between the adverse event rates for the treated and
placebo subsets.
“A multitude of environmental and biologic influ
ences are known to affect the sense of smell. Chief
among them is the common cold. As a result, the
population most likely to use cold remedy products is
already at increased risk of developing anosmia.
Other common causes of olfactory dysfunction include
age, nasal and sinus infections, head trauma, ana
tomical obstructions, and environmental irritants.”
Id., at 77a–78a (internal quotation marks omitted).
The day after Matrixx issued this press release, its stock
price bounced back to $13.40 per share.
On February 6, 2004, the end of the class period, Good
Morning America, a nationally broadcast morning news
program, highlighted Dr. Jafek’s findings. (The complaint
does not allege that Matrixx learned of the news story
before its broadcast.) The program reported that Dr. Jafek
had discovered more than a dozen patients suffering from
anosmia after using Zicam. It also noted that four law
suits had been filed against Matrixx. The price of Matrixx
stock plummeted to $9.94 per share that same day. Zicam
again issued a press release largely repeating its February
Cite as: 563 U. S. ____ (2011) 7
Opinion of the Court
2 statement.
On February 19, 2004, Matrixx filed a Form 8–K with
the SEC stating that it had “ ‘convened a two-day meeting
of physicians and scientists to review current information
on smell disorders’ ” in response to Dr. Jafek’s presenta
tion. Id., at 82a. According to the Form 8–K, “ ‘In the
opinion of the panel, there is insufficient scientific evi
dence at this time to determine if zinc gluconate, when
used as recommended, affects a person’s ability to smell.’ ”
Ibid. A few weeks later, a reporter quoted Matrixx as
stating that it would begin conducting “ ‘animal and hu
man studies to further characterize these post-marketing
complaints.’ ” Id., at 84a.
On the basis of these allegations, respondents claimed
that Matrixx violated §10(b) of the Securities Exchange
Act and SEC Rule 10b–5 by making untrue statements of
fact and failing to disclose material facts necessary to
make the statements not misleading in an effort to main
tain artificially high prices for Matrixx securities.
B
Matrixx moved to dismiss respondents’ complaint, argu
ing that they had failed to plead the elements of a mate
rial misstatement or omission and scienter. The District
Court granted the motion to dismiss. Relying on In re
Carter-Wallace, Inc., Securities Litigation, 220 F. 3d 36
(CA2 2000), it held that respondents had not alleged a
“statistically significant correlation between the use of
Zicam and anosmia so as to make failure to public[ly]
disclose complaints and the University of Colorado study a
material omission.” App. to Pet. for Cert. 50a. The Dis
trict Court similarly agreed that respondents had not
stated with particularity facts giving rise to a strong
inference of scienter. See 15 U. S. C. A. §78u–4(b)(2)(A)
(Feb. 2011 Supp.). It noted that the complaint failed to
allege that Matrixx disbelieved its statements about Zi
8 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
cam’s safety or that any of the defendants profited or
attempted to profit from Matrixx’s public statements.
App. to Pet. for Cert. 52a.
The Court of Appeals reversed. 585 F. 3d 1167 (CA9
2009). Noting that “ ‘[t]he determination [of materiality]
requires delicate assessments of the inferences a “reason
able shareholder” would draw from a given set of facts and
the significance of those inferences to him,’ ” id., at 1178
(quoting Basic Inc. v. Levinson, 485 U. S. 224, 236 (1988);
some internal quotation marks omitted; alterations in
original), the Court of Appeals held that the District Court
had erred in requiring an allegation of statistical signifi
cance to establish materiality. It concluded, to the con
trary, that the complaint adequately alleged “information
regarding the possible link between Zicam and anosmia”
that would have been significant to a reasonable investor.
585 F. 3d, at 1179, 1180. Turning to scienter, the Court of
Appeals concluded that “[w]ithholding reports of adverse
effects of and lawsuits concerning the product responsible
for the company’s remarkable sales increase is ‘an extreme
departure from the standards of ordinary care,’ ” giving
rise to a strong inference of scienter. Id., at 1183.
We granted certiorari, 560 U. S. ___ (2010), and we now
affirm.
