Zicam Nasal Spray Recall Could Cost Company $10 Million

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Matrixx Initiatives

Zicam, a cold and allergy product by Matrixx Initiatives Inc. was issued a warning letter by the Food and Drug Administration earlier this week to stop selling the nasal versions as the products contain zinc and FDA officials have said there is evidence that zinc could be toxic when delivered through the nose.

The FDA, in the warning letter said the products "may pose a serious risk to consumers" and asked the company to file a New Drug Application with the agency to sell the products.

William Hemelt, Matrixx's acting president, chief financial and chief operating officer, of the Scottsdale, Ariz., company said the company was also abandoning its current sales and earning expectations for 2009. "The withdrawal will have significant repercussions on our business," Hemelt said. "Obviously, we're reevaluating our entire plan for the year."

The FDA also urged consumers to not use the drug as more than 130 people are reported to have lost their sense of smell after using the drug. Matrixx Initiatives Inc. however defended its product and is seeking to meet with the FDA to discuss scientific data concerning the drug.

"We are hopeful that if we can tell our story to the FDA, that maybe we can get them to change their mind," Hemelt said. He added that the safety concerns were "erroneous" and called the FDA action a "complete surprise". He said the recall could cost the company as much as $10 million and ultimately shrink the company.

The nasal version of Ziacam would have to be discontinued till FDA approval was obtained and Hemelt said as the process would take years and be "highly expensive" the company may not do so. They would however try to switch users of the nasal spray to oral versions which weren't included in the FDA letter but were estimating seeing $5 million in lost sales, while another $5 million in losses was likely to come from new advertising efforts to reach out to consumers, he added.

Hemelt said "Plaintiffs will still have to prove that Zicam cold remedy caused their loss of smell," and added that scientific data support the safety of the product.

The company's shares fell after the warning by almost 70% to $6.06 and on Thursday its shares continued to fall, trading down .3 percent at $6.11 in early afternoon on the Nasdaq.

The FDA warning applies to Zicam Cold Remedy Nasal Gel, Zicam Cold Remedy Nasal Swabs and Zicam Cold Remedy Swabs Kids Size, but does not affect Zicam oral zinc tablets or lozenges. The Zicam intranasal products affected by the FDA's letter account for about 40% of the company's sales, which totaled about $112 million for its fiscal year ended March 31.


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