Monoply in the tobacco industry?

By Shiacmkmleer · Feb 26, 2007 ·
  1. Shiacmkmleer

    WASHINGTON/SCOTTSDALE, Arizona (Reuters) - The tobacco wars are back in the U.S. Congress, but the battle lines have shifted and anti-smoking forces are no longer facing a monolithic tobacco industry and loyal legislators.
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    Marlboro cigarettes maker Philip Morris USA is siding with public health advocates in favor of a bill that, for the first time, would let the Food and Drug Administration regulate tobacco products, but not ban them.
    The effort gained momentum with Democrats taking control of the Congress this year.
    Senate Health Committee Chairman Edward Kennedy (news, bio, voting record) has scheduled a hearing on the bill with testimony by public health witnesses for Tuesday.
    Analysts say Altria Group Inc.'s (NYSE:MO - news) Philip Morris is protecting its dominant market share, cutting legal risks and making regulation more predictable, possibly paving the way for new tobacco products with less health risk.
    On the other side, smaller competitors, such as Camel and Kool cigarettes maker Reynolds American Inc. (NYSE:RAI - news), are fighting not to get left behind by a bill some call the "Marlboro Monopoly Act."
    "They don't want the clock to stop and be stuck at 10 percent market share with Camel," said tobacco analyst Gregg Warren of market research firm Morningstar Inc.
    The bill has been introduced by Massachusetts Democrat Kennedy and Texas Republican John Cornyn (news, bio, voting record) in the Senate, along with California Democrat Henry Waxman (news, bio, voting record) and Virginia Republican Tom Davis in the House of Representatives.
    It has 29 co-sponsors in the Senate and 96 in the House. Republican House leaders who blocked its consideration two years ago are out of power.
    "Congress has debated the issue of FDA authority over tobacco for nearly a decade. It is time to finish the debate and take action," said Matthew Myers, president of the Campaign for Tobacco-Free Kids.
    The bill now pending would empower the FDA to regulate tobacco, to restrict tobacco advertising, to prevent sale of cigarettes to minors, to require stronger warning labels, to bar misrepresentation of tobacco's dangers, and to order removal of harmful ingredients from cigarettes.
    In addition, it would set standards for "reduced risk" tobacco products, which could not be marketed as safer than regular cigarettes without FDA verification.
    "We believe FDA regulation ... could be characterized as a good thing for the industry. However we continue to believe there will be vehement opposition," said Christopher Growe, a tobacco analyst at brokerage A.G. Edwards & Sons Inc.
    "Any advantages of FDA regulation would accrue mostly" to Philip Morris, Growe added.
    As the dominant U.S. cigarette group with control of half the market, Philip Morris could absorb the added costs of FDA regulation more easily than smaller rivals, analysts said.
    Philip Morris' market share would also be protected from challengers if the FDA mutes rivals' advertising, they said.
    Finally, regulation could pave the way for products that pose less risk. Here too, Philip Morris may have an edge.
    "We believe (Philip Morris USA) is far ahead of its peers on developing a reduced risk product," Growe said.
    Diseases caused by tobacco use kill more than 400,000 Americans annually and cost more than $89 billion in health- care bills, says the Campaign for Tobacco-Free Kids.
    The FDA tried on its own over a decade ago to regulate tobacco. The industry resisted fiercely. The Supreme Court ruled in 2000 that the FDA could not regulate without congressional action.
    The Senate voted in 2004 to give the FDA that power, but the effort died in the House. Altria's Philip Morris backed FDA regulation then.
    Steven Parrish, spokesman for Altria, said it and Philip Morris USA back the latest bill, too, because it could "create a competitive environment focused on reducing the serious harm tobacco products cause." In addition, the bill could lead to more predictability and clearer standards, he said.
    David Howard, spokesman for Winston-Salem, N.C.-based Reynolds, said the company opposes "legislation that conveys an unfair advantage ... to any manufacturer."
    The bill, he said, "restricts our ability to compete."
    Reynolds CEO Susan Ivey said Thursday at a conference in Arizona that the company welcomed discussions on legislation that would focus on protecting children from marketing, but still allow the company to market to adult smokers.
    A Reynolds spokesman added that the company could accept the FDA as industry regulator, but not if that meant the FDA could dictate how cigarettes are made to the point where smokers would not want to smoke them.

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