Updated from 12:46 p.m. EDT

Matrixx Initiatives

(MTXX)

will take its Zicam line of nasal cold and allergy treatments off the market, complying with a Food and Drug Administration warning, but the company remains adamant that its products are safe.

On Tuesday, the FDA told consumers to stop using the swabs and sprays, citing reports that the zinc-based products caused a loss of the sense of smell "that may be long lasting or permanent."

Matrixx shares rebounded slightly Wednesday, inching up 35 cents to $6.13 after the previous session's decimation, when they lost almost 70% of their value.

Investors understandably punished the stock; the Zicam nasal products under scrutiny reportedly account for 40% of the company's revenue. For the 12-months that ended March 31, Matrixx had revenue of almost $112 million.

Though the FDA doesn't have legal authority to issue a recall, the agency's letter of warning to Matrixx on Tuesday serves, essentially, a de facto one. Should Matrixx have chosen not to shut down manufacturing of the product in question and remove it from retail stores, the FDA could have siezed company assets, in effect padlocking the doors.

Because Zicam is an herbal remedy, or "supplement," the product did not go through the rigorous approval testing the FDA applies to pharmaceuticals and other medical therapies.

It's been known for years -- perhaps even as long as a decade -- that such side effects have occurred in some people who have used the Zicam nasal remedies. (The FDA warning did not include oral remedies and lozenges, also marketed under the Zicam name.)

Since the product hit the market in 1999, the FDA said it has been receiving complaints about the product, but the 130 reports it mentioned in its letter of warning to Matrixx have been collected by the agency since 2002. Those reports record a specific link between Zicam's nasal remedies and a loss of smell.

"That may not sound like a big number," said FDA spokeswoman Siobhan DeLancey. "But most consumers are more likely to contact the manufacturer and not the FDA to report problems. For that many people with those kinds of side effects to contact us directly is significant. It means there are probably more out there."

FDA officials first began a scientific inquiry into the possible side effects of Zicam "at least a year ago," DeLancey said. That effort eventually led FDA investigators to Matrixx's Scottsdale, Ariz., headquarters, where an audit of the company's paperwork this past May turned up a file containing 800 complaints from Zicam users that the company had amassed over the years. It's unclear whether any or all of those 800 overlap with the FDA's 130 reports.

A law passed in 2007 makes it obligatory for companies to make complaints from consumers known to the FDA. DeLancey, however, stopped short of calling Matrixx's actions illegal. "I'll just say they had an obligation," she said.

At Matrixx, the damage-control has already begun. Acting Matrixx boss William Hemelt appeared on CNBC Wednesday afternoon. The company posted a message about the FDA warning on Twitter, and issued several press releases defending itself. A conference call with the media has been scheduled for Thursday at 11:00 a.m. EDT. And representatives of

Stericycle

(SRCL) - Get Report

, the waste-management services firm, are en route to Matrixx's Scottsdale, Ariz., headquarters to offer their consumer-product recall consulting services to the company.

Matrixx should have known that something was afoot. It's been attempting to deflect concerns about Zicam, after all, for at least the last five years.

In 2006, the company paid $12 million to settle class-action lawsuits with at least 300 Zicam users who alleged that they'd lost their sense of smell, a condition known as anosmia.

At the time, Matrixx said that the settlement was a "business decision," and not an admission that Zicam caused the alleged side effects.

In 2004, Matrixx even assembled a scientific advisory board to study the claims. It's unclear whether Matrixx paid for this research, but the board ultimately found the claims without merit, saying that upper respiratory infections and other sinus problems were likely the cause of the anosmia. According to a statement from Matrixx at the time, "None of the Zicam gel approaches the smell tissue when Zicam is used as directed."

In an SEC filing Wednesday morning, Matrixx issued another strongly worded statement defending Zicam, even as it agreed to "comply" with the FDA by ceasing to make the remedies and pulling the products from retail shelves.

"Matrixx Initiatives stands behind the science of its products and its belief that there is no causal link between its Zicam Cold Remedy intranasal gel products and anosmia," the company's acting president, William Hemelt, said in the statement.

The company added that, since 1999, it has sold 35 million units of the Zicam treatments affected by the FDA warning, or 1 billion doses. "Given the enormous number of doses sold and colds treated," Hemelt argued in the SEC document, "there is no reason to believe the number of complaints of anosmia received is more than the number that would be expected in the general population."

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