Morgan Stanley Report on TPSAC
MORGAN STANLEY RESEARCH
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TOBACCO: FDA MENTHOL REPORT UPDATE: STILL WAITING FOR BALANCE… – September 27, 2010 GMT (7 pgs/ 64 kb)
David Adelman +1 (1)212 761 6382 Morgan Stanley & Co. Incorporated Matthew Grainger (212) 761 8023 Toby McCullagh +44 (0)20 7425 6636 Morgan Stanley & Co. International plc
Investment conclusion: The most interesting development from today’s initial meeting of the TPSAC Menthol Report Subcommittee was that the three tobacco industry representatives – at least at this point – will be excluded from the process of writing the recommendation. The FDA made this determination based on its view that manufacturers would not want to provide a competitor with proprietary information. However, we believe that Lorillard, for example, would waive any issues to allow its Chief Scientist to remain fully engaged in the subcommittee’s menthol evaluation process.
As a result, the FDA’s position may change.
Although we doubt that the FDA would ultimately ban menthol cigarettes, there is clearly risk and uncertainty surrounding the March 2011 TPSAC recommendation. However, we remain skeptical that TPSAC – within the limitations of the existing science – can develop a persuasive, objective rationale for taking such an extreme action as recommending a menthol ban (and sense similar concerns among some TPSAC members).
Disappointed by industry’s exclusion…: The FDA’s decision to exclude the industry’s three representatives from the writing process was disappointing, and in our view is consistent with limiting the industry’s ability to fully participate in the menthol debate.
…But keeping an eye on practical limitations: While we are not naive as to the risks associated with TPSAC, some developments were somewhat encouraging. In particular: (i) While we feared the bulk of the report might be written by more vocal anti-tobacco TPSAC members, key topics such as smoking initiation/cessation are being drafted by less outspoken, potentially more moderate individuals; (ii) The FDA confirmed that contraband and unintended consequences must be addressed in the TPSAC recommendation; and (iii) Various Committee members voiced concern over the short time frame (3/23/2011) and the limitations of the available data.
