CASAA’s Comment to OMB/OIRA regarding Paperwork Reduction Act and FDA Deeming Regulation

To:      Office of Information and Regulatory Affairs
From:  Carl V Phillips, PhD
          Scientific Director
          The Consumer Advocates for Smoke-free Alternatives Association (CASAA)
          cphillips@casaa.org
26 May 2014
Re: The Food and Drug Administration Deems Tobacco Products To Be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Regulations Restricting the Sale and Distribution of Tobacco Products and Required Warnings for Tobacco Product Packages and Advertisements.
          I am writing on behalf of the Consumer Advocates for Smoke-free Alternatives Association (CASAA) to comment on issues stemming from the FDA’s proposed deeming regulation of e-cigarettes and other products as tobacco products that are related to the Paperwork Reduction Act (PRA).  CASAA will comment later on other aspects of the proposed regulation.
          CASAA is a public health and education NGO, and is the leading representative of consumers who use or might in the future use smoke-free tobacco/nicotine products as an alternative to smoking.  CASAA is not an industry group and does not represent the interests of industry, and we realize that PRA issues are normally addressed by the regulated industry.  However, in this case most of the cost burden created by paperwork will fall upon consumers.  In particular, due to the paperwork burdens, hundreds of thousand of American consumers would lose access to the low-risk products that have allowed them to quit smoking and not return to it.
          The spirit of the PRA and OIRA review of regulation includes an attempt to ensure that the mere paperwork burden – as opposed to beneficial substantive requirements – is not unduly burdensome.  We believe that the FDA is defying the spirit of the PRA and OIRA review in their proposed regulation documentation.  In particular, it appears that FDA is ignoring the greatest cost created by the paperwork burden:  Most manufacturers will find the paperwork burden to be so great that they will abandon products or (for the vast majority) their entire businesses without even attempting to deal with it.  This lowers the naively-measured burden of paperwork as reported by FDA – limited to the paperwork costs for products that are not driven from the market – by ignoring its greatest costs, the elimination of the products and the resulting loss of consumer surplus (as discussed in more detail below).  This is blatantly contrary to the goals of the PRA.
          FDA predicts that there will be no applications for e-cigarettes based on a product being equivalent to products on the market in February 2007.  This is consistent with the fact that either no such products existed in the U.S. market at that time or that the very few available products were extremely primitive, bearing little similarity to today’s products. (There is some disagreement about which of these is the case, but no doubt that one or the other is.)  FDA predicts that there will be only 25 new product premarket applications for e-cigarette products.  This means that manufacturers will file paperwork for only 25 products.  This contrasts with what we estimate are in the order of 100,000 e-cigarette products currently in the U.S. market, with new products being developed every day.
          Clearly FDA has not underestimated the number of products on the market by four orders of magnitude.  Rather, they realize that the vast majority of manufacturers cannot even attempt to comply with the enormous paperwork requirements they are imposing (and, indeed, FDA has basically stated as much).  Thus, their estimated costs of paperwork compliance for those 25 products grossly underestimates the true effect of the paperwork burden in a manner that perverts the intent of the PRA.  This burden is still substantial for the remaining 25 products; FDA predicts it would require over 5000 hours of work per product to just comply with the applications requirements.  But the burden imposed upon the other thousands of products is even greater: It is effectively infinite.
          It is important to note that the compliance requirements in question consist entirely of paperwork.  FDA is predicting that in the order of 99.99% of the e-cigarette products in the market will disappear without even an attempt to comply with the filing requirements that could let them stay on the market.  If the paperwork application burden were, say, 1 hour per SKU, we would predict that the vast majority of the products would see such an application.  Thus, 99.99% of the products will disappear at the time of the filing deadline because of the paperwork requirements per se.
          That estimate of 25 applications is approximately the number of e-cigarette products currently sold by the major traditional tobacco companies.  Since these are the only companies that have the resources to comply with the paperwork burdens, this equivalence is clearly more than coincidence.  While it certainly would be better for consumers and public health if these few e-cigarette products survived the paperwork burden, rather than none at all, these products are all the small, expensive, standardized products (often referred to as “cigalikes”) that are a dispreferred option for a large portion of those ex-smokers who quit smoking using e-cigarettes.  The “cigalike” products manufactured by the traditional tobacco companies often attract many smokers to first try a lower-risk alternative, which is good for consumers and public health.  However, many users of those products find that they never lose the urge to smoke, and often continue to smoke concurrently, until they discover other higher-quality products that let them become permanently abstinent from smoking.  Those higher-quality products are among the 99.99% of the products on the market that would be eliminated by paperwork.  This represents a huge public health cost and loss of consumer surplus, in addition to the costs to industry.
          It could be argued that many e-cigarette manufacturers might believe that their products could never be approved under the premarket application process. However, there are fundamental ambiguities about this approval process and there are no clear reasons for many manufacturers to assume that their products would not qualify for premarket approval.  FDA has not made clear what data and facts would be sufficient for such approval.  Assuming the approval process is not just a façade and there is a genuine possibility of approval, this means that many products would have been allowed onto the market were there not a paperwork burden that prevents their manufacturers from even attempting to apply.
