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What FDA Commissioner Gottlieb's departure means for Juul and Big Tobacco

Zack Guzman
Senior Writer

The resignation of the U.S. Food and Drug Administration Commissioner Scott Gottlieb Tuesday raises a lot of questions about the issues he personally championed during his time at the agency.

Among the most recently labeled was what Gottlieb referred to as the “epidemic” that is teen vaping and underage access to tobacco products. On Monday, the FDA put 15 retailers on notice, including Walgreens and 7-Eleven, for allegedly selling tobacco products to minors. The warnings followed a letter Gottlieb sent last month to leading e-cigarette manufacturer Juul Labs addressing the fact that teen vaping did not seem to be abating.

Dr. Scott Gottlieb speaks during his confirmation hearing before a Senate committee, in Washington. (AP Photo/J. Scott Applewhite, File)

In his resignation letter, Gottlieb specifically referenced his efforts, writing, “In the last two years, the FDA set out to advance major new policies to reduce the morbidity associated with tobacco use; to confront teen use of e-cigarettes…”

But with Gottlieb officially stepping down in a month, many are wondering what, if any, policy changes might come with his new yet-to-be-named successor. In a November 2018 announcement, the FDA cracked down on e-cigarettes by banning retail sales of flavored products that are said to appeal to underage users, and moved to ban flavored cigars and menthol cigarettes. The position on the latter caught many analysts and lawmakers by surprise.

On Tuesday, it was Gottlieb’s exit — which he himself had previously refuted just two months ago on Twitter — that caught analysts off guard.

‘A positive for Big Tobacco’

Wells Fargo tobacco analyst Bonnie Herzog was among analysts voicing her surprise following Gottlieb’s resignation in a note Tuesday, but added that the news was viewed “as a positive for the tobacco industry.”

“We believe his resignation calls into question whether or not the FDA will in fact enforce harsher regulations around youth e-cig usage/access,” Herzog wrote. “We expect tobacco stocks to react favorably to this news [and] reiterate our Outperform ratings on [Altria and Philip Morris International.]”

Altria (MO), the Big Tobacco company that makes Marlboro cigarettes, invested nearly $13 billion dollars in e-cig company Juul last year in a push to offset slowing sales of its traditional tobacco products. The company also received a letter from Gottlieb last month to meet with the FDA in order to address what more could be done to reduce the e-cigarette-use rate among children.

A recent survey from the Centers for Disease Control and Prevention revealed a 38% rise in the amount of high schoolers using tobacco products, driven largely by an uptake in e-cigarettes.

Juul, which controls about 75% of the e-cigarette market, declined to comment on Gottlieb’s resignation.

Philip Morris International (PM), which is still awaiting FDA approval for its smokeless tobacco device iQOS, had more to say.

“Commissioner Gottlieb did much to raise awareness that new, innovative non-combustible products, such as heated tobacco technologies, can play a vital role in helping those men and women who would otherwise continue smoking switch out of cigarettes to better choices,” a Philip Morris spokesperson told Yahoo Finance. “We share the Commissioner’s view that youth should not use any nicotine-containing product.”

While regulating e-cigarettes became a key issue for Gottlieb toward the end of his tenure, he was often lambasted for not being tougher on regulating e-cigarettes, especially as use among children skyrocketed. Under Gottlieb’s helm, the FDA faced lawsuits from anti-tobacco advocates for not taking a stronger stance in approving devices for sale.

E-cigs are in the hands of new FDA commissioner

A high school student uses a vaping device near a school campus in Cambridge, Mass. (AP Photo/Steven Senne, File)

Whether the next FDA commissioner straddles the positive side of e-cigarettes, which advocates say offer a safer alternative to traditional e-cigarettes, with the negative, which is that e-cigarettes are a potential gateway to smoking, remains to be seen.

As Piper Jaffray notes, a new commissioner will have to be confirmed by the Republican-controlled Senate. About a month before Gottlieb's resignation, Sen. Richard Burr (R-N.C.) took issue with Gottlieb's proposal to ban menthol cigarettes, according to Bloomberg. At the time, the North Carolina Republican even called on President Donald Trump to get involved after noting that Gottlieb "liked" a tweet that showed a drop in the president's approval rating. An FDA spokesperson told Bloomberg that Gottlieb inadvertently “liked” that tweet.

On Tuesday, Burr issued a statement echoing Trump's praise for Gottlieb's effort in leading the FDA, writing, "Scott has been one of the best commissioners I’ve seen in the 25 years I’ve been in Washington. I look forward to the Administration’s next nominee, and hope they bring the same talents and passion that Scott Gottlieb has displayed.”

“Though at this point we don’t know who Trump will nominate for the position, we find some comfort that the new commissioner will need to be approved by the Senate,” Piper Jaffray’s biotech analysts wrote.

Zack Guzman is the host of YFi PM as well as a senior writer and on-air reporter covering entrepreneurship, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.

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