II
Section 10(b) of the Securities Exchange Act makes it
unlawful for any person to “use or employ, in connection
with the purchase or sale of any security . . . any manipu
lative or deceptive device or contrivance in contravention
of such rules and regulations as the Commission may
prescribe as necessary or appropriate in the public interest
or for the protection of investors.” 15 U. S. C. §78j(b).
SEC Rule 10b–5 implements this provision by making
it unlawful to, among other things, “make any untrue
statement of a material fact or to omit to state a material
Cite as: 563 U. S. ____ (2011) 9
Opinion of the Court
fact necessary in order to make the statements made, in
the light of the circumstances under which they were
made, not misleading.” 17 CFR §240.10b–5(b). We have
implied a private cause of action from the text and pur
pose of §10(b). See Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U. S. 308, 318 (2007).
To prevail on their claim that Matrixx made material
misrepresentations or omissions in violation of §10(b) and
Rule 10b–5, respondents must prove “(1) a material mis
representation or omission by the defendant; (2) scienter;
(3) a connection between the misrepresentation or omis
sion and the purchase or sale of a security; (4) reliance
upon the misrepresentation or omission; (5) economic loss;
and (6) loss causation.” Stoneridge Investment Partners,
LLC v. Scientific-Atlanta, Inc., 552 U. S. 148, 157 (2008).
Matrixx contends that respondents have failed to plead
both the element of a material misrepresentation or omis
sion and the element of scienter because they have not
alleged that the reports received by Matrixx reflected
statistically significant evidence that Zicam caused anos
mia. We disagree.
A
We first consider Matrixx’s argument that “adverse
event reports that do not reveal a statistically significant
increased risk of adverse events from product use are not
material information.” Brief for Petitioners 17 (capitaliza
tion omitted).
1
To prevail on a §10(b) claim, a plaintiff must show that
the defendant made a statement that was “misleading as
to a material fact.”4 Basic, 485 U. S., at 238. In Basic, we
——————
4 Under the Private Securities Litigation Reform Act of 1995
(PSLRA), when a plaintiff’s claim is based on alleged misrepresenta
tions or omissions of a material fact, “the complaint shall specify each
10 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
held that this materiality requirement is satisfied when
there is “ ‘a substantial likelihood that the disclosure of
the omitted fact would have been viewed by the reasonable
investor as having significantly altered the “total mix” of
information made available.’ ” Id., at 231–232 (quoting
TSC Industries, Inc. v. Northway, Inc., 426 U. S. 438, 449
(1976)). We were “careful not to set too low a standard of
materiality,” for fear that management would “ ‘bury
the shareholders in an avalanche of trivial information.’ ”
485 U. S., at 231 (quoting TSC Industries, 426 U. S., at
448–449).
Basic involved a claim that the defendant had made
misleading statements denying that it was engaged in
merger negotiations when it was, in fact, conducting pre
liminary negotiations. See 485 U. S., at 227–229. The
defendant urged a bright-line rule that preliminary
merger negotiations are material only once the parties to
the negotiations reach an agreement in principle. Id., at
232–233. We observed that “[a]ny approach that desig
nates a single fact or occurrence as always determinative
of an inherently fact-specific finding such as materiality,
must necessarily be overinclusive or underinclusive.” Id.,
at 236. We thus rejected the defendant’s proposed rule,
explaining that it would “artificially exclud[e] from the
definition of materiality information concerning merger
discussions, which would otherwise be considered sig-
nificant to the trading decision of a reasonable investor.”
Ibid.
Like the defendant in Basic, Matrixx urges us to adopt a
bright-line rule that reports of adverse events5 associated
——————
statement alleged to have been misleading, [and] the reason or reasons
why the statement is misleading.” 15 U. S. C. §78u–4(b)(1).
5 The FDA defines an “[a]dverse drug experience” as “[a]ny adverse
event associated with the use of a drug in humans, whether or not
considered drug related.” 21 CFR §314.80(a) (2010). Federal law
imposes certain obligations on pharmaceutical manufacturers to report
Cite as: 563 U. S. ____ (2011) 11
Opinion of the Court
with a pharmaceutical company’s products cannot be
material absent a sufficient number of such reports to
establish a statistically significant risk that the product is
in fact causing the events.6 Absent statistical significance,
Matrixx argues, adverse event reports provide only “anec
dotal” evidence that “the user of a drug experienced an
adverse event at some point during or following the use
of that drug.” Brief for Petitioners 17. Accordingly,
it contends, reasonable investors would not consider such
reports relevant unless they are statistically significant
because only then do they “reflect a scientifically reliable
basis for inferring a potential causal link between product
use and the adverse event.” Id., at 32.