          To put this in concrete terms, consider a scenario where a mere 1% of current e-cigarette products would meet the approval requirements.  This is in the order of 1000 potential approvals.  But the paperwork burden would preclude applications for all but 25 of them.  So under this pessimistic scenario about approvals there would still be about 1000 products that could be approved but will instead exit the market because of the the paperwork burden.  Since these products have been proven by real-world experience to pose no measurable hazard and are used as a substitute for a very hazardous behavior, it seems that far more than 1% should qualify, raising this number.  (If not even 1% of such products could qualify, then the approval process should be acknowledged to be a de facto prohibition and should have been presented and evaluated as such.)
          It is important to emphasize that no products could be driven from the market due to any substantive requirements of the proposed regulation; it is entirely due to the paperwork and the approval process.  There are no such requirements – such as manufacturing standards or ingredients bans – in the current proposed regulation. All of the proposed regulations consist entirely of filings and approvals.
          It is further worth noting that nowhere in the proposed regulations, nor in any other FDA publications to our knowledge, are there statements about how these filings and approvals (or disapprovals) would provide any benefit to consumers of the regulated products.  There are allusions to benefits, but they are entirely just that – vague allusions, with no apparent connection between the concrete requirements to the ostensible positive outcomes, and no attempt by the FDA to argue that there is such a connection
          In sum, the FDA is openly predicting that the paperwork burden alone will destroy almost all of the e-cigarette products on the market, and is making no concrete claim about how the paperwork burden or any other requirement they are imposing will lead to beneficial regulation.  Even if we allow for the possibility that 99% of existing products would be banned on substantive grounds, the vast majority of the remaining potentially-approved products would still be eliminated due to the paperwork burden.
          Imposing paperwork costs that are so great that they cannot possibly be complied with does not create zero paperwork cost.  And yet this is exactly what FDA is claiming.  The reported cost estimates assign no cost where there would not even be an attempt to comply.  This is inappropriate at two levels:  First, it is basically creating a hidden ban, using the paperwork burden to impose it.  This clearly violates the fundamental goals of the PRA.  Second, it is underestimating the true costs because no attempt is made to estimate the social costs of the paperwork requirements eliminating companies and products from the market.  FDA is aware that such costs exist (from FDA’s regulatory impact analysis: “We acknowledge that product exit reduces product variety and the range of choices available to consumers, but we do not estimate the value of this loss of consumer choice.”).  But they improperly ignore them in their quantification.  By their logic, had FDA made the paperwork burden even more onerous, such that no one would try to meet it, they would have claimed that the paperwork costs were zero.
          The elimination of most of the market due to paperwork burdens will create all the obvious costs for commerce, including loss of employment, reduction of consumer spending in an already depressed economy, and a loss of business profits.  But much more important in this case is the enormous loss inflicted on consumers.  The benefits of the higher-quality products that would be eliminated come overwhelmingly from the consumer surplus they create.  A former smoker who has switched to e-cigarette products and has found these to be an appealing substitute has gained consumer surplus roughly equivalent to the health costs of smoking.  That benefit will be lost if the appealing products are eliminated and those consumers return to smoking.  A consumer of an eliminated e-cigarette product who does not return to smoking, but switches to one of the remaining few products that survived the paperwork burden or becomes abstinent, will suffer a smaller but potentially still substantial loss of consumer surplus.
          Due to these gross and fundamental flaws in the calculation and reporting of the paperwork burden, we believe that it would be appropriate for the Office of Management and Budget to void the proposed regulation as it relates to e-cigarettes and other smoke-free products.  FDA offers basically no concrete claims about how the paperwork burdens would create or facilitate substantive benefits, and yet the burden would do enormous damage.
          Failing that, we ask that OMB reject as inaccurate FDA’s grossly understated reporting of the paperwork burdens of the proposed regulation and require FDA to issue a revised estimate that takes into consideration the true burdens of the paperwork.  In particular, FDA should be required to estimate what portion of existing products, plus new products that will exist as of the filing deadline, could comply with application requirements were they able to afford the paperwork cost.  It is inappropriate that FDA obfuscates this important figure by not separating products that they contend could not achieve approval for substantive reasons from those where the manufacture simply cannot afford to seek approval; this needs to be estimated and disclosed to comply with the spirit of the PRA.  After estimating that, FDA should be required to estimate and report as paperwork costs the full social costs of eliminating products that would be approved if their manufacturers were able to afford the costs of application.  After issuing of this correction, we would expect that we and the rest of the public would have the opportunity to comment on the proposed regulations in light of the information.

