The new FDA bill, which passed both houses and is expected to be signed into law soon, could benefit big tobacco companies, MarketWatch reported.
Altria’s Philip Morris USA lobbied heavily for many aspects of the law and could solidify its place as the market leader with new rules that could hurt the competition and create barriers for newer players so that its hard for them to enter the industry.
While it will be a long time before new restrictions are created and enforced, Altria’s competitors have reason to be worried.
The company already holds the market-share lead in the U.S. at roughly 51%, with its top brands like Marlboro, Parliament and Virginia Slims accounting for a vast amount of current cigarette consumption.
Second in command, Reynolds-American, the parent of Camel, Winston, Kool and others, holds less than 30% of the market. The next runner-up is Lorillard, with about 10%, most of which comes from its Newport Brand. The remaining share is divided among discount and specialty producers/importers, MarketWatch reported.
“In the short term, there will not be much impact,” said Philip Gorham, an analyst with Morningstar. “It will take a few years for the FDA to establish a tobacco unit, staff it and begin to write regulations. The bill seems to be focused on marketing restrictions and the more they take away companies’ ability to compete, the harder it becomes for competitors to take share from each other. That is great for Altria.”
The FDA will not be able to eliminate nicotine in cigarettes, but can lessen the amount used, which would make cigarettes less addictive, but could also lead smokers to just smoke more to get their fix. Or, it could sway smokers to look at other alternatives.
“Philip Morris right now has the largest smokeless brands, which puts it in pole position to catch smokers looking for alternatives,” Gorham said.
One thing the bill will definitely do is impose massive restrictions on the advertising and marketing of tobacco, including a ban on all outdoor tobacco advertising within 1,000 feet of schools and playgrounds, along with all brand sponsorship of sports and entertainment events. Giveaways of non-tobacco items with a purchase will be restricted and ads will be limited to black-and-white text only in many publications, on billboards and at many points of sale.
But major tobacco companies are almost certain to challenge these plans in court. Altria has already “expressed First Amendment reservations about certain provisions,” the company noted after the bill was approved.
While his company “intends to successfully compete” in the face of any market changes and “be out in the marketplace and have a product portfolio,” new rules could “lock in the market leaders,” Frank Lester, a spokesman for Reynolds, which opposed the bill told MarketWatch. By putting regulation into the hands of the FDA, “it does not allow for a reasonable regulatory process to bring reduced-risk products to market,” Lester said. “If how the FDA handles drug approval [is the model], it could take years and years.”
Michael Siegel, a physician and professor of social and behavioral sciences at Boston University’s School of Public Health told MarketWatch the bill “makes it virtually impossible for new brands to enter. It essentially freezes the existing market in place and protects the cigarette companies from competition that would otherwise have been coming from reduced-risk products.”
And now that the government is issuing its stamp of approval on products through the FDA, there will be less chance for bringing litigation against these companies.
The bill, he concluded, “does kind of the opposite of what is being portrayed.”
David Sylvia, a spokesman for Philip Morris disagreed with the idea that the legislation would give any one company the advantage. “We don’t think it will do that at all,” he said. “It establishes a set of standards that everybody has to live by. It treats everybody the same.”