Tobacco consumers have been given another Food and Drug Administration-authorized modified-risk option in two very-low-nicotine traditional cigarette brands.
The FDA approved Thursday the designation for the “VLN King” and “VLN Menthol King” brands of 22nd Century Group Inc., which has its manufacturing plant in Mocksville with 56 employees.
It’s a controversial authorization for the FDA, given a modified-risk tobacco product designation allows for the advertising of products as reduced harm or reduced risk compared with traditional cigarettes.
22nd Century can now market the two products as having the capability to “help reduce exposure to and consumption of nicotine for smokers who use them” — products that the company touts “that smokes, tastes and smells like a conventional cigarette.”
Investors responded to the FDA authorization by sending 22nd Century’s share price up nearly 50% in morning trading to $3.52 a share. Its 52-week share price range is $1.86 to $6.07.
22nd Century has been attempting for several years to persuade the FDA to approve allowing the company to market and sell very-low-nicotine traditional cigarettes.
More specifically, 22nd Century has been waiting since Feb. 14, 2020, on the FDA to rule on its application.
James Mish, the company’s chief executive, said in a statement the authorization “places the FDA and 22nd Century together at the vanguard of transforming the tobacco industry.”
“With 60% of adult smokers in our U.S. market research telling us they are likely to try VLN, this is a complete game-changer for 22nd Century, the tobacco industry, public health and adult smokers looking to change their relationship with nicotine — the addictive chemical found in all tobacco products,” Mish said.
The company said it plans to begin shipping the very-low-nicotine cigarettes within 90 days to several test markets in the U.S. and globally.
The burning of tobacco leaves is the cause of most carcinogens associated with traditional cigarettes.
Nicotine, while addictive and potentially harmful to the brain, heart and lungs, is not considered as a carcinogen.
“There is a grave danger that this will reinforce inaccurate beliefs that it is the nicotine, rather than the inhalation of smoke, that is the cause of the harm from cigarette smoking,” said David Sweanor, an adjunct law professor at the University of Ottawa and the author of several e-cigarette and health studies.
“Science has shown for decades that people smoke to get nicotine, but die from the smoke.”
Other anti-smoking advocates say an FDA emphasis on very-low-nicotine traditional cigarettes could steer tobacco consumers away from potentially less harmful products, such as electronic cigarettes, heat-not-burn cigarettes and moist snuff.
“I have taken the position for many years that VLN products are only truly effective as a harm-reduction strategy if there are lower-risk harm-reduction tobacco and nicotine products on the market,” said Scott Ballin, past chairman of the anti-smoking alliance Coalition of Science or Health.
Ballin said that strategy needs to be accompanied by “an aggressive educational campaign that would give consumers truthful accurate and non-misleading information about the risks and relative risk of the spectrum of products.”
“Approval of the 22nd Century product comes up way short in accomplishing that goal.”
22nd Century’s plans
22nd Century said it “plans to position VLN in the premium pricing segment of the cigarette market.”
“We are also in discussions with additional retail trade, marketing and strategic partners to scale VLN sales in the U.S. and internationally, including through potential licensing of our technology to facilitate the broader industry transition to (reduced nicotine content) products,” Mish said.
Cowen analyst Vivian Azer wrote Thursday that “we are leaving our estimates unchanged ($5 share price) as we had already been modeling for more than a doubling of quarterly tobacco revenue in fourth quarter 2022, having assumed that an (modified-risk) designation would ultimately be granted.”
“Initial market share data out of the pilot markets will be necessary to better assess potential upside to our estimates.”
The FDA has placed limitations on how the two brands can be marketed. It allows 22nd Century to make the following claims: 95% less nicotine than most traditional cigarettes; “helps reduce your nicotine consumption;” and “greatly reduces your nicotine consumption.”
“When using any of the reduced exposure claims in the product label, labeling or advertising, the company must include ‘helps you smoke less,” according to the FDA news release.
