June 16, 2009 / 4:40 PM / 10 years ago

UPDATE 4-US tells Zicam maker to stop selling some products

* FDA urges consumers to stop taking intranasal products

* Shares of Zicam maker Matrixx fall 70 percent

* Company says products do not cause loss of smell

* Says may remove products from market (Adds analyst comment, company suspending shipments, closing share price)

By Lisa Richwine and Bill Berkrot

WASHINGTON/NEW YORK, June 16 (Reuters) - U.S. regulators warned Matrixx Initiatives MTXX.O to stop selling intranasal versions of its zinc-containing Zicam cold remedy after more than 130 reports of people losing their sense of smell after using the products, sending Matrixx shares into a tailspin.

The U.S. Food and Drug Administration also urged consumers to stop taking the over-the-counter products, agency officials said on a conference call with reporters on Tuesday.

Shares of Matrixx, which said the affected products account for about 40 percent its net sales, fell 70 percent to close at $5.78 on Nasdaq.

The company must seek FDA approval if it wants to continue selling the Zicam zinc products that are administered through the nose, agency officials said.

Matrixx, in a news release, said it believes the FDA action to be unwarranted and is in the process of determining its response, which may include pulling the products from the market. The company said it has suspended shipments and will reimburse any customer desiring a refund.

“This is not a short-term overreaction, this is potentially a game changer on the negative side,” Scott Henry, analyst with Roth Capital Partners, said of the plunging share price.

The FDA warning applies to Zicam Cold Remedy Nasal Gel, Zicam Cold Remedy Nasal Swabs and Zicam Cold Remedy Swabs, Kids Size. A public health advisory posted on the FDA website said the products “have all been associated with long lasting or permanent loss of smell” and “have not been shown to be effective in the reduction of the duration and severity of cold symptoms.”

The action does not affect Zicam oral zinc tablets or lozenges, the FDA said.

“There could be fallout on the rest of the brand,” Henry said. “Assuming they cannot overturn the FDA’s decision, you could lose 60 percent of profits, if not higher.”

There is also the possibility of a rash of personal injury lawsuits as a result of a product recall.

“This is a small company. $100 million in litigation expenses could wipe them out,” Henry speculated.

The FDA told Matrixx in its warning letter that the Zicam products are misbranded for failing to adequately warn of risks associated with them.

Matrixx defended the products, saying they are safe and do not cause a loss of sense of smell.

The FDA in its notice to consumers said many people who experienced a loss of smell said the condition occurred with the first Zicam dose, while others reported loss of sense of smell after multiple uses of the products.

The agency noted that loss of sense of smell can limit the ability to detect the smell of gas or smoke or other signs of danger in the environment, and said affected patients should contact their doctors. (Reporting by Lisa Richwine and Bill Berkrot; Editing by Maureen Bavdek, John Wallace, Dave Zimmerman, Richard Chang)

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