June 18, 2009 / 3:49 PM / in 10 years

UPDATE 3-Matrixx says Zicam recall could cost $10 mln

* Recall to have significant repercussions for Matrixx

* Company withdraws expectations for fiscal 2010

* Matrixx seeks FDA meeting, hopes to reverse decision

* Stock down nearly 70 pct since recall (Recasts; adds reaction, background, updates shares to close)

By Susan Heavey

WASHINGTON, June 18 (Reuters) - The recall of nasal versions of Matrixx Initiatives’ MTXX.O Zicam cold remedies could cost as much as $10 million, the company’s top executive said on Thursday.

But some analysts estimated expenses could be twice that high as retailers charge the company for clearing the product from store shelves.

On Tuesday, the Food and Drug Administration warned the company to stop selling nasal versions of its Zicam products and urged consumers not to use them after the agency received more than 130 reports of people losing their sense of smell.

William Hemelt, Matrixx’s acting president, chief financial and chief operating officer, told a conference call Thursday that the over-the-counter healthcare company was also abandoning its sales and earnings expectations.

Matrixx reported sales of nearly $112 million for fiscal 2009 that ended March 31 and had forecast a 5 percent increase in sales for fiscal 2010. The company had expected net income to increase 10-15 percent.

“The withdrawal will have significant repercussions on our business,” Hemelt said on a conference call. “Obviously, we’re reevaluating our entire plan for the year.”

Shares of the company have fallen nearly 70 percent since Tuesday’s FDA warning, closing down 2 percent at $6.01 on Thursday from their Wednesday close.

Hemelt said that the company will try to convert users to oral versions of Zicam but would likely see about $5 million in lost sales, he said. The other $5 million was likely to come from marketing efforts to reach out to consumers, he added.

But B. Riley & Co. analysts said some stores may refuse to carry any Zicam products and that Matrixx could face up to $20 million in immediate cash expenses from retailers.

Matrixx had nearly $28 million in cash on hand in 2008, but some analysts and investors on the call questioned whether that would be enough to carry the company through what could be a tumultuous recall and numerous lawsuits. Hemelt responded that the company would probably look at ways to conserve cash.

“We have to learn how to shrink this company if we’re unable to get these products back on the shelf,” he said. Matrixx’s other brands include its Xcid antacid products and its Nasal Comfort moisturizing spray.

Matrixx must seek FDA approval if it wants to continue selling Zicam zinc products taken via the nose. Hemelt said it was unlikely to do so, citing a lengthy and expensive process. Zicam has been on the U.S. market for 10 years.

Instead, Matrixx is seeking a meeting with FDA officials and hopes to reverse the agency’s decision, adding that several studies showed no loss of smell with nasal Zicam products and arguing that FDA’s conclusions were “erroneous.”

FDA’s 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 biggest unknown is the degree to which the sales of our products (are) maintained,” Hemelt said.

While Hemelt said Tuesday’s warning came as a “complete surprise,” he said the company had been visited in May by FDA inspectors who drew attention to about 800 reported complaints that had not been given to the agency.

A 2007 law required wider mandatory reporting of certain products, but Hemelt said the company did not pass along the reports based on its lawyer’s interpretation of the law.

There is no cure for the common cold, though many consumers seek over-the-counter products to help relieve symptoms.

Rival cold remedies include Quigley Corp’s QGLY.O Cold-EEZE lozenges, among others. (Reporting by Susan Heavey; Editing by Gunna Dickson and Tim Dobbyn)

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