On March 22, 2011, the U.S. Supreme Court issued a unanimous decision, finding that drug companies must disclose any adverse event reports that could alter the total mix of information available to investors. The Court’s decision, written by Justice Sonia Sotomayor, rejects a bright line rule proposed by the drug company that only “statistically significant” studies be disclosed.

The case involves a securities fraud claim under Section 10b-5 of the Exchange Act, in which the plaintiffs allege that the company made materially misleading statements about its over-the-counter cold medicine, Zicam, by failing to disclose reports that some consumers lost their sense of smell after using Zicam. The company argued that it did not need to disclose these small number of unreliable reports because the reports were not statistically significant. The Supreme Court rejected the company’s argument, instead finding that any adverse event reports that alter the “total mix” of information available to investors must be disclosed and that “[c]onsumers likely would have viewed the risk associated with Zicam ... as substantially outweighing the benefit of using the product, particularly in light of the existence of many alternative products on the market.” The Court based its decision on the fact that the company had received reports from three medical professionals about more than 10 patients who had lost their sense of smell after using Zicam. Emphasizing that the medical professionals and the FDA have never limited themselves to statistically significant data as evidence of causation, the Court found it would be unreasonable to hold reasonable investors to such a standard.

The Court’s decision, however, clarifies that companies do not have to disclose all adverse event reports, but only those that add to the total mix of information available to investors. The opinion explains that companies and courts should consider the “source, content and context of the reports.” The Court’s opinion will likely make it more difficult for defendants in securities fraud actions to succeed at the motion to dismiss stage.