Tobacco CEOs Push FDA to Adopt E-Cig Rules More Quickly

Source from:  Bloomberg Business Week  10/08/2014

Reynolds American Inc. (RAI:US) and Lorillard Inc. (LO:US) urged U.S. health officials to move more quickly on regulating e-cigarettes, saying the lack of clear rules makes it harder for smokers to switch to the less-hazardous products.

The U.S. Food and Drug Administration needs to establish guidelines for the industry and create a level playing field for e-cig competitors, Reynolds Chief Executive Officer Susan Cameron said yesterday at the Global Tobacco Networking Forum. Lorillard CEO Murray Kessler, speaking at the same conference, echoed those remarks. If the agency fails to act in time, it could jeopardize the huge potential health benefits from converting smokers to the newer technology, he said.

The two companies, which agreed this year to merge in a $25 billion deal, are fighting to protect the nascent e-cig industry. The new products are touted as a healthier alternative to traditional cigarettes because they emit vapor rather than tar, ash and smoke. Still, they've come under increasing scrutiny from both local and federal officials, who say the health effects of the vapor aren't fully known.

"The opportunity that is before us calls for a sense of urgency, particularly in the development of policies regarding vapor," Cameron told a group of about 250 industry leaders gathered at the Greenbrier, a resort in White Sulphur Springs, West Virginia. "The future is still ours to shape."

Reynolds rose 1.4 percent to $59.44 at the close in New York, while Lorillard climbed 0.8 percent to $60.27.

Addiction Warnings

The FDA said in April it would step in to regulate e-cigarettes, a move that would require products to pass an agency review to stay on the market. It also plans to prohibit sales to minors and mandate nicotine addiction warnings on e-cigs. The FDA is reviewing public comments on the proposal and hasn't offered a timeline for when it will release final rules for the industry.

The U.S. e-cig market is worth about $3 billion, less than 5 percent of the tobacco industry's total. Still, the devices could eventually make combustible cigarettes "a thing of the past," Kessler said. E-cigarettes typically rely on batteries to heat up liquid nicotine, producing an inhalable vapor. They often mimic the look and feel of traditional cigarettes.

Even as tobacco giants promote e-cigs, they have an interest in making sure the industry is regulated. So-called open systems, which allow consumers to mix and fill their own e-cigarette liquids and flavors, pose risks that need to be addressed, Cameron said. Nicotine liquid can be toxic to children and workers, even by touch. In an interview, Cameron advocated for nicotine standards so that consumers know what they're getting from the roughly 30,000 "vape" shops that have popped up in recent years.

'Epic Failure'

Rules also need to govern products made or assembled in China, which are tougher to monitor, Cameron said. And she called for tighter control over vapor flavors, which can be used to attract youths. A lack of guidelines for open systems could overshadow the public health opportunity and force the FDA to consider banning the devices altogether, Cameron said.

"They could threaten the long-term viability of the vapor category," Cameron said. "And that would be an epic failure."

E-cigarettes could be as disruptive to the tobacco industry as digital cameras were to photography, Murray said. Lorillard owns the industry-leading e-cig brand, Blu, though it will be divested to Imperial Tobacco Group Plc under the terms of the Reynolds merger. Reynolds has its own e-cig brand called Vuse.

In evaluating the market, the FDA will consider addictiveness, toxicity and appeal of the products, said Mitch Zeller, director of the agency's Center for Tobacco Products. The agency also is looking at comprehensive nicotine standards.

Flood of Comments

E-cigarettes carry less risk than combustible smokes, which kill about 500,000 people a year from tar and other toxins, said Zeller, who also spoke at the conference. The agency is evaluating 135,000 comments on the proposed regulations, he said, without saying how long the review would take.

Carl V. Phillips, an advocate for e-cig consumers who also attended the conference, said he has concerns that companies would use the regulatory process to force some competitors out of the market. The wide range of current options is one of the things that make e-cigs appealing, he said.

"The variety of products and the constant innovation made it possible for millions of smokers to quit, by using e-cigarettes," said Phillips, who serves as chief scientific officer for the Consumer Advocates for Smoke-free Alternatives Association. "Any rapid move to tighten control over e-cigs will do far more harm than good."

Cameron said in the interview that she doesn't want to limit competition. Her fear is that the vapor category will go "rogue" and ruin the opportunity for everyone.

"We do need the FDA to help put a box around it so that we know how to continue to innovate," she said. Enditem