What To Make Of The FDA Vote That Rocked Philip Morris

What Happened

Philip Morris International Inc. PM plummeted 6 percent intraday Thursday after the U.S. Food and Drug Administration’s Tobacco Products Scientific Advisory Committee rejected one of two claims surrounding its modified risk tobacco product.

Why It's Important 

The IQOS — a tobacco heating system — mitigates consumer exposure to harmful chemicals but fails to demonstrate a substantial reduction in user mortality or morbidity, the FDA panel said. 

Altria Group Inc MO also fell 4 percent on the news, while 22nd Century Group Inc XXII popped 7.6 percent.

Despite the market’s pessimism, Street analysts defended Philip Morris and its potential to secure authorization for the claims.

Height Securities analyst Stefanie Miller reminded investors that the MRTP case is only the second that the FDA panel has ever considered, and committee recommendations are non-binding.

What's Next

“We still think FDA will ultimately approve the PMTA as soon as next month and MRTP later in the summer for IQOS,” Miller said in a note. 

Piper Jaffray agreed, noting that the regulatory body does not appear to present insurmountable roadblocks.

“While the FDA's TPSAC (scientific committee) meeting has yet to conclude, we consider its strongly favorable vote on one potential modified risk claim to be positive,” analyst Michael Lavery said in a midday note. “... We believe this vote gives the FDA the open door it needs to approve a modified risk claim for IQOS, which we believe it is still likely to do.”

The FDA would need to renew any approval it grants to IQOS, which renders its impending ruling impermanent and is seen to lower the probability of rejection.

Lavery also anticipates a favorable FDA ruling on marketing authorization.

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The IQOS tobacco heating system. Photo courtesy of Philip Morris. 

Posted In: Height SecuritiesIQOSMichael LaveryPiper JaffrayStefanie MillertobaccoTPSACAnalyst ColorNewsFDAAnalyst Ratings