22nd Century Group’s recent very-low-nicotine traditional cigarette presentation before the Food and Drug Administration has drawn mixed responses.

The FDA’s Tobacco Products Scientific Advisory committee conducted Feb. 14 a hearing on 22nd Century’s modified-risk tobacco production applications for its king and menthol king very-low-nicotine (VLN) styles.

The company, which has its production plant and 51 of its 69 workers in Mocksville, filed the applications July 19.

The company recently eliminated 10 jobs in Mocksville and has had a significant management shakeup in recent months, including the departures of its chairman and two chief executives.

A modified-risk tobacco product application seeks authorization to advertise products as reduced harm or reduced risk compared with traditional cigarettes.

The company says its VLN cigarettes contain just 0.5 milligrams of nicotine per gram of tobacco, compared with an average of 20 milligrams, or 0.71 ounces, for many of the top-selling traditional cigarette brands.

“Our research shows very-low-nicotine products strongly appeal to adult smokers, while importantly former and never-smokers have little interest in the product,” Zercher said.

The FDA said it has “determined that non-smokers, including youth, are unlikely to start using the (VLN) products, and those who experiment are less likely to become addicted than people who experiment with conventional cigarettes.”

Skeptic’s view

If the FDA is successful in implementing very-low-nicotine standards in traditional cigarettes, the end result could be 22nd Century having a sharp increase in revenue and a potential buyout by a global tobacco manufacturer.

However, at least two analysts found 22nd Century’s committee presentation underwhelming in terms of making its case.

Piper Sandler senior analyst Michael Lavery wrote after the committee hearing that “we consider a low nicotine product standard to be less likely to be implemented.”

The share price in the limited-traded stock is down 15% since the start of the Feb. 14 hearing, or from $1.13 to 96 cents. The 52-week share price range is 70 cents on Nov. 20 to $2.56 on Feb. 25, 2019.

Lavery said the FDA “is careful not to reveal its thinking on any potential future actions it may take.”

“But we came away from this meeting with a view that a low-nicotine product standard may be less likely to have scientific support to show that it would be appropriate for the protection of public health.”

Public perceptions

David Sweanor, an adjunct law professor at the University of Ottawa and the author of several e-cigarette studies, said statements by public-health and anti-tobacco groups have tainted public perceptions of the most harmful aspects of smoking traditional cigarettes.

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.

Lavery cited a UNC School of Public Health study that found 64% of smokers incorrectly believed nicotine to be the substance in cigarettes that causes most of the cancer caused by smoking, or were unsure. Among non-smokers, 76% were incorrect or unsure.

Lavery said such thinking makes “it difficult to communicate the value of a low- nicotine cigarette, i.e. less addictive,”

Sweanor said he views 22nd Century “like a company that found a way to efficiently separate gold from ore, and plans to use the technology to keep the ore and discard the gold.”

“It is the nicotine separate from combustible tobacco that is the huge opportunity, not the selling of cigarettes without the nicotine.”

Which is why Sweanor said he supports electronic cigarettes as a reduced-risk option for smokers over VLN products.

What causes harm?

Anti-smoking advocates have expressed concern that reducing nicotine levels too much could lead smokers to consume more cigarettes to get the same amount of nicotine, or going to black-market sources.

“Simply stating the lower nicotine level could be misperceived as a benefit, as it typically implied by product claims,” Lavery said.

The FDA said it took those concerns into consideration.

“Generally, the FDA determined that smokers of reduced-nicotine cigarettes tend to actually decrease the number of cigarettes smoked per day and that they do not change the intensity of their puff or inhalation.”

Lavery said that the FDA is “exploring the idea in the hope that lowering nicotine levels could reduce addiction and potentially facilitate quitting, it can be very difficult for smokers to grasp the logic, especially if nicotine is incorrectly considered to be the cancer-causing agent.”

‘Years of effort’

The FDA and other public-health agencies have purchased 22nd Century’s VLN cigarettes for using in clinical trials, becoming a significant revenue source along with traditional tobacco products, such as filtered cigars.

22nd Century has claimed for years that its VLN products are “poised to significantly disrupt the $100 billion U.S. tobacco industry.”

“The FDA’s potential authorization of our (modified risk) application would be the culmination of years of effort and the investment of millions of dollars by the company and could lead to the launch of very low nicotine as soon as this year,” Zercher said.

On Dec. 17, 22nd Century received FDA authorization to market and sell two styles of its very-low-nicotine traditional cigarettes: Moonlight and Moonlight menthol styles, which entered the premarket tobacco-application process in December 2018.

The premarket standard requires the FDA to consider products’ risks and benefits to the population as a whole, including users and non-users.

Potential game-changer?

Morgan Stanley analysts issued an “industry risk navigator” report in June that found 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.

“Reducing nicotine in cigarettes to non-addictive or minimally addictive levels, in our view, would be a potential game-changer for the U.S. industry,” according to the report.

With the lower nicotine levels, the tobacco industry could lose up to $165 billion in combined profits over the next 15 years even if manufacturers gain revenue from innovation nicotine products, such as electronic cigarettes, heat-not-burn traditional cigarettes and oral nicotine products.

John Pritchard, 22nd Century’s vice president of regulatory science, said that having FDA approvals to markets its VLN cigarette as modified-risk and premarket “will also further advance the FDA’s stated goal of achieving a reduced nicotine product standard for all cigarettes sold in the United States.”

British American Tobacco Plc, owner of Reynolds American Inc., has 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.”

BAT has said that “we told the FDA it would take 20 years to comply with such a (95% lower nicotine) standard.”

In September 2017, BAT ended a low-nicotine traditional-cigarette development partnership with 22nd Century that had been worth $14 million over four years.

The Morgan Stanley analysts cautioned 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.

rcraver@wsjournal.com

336-727-7376

@rcraverWSJ

Load comments