A Food and Drug Administration announcement Friday that included a proposal to lower nicotine levels in cigarettes to non-addictive levels sent cigarette maker shares plunging.
Atria Group Inc. MO, -2.71% shares tumbled 9.5% in extremely heavy afternoon trade, while British American Tobacco BTI, -3.22% shares dropped 7.6%. Philip Morris International Inc. PM, -1.27% shares were being traded heavily Friday afternoon, though the price recovered most of its morning losses.
Health experts said that the Friday announcement focused on important public health priorities, including examining the effect flavors, such as menthol, have in attracting young people to tobacco products and approaching any changes so as to avoid a spike in black market activity.
But they also expressed skepticism about the real-world effects of Friday’s news, and concern about its pushback of reviews for products like cigars and hookah tobacco until 2021 and things like e-cigarettes until 2022. The aforementioned products are already on the market but have come more recently under FDA regulation.
“What didn’t happen today is an announcement on actual regulation... What happened was an announcement that a docket would be opened,” said Dave Dobbins, the chief operating officer of antismoking nonprofit Truth Initiative, referring to the FDA docket that launches a lengthy rulemaking process.
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And the announcement’s intent matters less than “not just what they ask for, but what they require,” said Diana Zuckerman, president of the National Center for Health Research.
Extending the product review timeline keeps harmful products on the market longer, Dobbins said.
For its part, the FDA said that extending the review deadlines will give the regulator more time along with giving companies “additional time to develop higher quality, more complete applications informed by additional guidance from the agency.”
The FDA has also recently extended deadlines for calorie labeling on restaurant menus and changes that would simplify calorie labels on packaged foods.
Read: Under pressure from food companies, FDA delays plans to simplify calorie labels
Though the Friday announcement appeared to be a negative for cigarette makers, it could be “an opportunity over the long term for reduced-risk products,” said Wells Fargo Securities analyst Bonnie Herzog, such as Altria and Philip Morris’ smokeless iQOS devices. “We see this as an opportune entry point for long-term investors and would recommend building positions on today’s broad weakness.”
Read: Why smoking among teens has reached historic lows
iQOS devices release vapor without burning the tobacco, and the companies’ premarket tobacco product application with the FDA is under review, Herzog said.
One medical journal study questions whether heat-not-burn cigarettes are much safer, finding that smoke from them have 85% of the nicotine in conventional cigarettes.
Dobbins compared smokeless devices to adding “Diet Coke and Dasani to the Coca-Cola portfolio.”
“‘Oh, some of you are worried about Coke? Okay, have expensive water,’” he said.
Altria shares have declined 1% year-to-date, compared with gains of 19.4% in Philip Morris stock and a 2.4% gain in British American Tobacco stock. The S&P 500 SPX, -0.07% has risen 10.4% year-to-date.
