The U.S. Food and Drug Administration said on Tuesday it would allow two new cigarettes from Lorillard Inc onto the market, marking the first time the agency has exercised its power to regulate tobacco products.
The FDA, which got that authority in 2009, authorized the company to sell Newport Non-Menthol Gold Box 100s and Newport Non-Menthol Gold Box after it showed they were no more dangerous than products it already sold.
Lorillard's shares rose as much as 4.9 percent before dropping back. They closed up 0.3 percent at $43.53.
"The FDA actions are a very positive development for the tobacco sector, in our view," said Bonnie Herzog, an analyst at Wells Fargo Securities, who noted that the lack of action on the part of the FDA for so long had weighed on the industry. "Now that a potential precedent has been set," she said, "we believe future actions may occur more quickly."
The FDA, for its part, hailed its rulings as "historic," saying it is the only regulatory agency in the world that has the authority to scientifically review and determine whether a tobacco product should be allowed on the market.
The agency stressed that its decision to approve Lorillard's products "is not a finding that the product is safe or safer than its predicate product, or less harmful in general," and it said companies are not allowed to say their products are approved by the FDA.
Under the law, a company must receive premarket authorization from the FDA before it can sell a new product. The product must be shown to be appropriate for the protection of public health. No tobacco company to date has filed such an application.
A less daunting path to authorization exists if a company can show that its new product is substantially equivalent to one it was selling between Feb. 15, 2007 and March 22, 2011 - known as a predicate product. It could also win authorization if it can show that its new product is less dangerous than existing products.
The FDA is currently reviewing some 4,000 applications. About 3,500 are for products that the agency has authorized on a provisional basis and are currently on the market. The remainder are for new products. The agency will decide whether products it authorized provisionally should remain on the market, and it will decide whether to authorize the new products.
Lorillard said it is "proud" to be the first company to receive authorization of a new product.
"We believe that the FDA has carried out its evaluation process in a deliberate manner reflecting sound science," Lorillard said in a statement. "We look forward to continuing productive engagement with the agency moving forward."
Newport is Lorillard's flagship line, the second-largest brand in the industry, the company said, adding that it believes the addition of the new products to its line-up will strengthen its competitive position.
The FDA said that in addition to authorizing Lorillard's products, it also rejected four from companies it declined to name, saying they had not proved their products were substantially equivalent to marketed products.
Under the Family Smoking Prevention and Tobacco Control Act of 2009, the FDA was given the authority to regulate cigarettes, cigarette tobacco and roll-your-own tobacco but not, immediately, pipe tobacco, cigars or e-cigarettes. The law gives the FDA the potential to expand its authority to all tobacco products but it must first issue new regulations. Those are currently in development and the agency declined to say when they are expected to be complete.