Matrixx slides 68% after FDA warning on Zicam

Scottsdale, AZ-based Matrixx Initiatives suffered a 68 percent drop in share price Tuesday after federal regulators warned consumers to discontinue use of cold products manufactured by the company. In a release, the FDA said that three of the company's over-the-counter products--Zicam Cold Remedy Nasal Gel, Gel Swabs and Kids Size swabs--could cause "long-lasting or permanent" loss of smell. The agency said it has received over 130 such reports from consumers since 1999 and Matrixx is holding another 800 reports, Deborah M. Autor, head of the FDA's Office of Compliance, told reporters in a conference call today.

Zicam is not considered a drug, but rather a homeopathic "remedy." Such products are not required to be registered with or approved by the FDA, but are subject to federal oversight once they hit the market. Federal regulators are now treating the cold products as if they were drugs and charging Matrixx with failing to file a new drug application, improper labeling and inadequate risk warnings. 

According to the FDA, researchers have linked zinc--an active ingredient in the cold remedies--with nerve damage. Matrixx is already facing a number of lawsuits from customers who claim to have lost their sense of smell after using the product; the company settled claims by 340 plaintiffs for $12 million in 2006. But the company has gone out of its way to deny there is a link and has even gone so far as to set up the website to present its argument. The company responded to today's warning and stated that the products are safe and the FDA's actions were "unwarranted."

It's not surprising that investors went running: Zicam cold products comprised about 40 percent of Matrixx's net sales in 2009, according to the company's statement. Matrixx has 15 days to respond to federal regulators; the company said it would review its options, including the possibility of pulling the products off the market. Matrixx's stock dropped 55 percent before trading of its shares was halted Tuesday morning. Trading later resumed: At the time of publishing, it had dropped to a low of 68 percent in afternoon trading.

- read the FDA warning
- check out the Matrixx statement
- read more from Bloomberg