As in Basic, Matrixx’s categorical rule would “artificially
exclud[e]” information that “would otherwise be consid
ered significant to the trading decision of a reasonable
investor.” 485 U. S., at 236. Matrixx’s argument rests on
the premise that statistical significance is the only reliable
indication of causation. This premise is flawed: As the
SEC points out, “medical researchers . . . consider multiple
——————
adverse events to the FDA. During the class period, manufacturers of
over-the-counter drugs such as Zicam Cold Remedy had no obligation to
report adverse events to the FDA. In 2006, Congress enacted legisla
tion to require manufacturers of over-the-counter drugs to report any
“serious adverse event” to the FDA within 15 business days. See 21
U. S. C. §§379aa(b), (c).
6 “A study that is statistically significant has results that are unlikely
to be the result of random error . . . .” Federal Judicial Center, Refer
ence Manual on Scientific Evidence 354 (2d ed. 2000). To test for
significance, a researcher develops a “null hypothesis”—e.g., the asser
tion that there is no relationship between Zicam use and anosmia. See
id., at 122. The researcher then calculates the probability of obtaining
the observed data (or more extreme data) if the null hypothesis is true
(called the p-value). Ibid. Small p-values are evidence that the null
hypothesis is incorrect. See ibid. Finally, the researcher compares the
p-value to a preselected value called the significance level. Id., at 123.
If the p-value is below the preselected value, the difference is deemed
“significant.” Id., at 124.
12 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
factors in assessing causation.” Brief for United States as
Amicus Curiae 12. Statistically significant data are not
always available. For example, when an adverse event is
subtle or rare, “an inability to obtain a data set of appro
priate quality or quantity may preclude a finding of statis
tical significance.” Id., at 15; see also Brief for Medical
Researchers as Amici Curiae 11. Moreover, ethical con
siderations may prohibit researchers from conducting
randomized clinical trials to confirm a suspected causal
link for the purpose of obtaining statistically significant
data. See id., at 10–11.
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. As Ma
trixx itself concedes, medical experts rely on other evi
dence to establish an inference of causation. See Brief for
Petitioners 44–45, n. 22.7 We note that courts frequently
permit expert testimony on causation based on evidence
other than statistical significance. See, e.g., Best v. Lowe’s
Home Centers, Inc., 563 F. 3d 171, 178 (CA6 2009); West
berry v. Gislaved Gummi AB, 178 F. 3d 257, 263–264 (CA4
1999) (citing cases); Wells v. Ortho Pharmaceutical Corp.,
788 F. 2d 741, 744–745 (CA11 1986). We need not con
sider whether the expert testimony was properly admitted
in those cases, and we do not attempt to define here what
constitutes reliable evidence of causation. It suffices to
——————
7 Matrixx and its amici list as relevant factors the strength of the
association between the drug and the adverse effects; a temporal
relationship between exposure and the adverse event; consistency
across studies; biological plausibility; consideration of alternative
explanations; specificity (i.e., whether the specific chemical is associ
ated with the specific disease); the dose-response relationship; and the
clinical and pathological characteristics of the event. Brief for Petition
ers 44–45, n. 22; Brief for Consumer Healthcare Products Assn. et al. as
Amici Curiae 12–13. These factors are similar to the factors the FDA
considers in taking action against pharmaceutical products. See infra,
at 13–14.
Cite as: 563 U. S. ____ (2011) 13
Opinion of the Court
note that, as these courts have recognized, “medical pro
fessionals and researchers do not limit the data they
consider to the results of randomized clinical trials or to
statistically significant evidence.” Brief for Medical Re
searchers as Amici Curiae 31.