What Did the EU Parliament’s TPD Do About E-cigs? Will the FDA Follow Suit?

Many observers are suggesting that the FDA’s deeming regulations with resepct to e-icgarettes will be similar to what the European Union’s Parliament directed earlier this year.  So, what did they direct?  Surprsingly they did not ban refillables!

FROM A PRESS RELEASE Q & A ISSUED BY THE EU PARLIAMENT, FEBRUARY 26. 2014 : 

Will electronic cigarettes still be available to buy/smoke?

 Yes. However new rules will be put in place so that the product’s safety and quality can be assured. The new rules are designed to ensure equal treatment across the EU for nicotine containing e-cigarettes (products that do not contain nicotine are not covered by the Directive).

E-cigarettes can be disposable (i.e. single use), rechargeable (with a single use cartridge) or refillable (by means of a refill container).

Why are new rules needed for e-cigarettes?

E-cigarettes are a relatively new product category and their market share is growing. While they may have a role to play in smoking cessation or reduction, their long-term effects on public health are not yet known. As nicotine is an addictive and toxic substance, safety and quality requirements for nicotine-containing e-cigarettes are necessary. Reporting obligations are also needed so that public authorities can monitor and learn more about these products. A number of decisions on e-cigarettes will be left to the Member States, e.g. the regulation of flavours, advertising without cross border effects, and age limits.

The new rules will not apply to medicinal e-cigarettes (as set out in Directive 2001/83/EC) or medical devices (Directive 93/42/EEC), but will cover all consumer electronic cigarettes placed on the EU market.

What will change for e-cigarette consumers and manufacturers?

Consumers of eCigarettes:

  • will benefit from improved safety and quality requirements for products: taking into account nicotine’s classification as a toxic substance, there will be a maximum nicotine concentration level for e-cigarettes and maximum volumes for cartridges, tanks and containers of nicotine liquids. These will have to be child and tamper-proof and protected against leakage to limit the risk of exposing consumers – in particular children – to the risks of handling or ingestion. Only ingredients of high purity may be used in the nicotine-containing liquid, and e-cigarettes will be required to deliver the nicotine doses at consistent levels under normal conditions of use. This means that a similar level of nicotine should be delivered each time an e-cigarette is puffed for the same amount of time and with the same strength.
  • will be better informed through new packaging and labelling requirements: health warnings on e-cigarette packs will be mandatory, as will instructions for their use, information on addictiveness and toxicity, a list of all substances contained in the product and information on the product’s nicotine content. No promotional elements will be allowed on packs.
  • will be better protected: Member State authorities and the Commission will be able to act in cases of justified safety concerns relating to these products. Authorities will monitor the market for any evidence that e-cigarettes lead to nicotine addiction or to traditional tobacco consumption, especially in young people and non-smokers, and the Commission will report on safety concerns and market developments.

