CHICAGO - (Business Wire) Fitch Ratings believes there is a strong likelihood that tobacco production and marketing will become regulated and that legislation granting the Food and Drug Administration (FDA) regulatory authority has the potential to alter the tobacco industry's competitive landscape, according to a Fitch report just released.
The Family Smoking Prevention and Tobacco Control Act, legislation providing a framework for regulating the tobacco industry, passed the House of Representatives on July 30, 2008. Though Fitch does not expect enactment in 2008, if a Democrat is elected to the White House, eventual passage of similar legislation is highly probable.
With the exceptions of banning tobacco products, eliminating nicotine content in tobacco, and prohibiting the retail sale of tobacco products, the legislation gives the secretary of the Department of Health and Human Services (HHS), as the Cabinet-level head of the FDA, wide-ranging authority to impose regulations. Fitch anticipates further advertising and sale restrictions would lessen the competitive forces between industry participants, benefiting those tobacco companies with substantial market shares.
"During the beginning of a regulatory environment, the tobacco industry is expected to function much as it does today," said Wesley E. Moultrie II, Senior Director, Fitch Ratings. "Longer term we are likely to see the industry consolidate further as regulatory compliance imposes a disproportionate burden on smaller players."
Furthermore, the legislation proposes a process for approval of modified-risk tobacco products, providing another impetus for industry change. If modified-risk products gain consumer acceptance, Fitch expects they could drastically change the competitive landscape of the industry in favor of early industry innovators.
"In the FDA drug approval process, large well-funded research operations have an advantage," said Christopher M. Collins, Associate Director, Fitch Ratings. "Philip Morris USA and R. J. Reynolds Tobacco Co. have been forerunners in producing and testing potentially reduced-risk products."
The full report "FDA Regulation Could Reshape the U.S. Tobacco Industry," is available on the Fitch Ratings web site, www.fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Wesley E. Moultrie II, CPA, +1-312-368-3186 (Chicago)
Christopher M. Collins, +1-312-368-3196 (Chicago)
Media Relations:
Cindy Stoller, +1-212-908-0526 (New York)