The FDA similarly does not limit the evidence it consid
ers for purposes of assessing causation and taking regula
tory action to statistically significant data. In assessing
the safety risk posed by a product, the FDA considers
factors such as “strength of the association,” “temporal
relationship of product use and the event,” “consistency of
findings across available data sources,” “evidence of a
dose-response for the effect,” “biologic plausibility,” “seri
ousness of the event relative to the disease being treated,”
“potential to mitigate the risk in the population,” “feasibil
ity of further study using observational or controlled
clinical study designs,” and “degree of benefit the product
provides, including availability of other therapies.”8 FDA,
Guidance for Industry: Good Pharmacovigilance Prac-
tices and Pharmacoepidemiologic Assessment 18 (2005)
(capitalization omitted), http://www.fda.gov/downloads/
RegulatingInformation/Guidances/UCM126834.pdf (all In
ternet materials as visited Mar. 17, 2011, and available in
Clerk of Court’s case file); see also Brief for United States
as Amicus Curiae 19–20 (same); FDA, The Clinical Im-
pact of Adverse Event Reporting 6 (1996) (similar),
http://www.fda.gov/downloads/safety/MedWatch/UCM1685
05.pdf. It “does not apply any single metric for determin
ing when additional inquiry or action is necessary, and it
certainly does not insist upon ‘statistical significance.’ ”
Brief for United States as Amicus Curiae 19.
Not only does the FDA rely on a wide range of evidence
of causation, it sometimes acts on the basis of evidence
that suggests, but does not prove, causation. For example,
——————
8 See also n. 7, supra.
14 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
the FDA requires manufacturers of over-the-counter drugs
to revise their labeling “to include a warning as soon as
there is reasonable evidence of an association of a serious
hazard with a drug; a causal relationship need not have
been proved.” 21 CFR §201.80(e). More generally, the
FDA may make regulatory decisions against drugs based
on postmarketing evidence that gives rise to only a suspi
cion of causation. See FDA, The Clinical Impact of Ad
verse Event Reporting, supra, at 7 (“[A]chieving certain
proof of causality through postmarketing surveillance is
unusual. Attaining a prominent degree of suspicion is
much more likely, and may be considered a sufficient basis
for regulatory decisions” (footnote omitted)).9
This case proves the point. In 2009, the FDA issued a
warning letter to Matrixx stating that “[a] significant and
growing body of evidence substantiates that the Zicam
Cold Remedy intranasal products may pose a serious risk
to consumers who use them.” App. 270a. The letter cited
as evidence 130 reports of anosmia the FDA had received,
the fact that the FDA had received few reports of anosmia
associated with other intranasal cold remedies, and “evi
dence in the published scientific literature that various
salts of zinc can damage olfactory function in animals and
——————
9 See also GAO, M. Crosse et al., Drug Safety: Improvement Needed
in FDA’s Postmarket Decision-making and Oversight Process 7 (GAO–
06–402, 2006) (“If FDA has information that a drug on the market may
pose a significant health risk to consumers, it weighs the effect of the
adverse events against the benefit of the drug to determine what
actions, if any, are warranted. This decision-making process is complex
and encompasses many factors, such as the medical importance and
utility of the drug, the drug’s extent of usage, the severity of the
disease being treated, the drug’s efficacy in treating this disease,
and the availability of other drugs to treat the same disorder”),
http://www.gao.gov/new.items/d06402.pdf; Federal Judicial Center,
supra n. 6, at 33 (“[R]isk assessors may pay heed to any evidence that
points to a need for caution, rather than assess the likelihood that a
causal relationship in a specific case is more likely than not”).
Cite as: 563 U. S. ____ (2011) 15
Opinion of the Court
humans.” Ibid. It did not cite 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 in certain cases rea
sonable investors would as well. As Matrixx acknowl
edges, adverse event reports “appear in many forms,
including direct complaints by users to manufacturers,
reports by doctors about reported or observed patient
reactions, more detailed case reports published by doctors
in medical journals, or larger scale published clinical
studies.” Brief for Petitioners 17. As a result, assessing
the materiality of adverse event reports is a “fact-specific”
inquiry, Basic, 485 U. S., at 236, that requires considera
tion of the source, content, and context of the reports.
This is not to say that statistical significance (or the lack
thereof) is irrelevant—only that it is not dispositive of
every case.
