NEW YORK -- In light of the U.S. Food and Drug Administration’s (FDA's) newly promulgated direction on tobacco, many in the retail industry are wondering what the ramifications of a low-nicotine focus will have at the store level.
After reviewing the FDA's statements released July 28, Bonnie Herzog, managing director of consumer equity research for Wells Fargo Securities LLC, New York, provided several insights, which ranged from the likelihood of the FDA meeting its goals to what it may mean for new-product innovation.
“We’ve long believed the FDA taking a more comprehensive approach toward nicotine was a natural, next step,” Herzog said in a recent research newsletter.
Herzog’s comments came days after Dr. Scott Gottlieb, the FDA’s new commissioner, unveiled the agency’s new focus on low-nicotine products, with the “cornerstone” being to reduce cigarette use in the United States while consciously shifting smokers to electronic cigarettes.
To do this, the agency extended timelines to submit tobacco-product review applications for newly regulated tobacco products. Applications to market newly regulated combustible products, such as cigars, pipe tobacco and hookah tobacco, would be submitted by Aug. 8, 2021, and applications to market newly regulated noncombustible products, such as electronic nicotine delivery systems (ENDS) or e-cigarettes, would be submitted by Aug. 8, 2022.
Here are a few of Herzog’s insights …
Herzog called the FDA’s announcement a “comprehensive approach” toward nicotine levels. Its goal would be “rendering cigarettes minimally or nonaddictive” while taking a “continuum of risk” approach that should encourage innovation in reduced-risk products.
Proposed changes by the FDA must be science-based and consider unintended consequences, she said. For instance, if nicotine levels in cigarettes were eliminated or reduced dramatically, a black market could result for regular-strength cigarettes, or such low levels may cause smokers to smoke more.
“As such, we realistically don’t see major changes to nicotine levels, with any change likely to be very moderate over an extended period of time,” Herzog said. “Importantly, we expect the FDA will encourage continued [reduced-risk product] innovation with the goal of increasing adoption of these products.”
The FDA’s embrace of a “continuum of risk,” which supports the notion that people can migrate from high-risk, combustible cigarettes to reduced-risk products, is essentially positive for the industry, Herzog said. The perspective allows for options beyond abstinence and “should increase conversion” toward reduced-risk products.
The FDA’s newest moves support Herzog’s prediction that New York-based Philip Morris International (PMI) will eventually buy Richmond, Va.-based Altria Group Distributing Co. With what seems to be a new agency perspective on reduced-risk products, Altria may find a growing advantage in marketing PMI’s iQOS product, a heat-not-burn tobacco product, in the United States.
In addition to delaying deadlines for new-product applications, the FDA also said it will impose a process involving public input and scientific research. As a result, Herzog said that any new proposal by the FDA will likely take many months, if not years, to implement. She predicted there will be no effect on the industry for quite some time, though it could mean continuing uncertainty.
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