E-cigarette manufacturers (in addition to manufacturing their products in line with the above rules on safety, quality and packaging) will be required to:

  • notify Member States before placing new products on the market: notification will include information on the manufacturer, the ingredients used and emissions, nicotine dose and uptake, product and production process and a declaration that the manufacturer takes full responsibility for the quality and safety of the product under normal use.
  • report annually to Member States: on the sales volumes of the products, types of users and their preferences and trends.
  • comply with specific rules on advertising: existing rules for cross-border advertising and promotion of tobacco products will also apply to e-cigarettes.

Can the rules on e-cigarettes be revisited at a later date?

Monitoring and reporting on all developments relating to e-cigarettes – including market and health related developments – has been built into the new Directive. The information collected will provide a good overview of what additional legislative action, if any, is required, and the Commission will revisit the issue if necessary.

Republic Tobacco Enters E-Cig Category With Purchase of Johnson Creek

March 13th, 2014

GLENVIEW, Ill. & HARTLAND, Wis. — Republic Tobacco announced its entry into the burgeoning electronic-cigarette category today with its purchase of Johnson Creek Enterprises of Hartland, Wis., a juice supplier for vaping products in the United States.

Republic Tobacco is the nation’s largest distributor of roll-your-own and make-your-own tobacco products and accessories that include such brands as Job, Top, Gambler, Drum, Largo and Tube Cut.

Since being founded by Christian Berkey in 2008, Johnson Creek Enterprises is the world’s leading smoke juice production facility.

Through its affiliates, Republic has taken an equity interest in Johnson Creek Enterprises.

Fontem Ventures/Imperial Tobacco Group Sues US E-cig Companies for Infringement

On Wednesday, March 5, 2014, Fontem Ventures B.V., a Netherlands-based, wholly-owned subsidiary of Imperial Tobacco Group, a British multinational tobacco company headquartered in Bristol, United Kingdom and the world’s fourth-largest cigarette company, filed suit against the following US e-cigarette companies: NJOY, Spark Industries (Cig2O). Vapor Corp., LOEC (Blu Cig/Lorillard). FIN Branding/Victory E-cigs. CB Distributors (21st Century Smoke), Logic Technology, VMR Products (V2 Cigs and Vapor Couture) and Ballantyne Brands (Mistic).  The suit alleges patent infringement, citing four patents that Fontem purchased as a part of a portfolio of intellectual property acquired in late 2013 from Dragonite International Limited, China, for $75 million.  This news suggests that Fontem/Imperial is going to be aggressive in asserting its patents and seeking a return on its investment in the Dragonite portfolio.  Despite consistent comments from US e-cigarette companies that the Dragonite portfolio was of dubious value, it appears as if Fontem/Imperial is eager to let the courts resolve the matter.

TWO CHEERS FOR ELECTRONIC CIGARETTES

Joe Nocera

Op Ed- THE NEW YORK TIMES- DECEMBER 7, 2013

Imagine a product — a legal but lethal one — that kills 400,000 Americans a year. Public health advocates have been trying for decades to persuade Americans not to use it. The industry has been sued and sued again, but it is still operating profitably. One out of every five Americans is addicted to the product.

Now imagine that an alternative comes to the market, an innovative device that can help people wean themselves from the deadly product. It has the same look and feel as the lethal product; indeed, that’s a large part of its appeal. It, too, is addictive. But the ingredients that kill people are absent.

