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Altria can market heated tobacco devices with 'reduced exposure' claims – FDA

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Altria can market heated tobacco devices with 'reduced exposure' claims – FDA

The U.S. Food and Drug Administration said July 7 that heat-not-burn tobacco devices made by Philip Morris International Inc. and sold in the U.S. by Altria Group Inc. can be marketed as modified risk tobacco products in a move that could bolster more sales for a relatively new product to American consumers.

The FDA approved modified risk tobacco applications for the IQOS heat-not-burn tobacco system holder and charger, along with three different kinds of tobacco used in the device called heat sticks and sold under the Marlboro brand, which is shared by Altria and Philip Morris.

The IQOS system and its heat sticks are the second set of products to be authorized as modified risk tobacco products and the first to get what the FDA calls "exposure modification" orders. The designation allows products to be marketed with claims of reduced exposure to substances compared to cigarettes, the FDA said.

More specifically, Altria can now market IQOS devices with the statement that "Scientific studies have shown that switching completely from conventional cigarettes to the IQOS system significantly reduces your body's exposure to harmful or potentially harmful chemicals," according to the FDA.

Data submitted by Philip Morris showed that marketing IQOS devices alongside such statements could help adult smokers transition from conventional cigarettes and reduce their exposure to harmful chemicals, "but only if they completely switch," Mitch Zeller, director of FDA's Center for Tobacco Products, said in a July 7 news release.

"The FDA will closely monitor how IQOS is used by consumers to determine if these products meet this potential and do not cause increased use among youth," Zeller said. "It is important to note that these products are not safe, so people, especially young people, who do not currently use tobacco products should not start using them or any other tobacco product."

Philip Morris, under an agreement with Altria, launched heated tobacco IQOS devices in the U.S. in September 2019 in the middle of an outbreak of vaping-related lung disease and concerns about the growing use of e-cigarettes among children. Heightened scrutiny of e-cigarettes — which heat nicotine-infused liquid instead of tobacco — resulted in the FDA banning certain flavors, while heated tobacco products did not draw nearly as much attention.

More than half of adult smokers who tried IQOS in the U.S. eventually bought the product, Altria said in a July 7 news release. The order will allow the company to "better inform adult smokers and support their transition to IQOS," Altria said.

The approvals by the FDA do not say IQOS products can claim to have "reduced risk," which is a stronger claim that will require Philip Morris and Altria to submit more studies to the FDA, Christopher Growe, a Stifel analyst, said in a July 7 report.

"We believe this reduced exposure claim, one step short a reduced risk claim, will aid Philip Morris' efforts in international markets as it works with foreign governments on substantiating claims for IQOS," Growe said.

Philip Morris estimated that about 10.6 million adult smokers worldwide had stopped smoking and switched to IQOS as of March 31, the company said in a July 7 news release.

"We look forward to working with the FDA to provide any additional information they may require in order to market IQOS with reduced risk claims," Philip Morris CEO André Calantzopoulos said in the release.

Shares of Philip Morris were up 3.4% to $73.03 in afternoon trading July 7, and Altria shares crept up 1.5% to $40.22.

Analysts expect the change in how IQOS heated tobacco products can be marketed in the U.S. to have a material impact on how consumers receive them.

"This approval should provide a boost of some sort to future sales," Owen Bennett, a Jefferies analyst, said in a July 7 note. "We also think it is a positive read for certain flavored vapor products to be allowed back onto the market."

But Bennett cautioned against being overly excited about the boost IQOS could get because heated tobacco has struggled in global markets where it is competing with other nontraditional tobacco and nicotine products, and it may not have the nicotine strength that U.S. consumers are used to.

Another way the approvals, which last for four years, could help is through reduced tax rates on modified risk products in certain states, Michael Lavery, a Piper Sandler analyst, said in a July 7 note.

"We believe the [modified risk] claim could accelerate expansion plans for iQOS, as Altria would now be armed with a more robust marketing message," Lavery said.