“The FDA also recommends that the labeling and advertising include the statement: ‘Nicotine is addictive. Less nicotine does NOT mean safer. All cigarettes can cause disease and death.’ ”
FDA previously authorized these products without the reduced exposure claims or disclaimer in December 2019 through what is known as the premarket tobacco product application pathway.
The FDA authorization of the modified-risk marketing is part “of our mission is to find ways to stop tobacco-related disease and death,” Mitch Zeller, director of the FDA’s Center for Tobacco Products, said in a statement.
“We know that three out of four adult smokers want to quit, and the data on these products show they can help addicted adult smokers transition away from highly addictive combusted cigarettes.
“If adult smokers were less addicted to combusted cigarettes, they would likely smoke less and may be exposed to fewer harmful chemicals that cause tobacco-related disease and death,” Zeller said.
The FDA authorization requires the company to conduct postmarket surveillance and studies to determine whether the authorization criteria for these exposure modification orders continue to be met, including assessing use among youth.
The FDA stressed that “importantly, even with today’s action, these products are not safe nor ‘FDA approved’ — there are no safe tobacco products.”
The company must request and receive authorization from the FDA to continue marketing the products with the same modified exposure information after the initial exposure modification orders expire in five years.
The FDA also may withdraw the initial, and any potential subsequent, exposure modification orders “if the agency determines that, among other things, the orders are no longer expected to benefit the health of the population as a whole.”
22nd Century’s ultimate goal is for the FDA to mandate that tobacco manufacturers only sell very-low-nicotine traditional cigarettes.
If very-low-nicotine traditional cigarettes prove attractive to tobacco consumers, the end result could be 22nd Century having a sharp increase in revenue and a potential buyout by a global tobacco manufacturer.
‘This is the first, and most likely will be the only, combustible cigarette to ever carry the FDA’s (modified risk) designation,” Mish said.
In September 2017, British American Tobacco Plc — owner of Reynolds American Inc. — ended a low-nicotine traditional-cigarette development partnership with 22nd Century that had been worth $14 million over four years.
According to 22nd Century, annual royalties from BAT were capped at $25 million.
BAT said at that time “we told the FDA it would take 20 years to comply with such a standard” of 95% less nicotine than a traditional cigarette.
Anti-smoking advocates say that if the FDA mandates very-low-nicotine traditional cigarettes, some smokers may go to a black market to buy cigarettes made outside the U.S. with current nicotine levels.
A June 2019 report Morgan Stanley analysts predicted that a dramatic decline in revenue — up to 50% by 2034 — could face tobacco manufacturers if the FDA succeeds in establishing significantly lower nicotine levels, particularly in traditional cigarettes.
The analysts said that with the lower nicotine levels, the tobacco industry could lose up to $165 billion in combined profits over a 15-year period even if manufacturers gain revenue from innovation nicotine products, such as electronic cigarettes, heat-not-burn cigarettes and oral nicotine products.
The analysts project BAT could see up to a 13% decline to its market capitalization, partially limited because just 40% of BAT’s profits come from the U.S.
By comparison, Altria Group Inc. could experience up to a 20% decline of its $92 billion market capitalization.
Analysts said the FDA is likely to face multiple lawsuits from tobacco manufacturers and anti-smoking groups on the tighter regulations.
The Morgan Stanley analysts say that any maximum nicotine regulation “is unlikely to come into force within the next 10-plus years … far enough away to allow tobacco manufacturers to de-level their balance sheets, protect their dividends and pivot their businesses away from traditional cigarettes.”
Regardless of nicotine levels, the analysts project the number of U.S. adult smokers will drop from 34 million to 14 million by 2030.
BAT’s stance covered the very-low-nicotine standards the FDA is pushing to achieve, as well as a proposed FDA ban or severe limitation on menthol traditional cigarettes that could be attempted in 2022.
BAT said it “believes the FDA does not have the (congressional) authority to ban a category of product (in traditional markets) … or reduce nicotine (levels) in tobacco products to zero.”