This, of course, is no imaginary scenario. The lethal product is cigarettes, which use nicotine to addict and combustible tobacco to kill. And the alternative is electronic cigarettes, which deliver nicotine without the tobacco, and emit a vapor that almost instantly evaporates. Yes, users can be hooked on nicotine, which is a stimulant. But people who “vape” are not going to die, at least not from inhaling their cigarette.

You’d think that the public health community would be cheering at the introduction of electronic cigarettes. We all know how hard it is to quit smoking. We also know that nicotine replacement therapies, like the patch, haven’t worked especially well. The electronic cigarette is the first harm-reduction product to gain serious traction among American smokers.

Yet the public health community is not cheering. Far from it: groups like the American Lung Associationthe American Heart Association and the Campaign for Tobacco-Free Kids are united in their opposition to e-cigarettes. They want to see them stigmatized — like tobacco cigarettes. They want to see them regulated like cigarettes, too, which essentially means limited marketing and a ban on their use wherever tobacco cigarettes are banned.

Thomas Farley, New York City’s health commissioner, trotted out most of the rationales against e-cigarettes the other day at a City Council hearing. (The City Council is considering a bill, strongly supported by the Bloomberg administration, that would forbid the use of an e-cigarette anywhere that cigarettes are banned.) E-cigarettes, he said, “are so new we know very little about them.” Thanks to e-cigarettes, smoking is becoming glamorous again, and could become socially acceptable. The number of high school students who have tried electronic cigarettes doubled from 2011 to 2012. He made a particular point of showing how closely e-cigarettes resembled old-fashioned tobacco cigarettes.

The reason to fear this resemblance, say opponents of electronic cigarettes, is that “vaping” could wind up acting as a gateway to smoking. Yet, so far, the evidence suggests just the opposite. Several recent studies have strongly suggested that the majority of e-cigarette users are people who are trying to quit their tobacco habit. The number of people who have done the opposite — gone from e-cigarettes to cigarettes — is minuscule. “What the data is showing is that virtually all the experimentation with e-cigarettes is happening among people who are already smokers,” says Michael Siegel, a professor at the Boston University School of Health.

Siegel is a fierce critic of tobacco companies, but he’s also not afraid to criticize the anti-tobacco advocates when they stretch the truth. When we got to talking about the opposition to e-cigarettes in the public health community, he said, “The antismoking movement is so opposed to the idea of smoking it has transcended the science, and become a moral crusade. I think there is an ideological mind-set in which anything that looks like smoking is bad. That mind-set has trounced the science.”

Another person who considers e-cigarettes promising is David Abrams, the executive director of the Schroeder Institute for Tobacco Research and Policy Studies. “It’s a disruptive technology,” he said, “that might give cigarettes a run for their money.” In his view, the anti-tobacco advocates had spent so many years arguing from “a total abstinence framework,” that they haven’t been able to move from that position. Yet, he noted, the country has long tolerated many similar harm reduction strategies, including needle exchanges and methadone maintenance.

None of this is to say that electronic cigarettes should be free of regulation. But they should be regulated for what they are — a pharmaceutical product that delivers nicotine, not a conduit for tobacco poison. Let them make health claims — which they can’t now do — so long as they are backed up with real science. And, most of all, use e-cigarettes to help make “real” cigarettes obsolete.

At that recent New York City Council meeting, one of the fiercest critics to testify was Kevin O’Flaherty of the Campaign for Tobacco-Free Kids. “If it walks like a duck and it talks like a duck and it sounds like a duck and it looks like a duck, it is a duck,” he said.

Is this what passes for science when you oppose electronic cigarettes?

 

Dragonite Sells E-Vapor Business To ITG

From Convenience Store Decisions Staff Report

Acquisition cost totals $75 million.

Dragonite International Limited, and its wholly-own subsidiaries, announced today that it has reached an agreement to  sell its E-Vapor Business for $75 million to Fontem Ventures B.V., a wholly-owned subsidiary of Imperial Tobacco Group plc. (ITG), a global tobacco company with international strength in cigarettes and world leadership in fine cut tobacco, papers and premium cigars.