Application of Basic’s “total mix” standard does not
mean that pharmaceutical manufacturers must dis-
close all reports of adverse events. Adverse event reports
are daily events in the pharmaceutical industry; in
2009, the FDA entered nearly 500,000 such reports into
its reporting system, see FDA, Reports Received and
Reports Entered in AERS by Year (as of Mar. 31, 2010),
http://www.fda.gov/Drugs/GuidanceComplianceRegulatory
Information/Surveillance/AdverseDrugEffects/ucm070434.
htm. The fact that a user of a drug has suffered an
adverse event, standing alone, does not mean that
the drug caused that event. See FDA, Annual Adverse
Drug Experience Report: 1996, p. 2 (1997), http://drugand
devicelaw.net/Annual%20Adverse%20Drug%20Experience
%20Report%201996.pdf. The question remains whether a
reasonable investor would have viewed the nondisclosed
information “ ‘as having significantly altered the “total
mix” of information made available.’ ” Basic, 485 U. S., at
16 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
232 (quoting TSC Industries, 426 U. S., at 449; emphasis
added). For the reasons just stated, the mere existence of
reports of adverse events—which says nothing in and of
itself about whether the drug is causing the adverse
events—will not satisfy this standard. Something more is
needed, but that something more is not limited to statisti
cal significance and can come from “the source, content,
and context of the reports,” supra, at 15. This contextual
inquiry may reveal in some cases that reasonable inves
tors would have viewed reports of adverse events as mate
rial even though the reports did not provide statistically
significant evidence of a causal link.10
Moreover, it bears emphasis that §10(b) and Rule 10b–
5(b) do not create an affirmative duty to disclose any and
all material information. Disclosure is required under
these provisions only when necessary “to make . . . state
ments made, in the light of the circumstances under which
they were made, not misleading. 17 CFR §240.10b–5(b);
see also Basic, 485 U. S., at 239, n. 17 (“Silence, absent a
duty to disclose, is not misleading under Rule 10b–5”).
Even with respect to information that a reasonable inves
tor might consider material, companies can control what
they have to disclose under these provisions by controlling
what they say to the market.
2
Applying Basic’s “total mix” standard in this case, we
conclude that respondents have adequately pleaded mate
riality. This is not a case about a handful of anecdotal
——————
10 We note that our conclusion accords with views of the SEC, as ex
pressed in an amicus curiae brief filed in this case. See Brief for United
States as Amicus Curiae 11–12; see also TSC Industries, Inc. v. North
way, Inc., 426 U. S. 438, 449, n. 10 (1976) (“[T]he SEC’s view of the
proper balance between the need to insure adequate disclosure and the
need to avoid the adverse consequences of setting too low a threshold
for civil liability is entitled to consideration”).
Cite as: 563 U. S. ____ (2011) 17
Opinion of the Court
reports, as Matrixx suggests. Assuming the complaint’s
allegations to be true, as we must, Matrixx received in
formation that plausibly indicated a reliable causal link
between Zicam and anosmia. That information included
reports from three medical professionals and researchers
about more than 10 patients who had lost their sense of
smell after using Zicam. Clarot told Linschoten that
Matrixx had received additional reports of anosmia. (In
addition, during the class period, nine plaintiffs com
menced four product liability lawsuits against Matrixx
alleging a causal link between Zicam use and anosmia.)11
Further, Matrixx knew that Linschoten and Dr. Jafek had
presented their findings about a causal link between
Zicam and anosmia to a national medical conference de
voted to treatment of diseases of the nose.12 Their presen
tation described a patient who experienced severe burning
in his nose, followed immediately by a loss of smell, after
using Zicam—suggesting a temporal relationship between
Zicam use and anosmia.
Critically, both Dr. Hirsch and Linschoten had also
drawn Matrixx’s attention to previous studies that had
demonstrated a biological causal link between intranasal
application of zinc and anosmia.13 Before his conversation
——————
11 It is unclear whether these plaintiffs were the same individuals
whose symptoms were reported by the medical professionals.
12 Matrixx contends that Dr. Jafek and Linschoten’s study was not
reliable because they did not sufficiently rule out the common cold as a
cause for their patients’ anosmia. We note that the complaint alleges
that, in one instance, a consumer who did not have a cold lost his sense
of smell after using Zicam. More importantly, to survive a motion to
dismiss, respondents need only allege “enough facts to state a claim to
relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550
U. S. 544, 570 (2007). For all the reasons we state in the opinion,
respondents’ allegations plausibly suggest that Dr. Jafek and Linscho
ten’s conclusions were based on reliable evidence of a causal link
between Zicam and anosmia.
