Matrixx Initiatives (MTXX) Says No Reformulated Zicam

September 11, 2009 12:06 PM EDT

Shares of Matrixx Initiatives (Nasdaq: MTXX) are no stranger to volatility. In fact, in June shares of MTXX were slammed 70% in just one day after the FDA sent a warning letter to the company on its Zicam cold product and ordered the product be pulled off the shelf, due to complaints about the loss of smell. But while MTXX has seen its days of volatile trading, on at least three occasions since the recall and stock drop, shares have jumped on rumors the Zicam product will be reformulated and returned to the market.

A company spokesperson said these rumors are absolutely without merit and they have no plans to reformulate the product.

What the company does want is an agreement with the FDA to bring back the current Zicam products to the market. To date, no agreement has been reached.

The Zicam products that were pulled from the market represented about 40% of the company's revenues. But equally as importantly, Zicam is now "tainted." So even products that remain on stores shelves could see zero to little action even in the most violent of cold/flu seasons.

Of course the company's hope is that customers will have a short memory about the Zicam loss of smell problems, and when they start feeling the sniffles move to buy one of the remaining Zicam products.

A serious problem we see with Matrixx is that it has relied too much on hope and not enough on diversifying its business away from Zicam. Back a few years ago when lawsuits were flying about the same Zicam loss of smell problem it should have been a major warning sign to management that it was time to put less reliance on the product. Instead they settled, and pushed their bets on Zicam. Then the FDA, seeing the complaints of about loss of smell stack up, was forced to step in and yank it.

It remains to be seen how this will all play out, but next time you hear a rumor of a new, reformulated Zicam wake up and smell the roses - you're being duped.

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