Fontem Ventures B.V. was established by ITG to develop non-tobacco products, including electronic vapor products. ITG employs approximately 36,000 staff members and sells its products in more than 160 countries around the world.

The $75 million payable for the assets is the aggregate of the Initial Purchase Price of $50 million and the Deferred Purchase Price of $25 million in aggregate.

The sellers include Ruyan Investment (Holdings) Limited, Shenyang; SBT Technology and Development Co. Ltd., Beijing; Ruyan Technology & Development Co. Ltd. and Beijing; SBT Ruyan Technology & Development Co. Ltd, all wholly-owned subsidiaries of Dragonite.

These sellers have agreed to sell:

•  the benefit of the contract

•  the Business Intellectual Property Rights;

•  the Information;

• the benefit of the Claims (including any settlement agreements); and

• all records and other documents relating to the assets

The Business Intellectual Property Rights comprises all of the Intellectual Property Rights owned by the Sellers and used in connection with the business, including but not limited to a wide range of patents and patent applications, registered trade marks and trade mark applications (in each case in a number of different jurisdictions around the world) and registered domain names. The Claims are legal proceedings brought by the Sellers in the U.S. and China for infringement of the group’s patents included in the Business Intellectual Property Rights. The Assets did not form part of the assets included in the Ruyan atomizing cigarettes segment as shown in the Dragonite’s annual report for the year ended Dec. 31, 2012. The assets included in that segment, such as inventory, receivables and advance payments, are not being disposed of and are therefore not included in the sale.

Dragonite had conducted a competitive sale process in which offers for the acquisition of the E-Vapor Business were solicited from several different potential purchasers.

Dragonite International Limited was formerly known as “Ruyan Group (Holdings) Limited.” Prior to consolidation of the company under the Ruyan banner in 2007, the company was operating as a health care and pharmaceutical products company known as the Golden Dragon Group. The electronic cigarette business, including the SBT (“Substitute for Tobacco”) group, which had been operating as an affiliate of Golden Dragon, was then consolidated into the listed company and the name was changed to “Ruyan Group (Holdings) Limited” in November 2007 with three major business divisions: health care, pharmaceutical and electronic cigarettes.

Plain packaging: The biggest threat yet to Big Tobacco

July 18, 2013 by Charles Sizemore.

Australia’s plain-packaging law is one of the worst setbacks for Big Tobacco in decades because it attacks companies’ single most valuable asset: their brands.

Big Tobacco has strong enough moats to survive high taxes, punishing lawsuits, and an aging and declining customer base intact. But plain packaging threatens the industry at its very core, and this is something underappreciated by investors in the sector.

Long-time chain smokers light up for one very obvious reason – they are addicted to the nicotine. But for casual smokers – those who may light up while drinking, for example – the experience matters too. I call it the “Rebel Without a Cause effect”; the devil-may-care image that goes along with smoking is part of what makes it pleasurable.

There is a certain appeal to Altria’s familiar Marlboro logo. But there is most certainly no romance in a plain white box with a picture of a diseased lung on the flipside.

If you think I’m making this up, consider the recent grumbles coming out of Australia. Following the implementation of the plain packaging law at the beginning of this year, Aussie smokers have complained that their cigarettes taste different.

The Australian health minister, quoted by the New York Times, insisted that there had been no change to the cigarettes themselves but that “people being confronted with the ugly packaging made the psychological leap to disgusting taste.”

I’m not a cigarette smoker, though I do enjoy the occasional cigar. And I would insist that a cigar does indeed taste better when the smoker is wearing a suit and sitting in a comfortable leather chair surrounded by wall-to-wall shelves of old books. The very same cigar smoked in a plastic lawn chair while wearing Crocs just isn’t the same (and shame on any grown man for wearing Crocs outside of the pool, but I digress).

Rational? No. But nonetheless true.