13 Matrixx contends that these studies are not reliable evidence of
18 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
with Linschoten, Clarot, Matrixx’s vice president of re
search and development, was seemingly unaware of these
studies, and the complaint suggests that, as of the class
period, Matrixx had not conducted any research of its own
relating to anosmia. See, e.g., App. 84a (referencing a
press report, issued after the end of the class period, not
ing that Matrixx said it would begin conducting “ ‘animal
and human studies to further characterize these post
marketing complaints’ ”). Accordingly, it can reasonably
be inferred from the complaint that Matrixx had no basis
for rejecting Dr. Jafek’s findings out of hand.
We believe that these allegations suffice to “raise a
reasonable expectation that discovery will reveal evidence”
satisfying the materiality requirement, Bell Atlantic Corp.
v. Twombly, 550 U. S. 544, 556 (2007), and to “allo[w] the
court to draw the reasonable inference that the defendant
is liable for the misconduct alleged,” Iqbal, 556 U. S., at
___ (slip op., at 14). The information provided to Matrixx
by medical experts revealed a plausible causal relation
ship between Zicam Cold Remedy and anosmia. Consum
ers likely would have viewed the risk associated with
Zicam (possible loss of smell) as substantially outweighing
the benefit of using the product (alleviating cold symp
toms), particularly in light of the existence of many alter
native products on the market. Importantly, Zicam Cold
Remedy allegedly accounted for 70 percent of Matrixx’s
sales. Viewing the allegations of the complaint as a whole,
——————
causation because the studies used zinc sulfate, whereas the active
ingredient in Matrixx is zinc gluconate. Respondents’ complaint,
however, alleges that the studies confirmed the toxicity of “zinc.” App.
68a. Matrixx further contends that studies relating to fish cannot
reliably prove causation with respect to humans. The complaint
references several studies, however, only one of which involved fish. In
any event, the existence of the studies suggests a plausible biological
link between zinc and anosmia, which, in combination with the other
allegations, is sufficient to survive a motion to dismiss.
Cite as: 563 U. S. ____ (2011) 19
Opinion of the Court
the complaint alleges facts suggesting a significant risk to
the commercial viability of Matrixx’s leading product.
It is substantially likely that a reasonable investor
would have viewed this information “ ‘as having signifi
cantly altered the “total mix” of information made avail
able.’ ” Basic, 485 U. S., at 232 (quoting TSC Industries,
426 U. S., at 449). Matrixx told the market that revenues
were going to rise 50 and then 80 percent. Assuming the
complaint’s allegations to be true, however, Matrixx had
information indicating a significant risk to its leading
revenue-generating product. Matrixx also stated that
reports indicating that Zicam caused anosmia were “ ‘com
pletely unfounded and misleading’ ” and that “ ‘the safety
and efficacy of zinc gluconate for the treatment of symp
toms related to the common cold have been well estab
lished.’ ” App. 77a–78a. Importantly, however, Matrixx
had evidence of a biological link between Zicam’s key
ingredient and anosmia, and it had not conducted any
studies of its own to disprove that link. In fact, as Matrixx
later revealed, the scientific evidence at that time was
“ ‘insufficient . . . to determine if zinc gluconate, when used
as recommended, affects a person’s ability to smell.’ ” Id.,
at 82a.
Assuming the facts to be true, these were material facts
“necessary in order to make the statements made, in the
light of the circumstances under which they were made,
not misleading.” 17 CFR §240.10b–5(b). We therefore
affirm the Court of Appeals’ holding that respondents
adequately pleaded the element of a material misrepre
sentation or omission.
B
Matrixx also argues that respondents failed to allege
facts plausibly suggesting that it acted with the required
level of scienter. “To establish liability under §10(b) and
Rule 10b–5, a private plaintiff must prove that the defen
20 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
dant acted with scienter, ‘a mental state embracing intent
to deceive, manipulate, or defraud.’ ” Tellabs, 551 U. S., at
319 (quoting Ernst & Ernst v. Hochfelder, 425 U. S. 185,
193–194, and n. 12 (1976)). We have not decided whether
recklessness suffices to fulfill the scienter requirement.
