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In FDA First, Some Tobacco Is Ruled Safer Than Others

By Rich Duprey - Oct 26, 2019 at 6:15AM

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Regulatory agency issues its first-ever reduced-risk tobacco product label.

It's been eight years since the Food & Drug Administration began accepting applications for a reduced-risk label for tobacco products: one that would indicate that, if used as directed, the alternatives would cause less harm than traditional cigarettes.

In that time nearly three dozen applications have been submitted to the agency, and not one product was deemed a safer alternative. Until now, that is. On Tuesday the FDA granted Swedish Match ( SWMAF -3.45% ) modified risk orders -- approvals for reduced risk labels -- for eight of its General brand of snus, a moist powdered tobacco typically sold in small lozenge-sized pouches.

Coming just after British American Tobacco ( BTI 0.83% ) submitted a pre-marketing tobacco product application (PMTA) for its Vuse electronic cigarette, this inspires some hope that, yes, the FDA will actually say there are safer alternatives to cigarettes.

Tins of General snus

Swedish Match's General snus is the first tobacco product to be deemed safer than cigarettes by the FDA. Image source: Swedish Match.

Where tobacco sales are growing

Snus and snuff are one of the fastest-growing tobacco products on the market. After 250% growth in 2018, some analysts believe the market could double in size and become a $1.6 billion industry in the U.S. Still small in comparison to cigarettes, and even e-cigs, but for a rather obscure and mostly Scandanavian product it shows a lot of potential. Even more so now that Swedish Match has garnered this coveted designation.

Swedish Match is the global giant in snus, and though it is the third largest in the U.S. behind British American and Altria ( MO 0.51% ), it has embarked on a large expansion plan. Recently it launched a nationwide rollout of its ZYN brand of nicotine pouches, an offshoot of the snus category in that it doesn't actually contain tobacco, but rather uses nicotine salts that are combined with food-grade filler.

The big marketing push was likely behind Altria's acquisition of the global business of Swiss tobacco company Burger Sohne, which produces a product similar to ZYN under the name on! Altria was so intent on matching Swedish Match's growth that it obtained permission from Burger Sohne to begin distribution in the U.S. even before the acquisition was completed.

A long time coming

Swedish Match has been one of the most prolific filers of modified-risk tobacco product applications (MRTPs), but its original applications were thwarted by the FDA because the snus maker wanted to remove a warning label saying the products may cause gum disease and tooth loss. While the regulatory agency denied its applications because of those claims, it also told Swedish Match it could resubmit the applications if they altered their language.

In September 2018, Swedish Match resubmitted its MRTPs, removing the offending language but also including scientific studies that corroborated the less harmful effect snus had on users. It also suggested modified-risk language that read, "Using General Snus instead of cigarettes puts you at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema, and chronic bronchitis."

The FDA very much liked the studies and the new language, and noted that while there were still risks associated with snus for people who have never smoked, so that not using them at all was the best option, for smokers snus would be a benefit.

First to market

Swedish Match now gains a big competitive advantage, as it becomes the only tobacco company on the market that is able to advertise its products as being safer than cigarettes. Whereas Philip Morris International ( PM 1.12% ) got pre-marketing approval from the FDA for its IQOS heated tobacco device, it is still awaiting a decision on a reduced-risk label. Similarly, British American's Vuse PMTA is also for marketing approval, not risk reduction.

It's possible, now that the FDA has opened the sluice, that there will be a flood of approvals coming for other reduced-risk products, but Swedish Match has earned the distinction of being the first to win the label, and it will undoubtedly use that to its advantage.

Editor's note: This article has been corrected to change two mentions of pre-marketing tobacco product applications (PMTAs) to modified-risk tobacco product applications (MRTPs).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Swedish Match AB (publ) Stock Quote
Swedish Match AB (publ)
$7.00 (-3.45%) $0.25
Altria Group, Inc. Stock Quote
Altria Group, Inc.
$43.21 (0.51%) $0.22
Philip Morris International Inc. Stock Quote
Philip Morris International Inc.
$87.84 (1.12%) $0.97
British American Tobacco p.l.c. Stock Quote
British American Tobacco p.l.c.
$34.00 (0.83%) $0.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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