It remains to be seen whether plain packaging laws spread outside of Australia; they are being considered in Canada, India, the UK and in the European Union as a whole. Big Tobacco will argue that the ban violates their trademarks and seizes their intellectual property, and they may find a few sympathetic judges. But given the history of the anti-tobacco movement, it’s a lot more likely that Big Tobacco will fight a rearguard action for years before ultimately losing.

So, if the future is bleak, does this mean that you should avoid tobacco stocks like Altria, Reynolds America or Lorillard?

Not necessarily. As I’ve written before, industries in decline can be fantastically profitable investments under the right set of conditions. But the most important condition is price, and on this count Big Tobacco looks far from attractive. Altria, Reynolds American and Lorillard trade for 17, 19, and 15 times earnings, respectively. Their dividends, while high by broad market standards, are all about 5%, and all are trading near their 52-week highs.

Dividend income is a major consideration in my investment process, but I am avoiding Big Tobacco at this time. I can potentially get higher yields with comparable dividend growth rates in some REITs and MLPs, and I can possibly obtain a higher dividend growth rate in Big Tech names like Microsoft, Intel, and Cisco Systems.

Do I expect Big Tobacco stocks to take a nosedive in the immediate future?

No, I don’t. I expect the sector to more or less track the market in the short term. But Big Tobacco investors should be aware that the single biggest factor in the sector’s outperformance of recent years – price – is no longer in their favor.

The investments discussed are held in client accounts as of June 30, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

 

Big Tobacco Has Gotten the Message!

This spring, a number of US tobacco company executives were invited to meet with Mitch Zeller, the newly appointed head of the FDA’s Center for Tobacco Products.  The meetings were off the record and were held expressly for the purpose of having Mr. Zeller reintroduce himself to an important part of his regulatory constituency.   It was a reintroduction because the industry was familiar with Zeller from his days at the FDA in 1990’s when Zeller was tasked by then FDA head David Aaron Kessler to orchestrate a hostile regulatory takeover of the tobacco industry- a takeover that was effectively thwarted by the US Supreme Court in 2000 in FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120.  The industry was also familiar with Mr. Zeller from his days at the consultancy Pinney Associates where he worked closely with GlaxoSmithKline, his largest client, on various strategies to introduce, standardize and entrench pharmaceutical nicotine replacement therapies to the US OTC market.

By all accounts the meetings were cordial, but the participants were wary.  Zeller, after all, was heading up the FDA’s tobacco oversight, a responsibility provided by Congress via June 2009’s Family Smoking Prevention and Tobacco Control Act.  Zeller quickly laid out his near term agenda- an agenda he subsequently made public via numerous speeches and panel participations later in the spring- i.e. NATO and TMA.  The agenda had three items and, in order, they were 1) substantial equivalency issues 2) menthol and 3) deeming authority.

After this, according to numerous participants, Zeller asked the attendees questions about, of all things, electronic cigarettes.  What did these tobacco executives know about them?  What were they hearing about them?  What were they planning to do about them- manufacture them, distribute them, sell them?  Zeller made clear that the products were of great interest to the FDA and that the FDA was going to analyze and evaluate them carefully and extensively.  Zeller noted that the products were “promising” and he encouraged tobacco companies to provide the FDA as much data about the product as possible.

At the conclusion of each meeting Zeller cautioned the participants that the FDA was looking hard at the ways that they could regulate and restrict the industry’s harmful, traditional combustible products, but that they were intrigued by new technologies and, specifically, by e-cigarettes.

One attendee noted, “It’s almost as if we were specifically being told that we should take a close, hard look at e-cigarettes, the technology, begin research and development ASAP and be prepared to educate the FDA ASAP.”

With the recent announcements about Reynolds American “game-changing” Vuse, Altria’s introduction of the “Mark-Ten” in Indiana in August of this year, National Tobacco’s distribution agreement with V2 E-cigs and Lorillard’s continuing success and ongoing investment in their blu cig acquisition, let there be no mistake about what’s going on here- Message Delivered and Message Received!