See Tellabs, 551 U. S., at 319, n. 3. Because Matrixx does
not challenge the Court of Appeals’ holding that the
scienter requirement may be satisfied by a showing of
“deliberate recklessness,” see 585 F. 3d, at 1180 (internal
quotation marks omitted), we assume, without deciding,
that the standard applied by the Court of Appeals is suffi
cient to establish scienter.14
Under the PSLRA, a plaintiff must “state with par
ticularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.” 15
U. S. C. A. §78u–4(b)(2)(A) (Feb. 2011 Supp.). This stan
dard requires courts to take into account “plausible oppos
ing inferences.” Tellabs, 551 U. S., at 323. A complaint
adequately pleads scienter under the PSLRA “only if a
reasonable person would deem the inference of scienter
cogent and at least as compelling as any opposing infer
ence one could draw from the facts alleged.” Id., at 324.
In making this determination, the court must review “all
the allegations holistically.” Id., at 326. The absence of a
motive allegation, though relevant, is not dispositive. Id.,
at 325.
Matrixx argues, in summary fashion, that because
respondents do not allege that it knew of statistically
significant evidence of causation, there is no basis to
consider the inference that it acted recklessly or know
ingly to be at least as compelling as the alternative infer
——————
14 Under the PSLRA, if the alleged misstatement or omission is a
“forward-looking statement,” the required level of scienter is “actual
knowledge.” 15 U. S. C. §78u–5(c)(1)(B). Matrixx has not argued that
the statements or omissions here are “forward-looking statement[s].”
Cite as: 563 U. S. ____ (2011) 21
Opinion of the Court
ences. “Rather,” it argues, “the most obvious inference is
that petitioners did not disclose the [reports] simply be
cause petitioners believed they were far too few . . . to
indicate anything meaningful about adverse reactions to
use of Zicam.” Brief for Petitioners 49. Matrixx’s pro
posed 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.
The inference that Matrixx acted recklessly (or inten
tionally, for that matter) is at least as compelling, if not
more compelling, than the inference that it simply thought
the reports did not indicate anything meaningful about
adverse reactions. According to the complaint, Matrixx
was sufficiently concerned about the information it re
ceived that it informed Linschoten that it had hired a
consultant to review the product, asked Linschoten to
participate in animal studies, and convened a panel of
physicians and scientists in response to Dr. Jafek’s pres
entation. It successfully prevented Dr. Jafek from using
Zicam’s name in his presentation on the ground that he
needed Matrixx’s permission to do so. Most significantly,
Matrixx issued a press release that suggested that studies
had confirmed that Zicam does not cause anosmia when,
in fact, it had not conducted any studies relating to anos
mia and the scientific evidence at that time, according to
the panel of scientists, was insufficient to determine
whether Zicam did or did not cause anosmia.15
——————
15 One of Matrixx’s amici argues that “the most cogent inference re
garding Matrixx’s state of mind is that it delayed releasing information
regarding anosmia complaints in order to provide itself an opportunity
to carefully review all evidence regarding any link between Zicam and
anosmia.” Brief for Washington Legal Foundation as Amicus Curiae
26. We do not doubt that this may be the most cogent inference in some
cases. Here, however, the misleading nature of Matrixx’s press release
is sufficient to render the inference of scienter at least as compelling as
the inference suggested by amicus.
22 MATRIXX INITIATIVES, INC. v. SIRACUSANO
Opinion of the Court
These allegations, “taken collectively,” give rise to a
“cogent and compelling” inference that Matrixx elected not
to disclose the reports of adverse events not because it
believed they were meaningless but because it understood
their likely effect on the market. Tellabs, 551 U. S., at
323, 324. “[A] reasonable person” would deem the infer
ence that Matrixx acted with deliberate recklessness (or
even intent) “at least as compelling as any opposing infer
ence one could draw from the facts alleged.” Id., at 324.
We conclude, in agreement with the Court of Appeals, that
respondents have adequately pleaded scienter. Whether
respondents can ultimately prove their allegations and
establish scienter is an altogether different question.
* * *
For the reasons stated, the judgment of the Court of
Appeals for the Ninth Circuit is
Affirmed.