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Predicate Product Exists: Altria In Negotiations To Acquire

By Matt McConnell

Tuesday February 10, 2015
altria has tracked down the mysterious predicate product and is negotiating to buy it.
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Is it possible for any one electronic cigarette to dominate the entire electronic cigarette industry? The answer is “yes” and the company that may be best positioned to establish that dominance is none other that the world’s largest tobacco company, Altria.

ECCR sources have learned that Altria has been secretly negotiating to purchase what the FDA has referred to as the ‘predicate product’, meaning an e-cigarette device that was sold in the United States before February 15, 2007. Sources likewise confirm that those negotiations included a seven figure offer to buy the predicate product.

While the majority of the industry, and the FDA itself, were unaware if the predicate product even truly existed, Altria understood the implications of the predicate product and assigned a team to determine its whereabouts and ownership. They were successful in identifying the product and then made contact with the owner or owners in December of 2014.

Negotiations for the predicate product began in December 2014.

Negotiations were held in Pennsylvania and Virginia but we are told that little progress has been made thus far and it is possible that other suitors have become involved in the race to possess the enigmatic predicate product. The possibilities and ramifications are enormous and it is possible that Imperial Tobacco (owner of Blu Cigs), RJ Reynolds (owner of the Vuse), Electronic Cigarettes International Group Ltd or any of a handful of other major players will be very interested in the outcome.

The significance of possessing the predicate product cannot be overstated. The holder of the predicate product will enjoy a path to market that will not be available to any competitor, which in turn, may actually limit the ability of a competitor to bring a product to market at all.

In fact, it is probable that more than 90% of current e-cigarette brands and possibly all e-liquid vendors will be unable to afford the lengthy and expensive FDA new product submission process and will simply cease operation. Popular high powered box mods, tank systems and RDAs will have to spend millions to receive FDA approval, a proposition that will likely be unattainable for most. The ramifications of this will have serious consequences for 30,000 vape shops that rely on a variety of vendors.

Imagine the entire electronic cigarette industry being limited to a select few products. It could happen. The best products may be able to sell to larger concerns. If a powerful business interest decides to take on the cause of financially backing popular e-cigarette products through the FDA approval process it may preserve a number of vape shops and provide vapers with more options but keep in mind that new product approval in the tobacco category, historically, may take years to achieve.

The owner or owners of the predicate product are unknown, as is the exact nature and form of the product. We can confirm that the predicate product exists and that it was first sold commercially in Pennsylvania in 2006. We are working feverishly to obtain further details and you can expect new developments to be released as they happen. ECCR will continue to have unprecedented inside access to a negotiations that would impact one of the hottest and fastest growing industries in the world.

How does this affect you? Try not to get too used to your mod and favorite flavored ejuice. Cloud chasers may just have to find another sport. The predicate product actually exists and it could change everything for the e-cigarette industry.

This is an ongoing development and ECCR has exclusive access to credible sources. We will be following this intently in the coming days. We have a number of exclusive details to share at this time, beginning when this all started last April, 2014.

The Predicate Product

is the predicate product an ecig tank?

Every vaper, e-cigarette company, e-liquid vendor and vape shop is waiting for the full picture of what FDA’s regulation of the e-cigarette industry will look like. When the FDA proposed e-cigarette regulations were released in April, 2014, many in the industry breathed a sigh of relief because there were no plans to ban e-cigs or e-liquid flavors. As it turns out, that sigh of relief may have been premature as the entire industry is poised to be shaken on its foundation.

The main points of the proposed regulations include a full disclosure of all e-liquid ingredients, a ban on sales to minors, no product giveaways, and new products being subjected to FDA review.

As we have moved forward it has become clear that the FDA review process that will be required to keep a product on the market will cost millions, probably in the five to ten million dollar range.

There are 500 e-cigarette brands out there and most of them cannot begin to entertain the thought of entering the FDA approval process. Only companies that have access to major resources will be able to comply.

There may, however, be a loophole that would allow a company to circumvent any lengthy approval process and essentially exercise complete control over what e-cigarette products can and cannot be sold in the United States.

This possibility is related to the section of the proposed regulations that identifies “new” e-cigarette products to be any product introduced after February 15, 2007. Any product which existed before that date is defined as the “predicate product” of the e-cigarette category.

Here is the section of FDA regulations regarding the deeming of electronic cigarettes as subject to the Food, Drug and Cosmetic Act, also making reference to the “predicate product”:

“If electronic cigarettes are deemed to be subject to chapter IX of the FD&C Act, the cost of pre-market applications would increase the cost of entering and remaining in the market. (It is uncertain whether there are any valid predicates for the electronic cigarette products currently on the market. If no such predicates exist or if they are hard to identify, then all or most electronic cigarettes would require pre-market applications in order to remain on the market.)”

Most paid little attention to this section of the proposed regulations. The predicate product was not a known commodity and it was doubted to even exist. The FDA itself acknowledges that the existence of any predicate product is unknown. If there is a predicate product, then clearly things change drastically.

Consider the secret to be out. The predicate product does indeed exist and is being sought by tobacco giant Altria and possibly others.

The Predicate Product Exists

the first ecigarettes were cigalikes

ECCR sources have confirmed that the predicate product exists and that Altria has made an attempt to acquire it. At this time, the exact nature of the predicate product is unknown but we fully expect to learn more in the coming days.

Why does Altria want the predicate product? For starters, the red tape and expense of meeting FDA approval would be much easier and much clearer.

The FDA allows a less daunting path to market through a “substantial equivalence pathway”. That means that if a company can establish that their product is the same as a tobacco product that was commercially available in the United States before February 15, 2007 they have an open path to market as long as they comply with basic FDA guidelines such as disclosing ingredients and banning sales to minors.

All other companies would be in the dark regarding the nature of the predicate product and thus unable to access the substantial equivalence pathway.   It does not end there. Depending on the nature of the predicate product there are a number of current e-cig styles that may be unable to remain in the marketplace.

Possession of the predicate product is essentially a grandfather clause that enables the holder to avoid the entanglements that will restrict access to the market for everyone else.

With the predicate product actually existing, the stakes just became a lot higher for all industry players. Until now, only Altria and the owners of the predicate product were aware of its existence. At this time, we do not know who owns the predicate product but we do know that Altria has approached the owner or owners.

Now that ECCR has confirmed that the product does exist, it is likely that a frenzy will begin. Altria executives certainly recognized this fact and now the rest of the key players in the electronic cigarette business will as well. The predicate product is more than just an easy path; it could be a key to control the entire industry.

Can Altria Really Control The Industry If They Acquire The Predicate Product?

To this point, Altria has yet to acquire the product and we are told that the negotiations between the owner or owners of the predicate product have slowed to a virtual standstill. We don’t know where RJ Reynolds, Lorillard and Imperial Tobacco stand. There is too much at stake. In other words, the predicate product is still available and could be a complete game changer for whoever ultimately acquires it.

The Future Of The E-Cigarette Industry

the company that acquires the predicate product in the e-cigarette category will control the future of the ecig industry

There are a number of scenarios that could play out here. The characteristics of the predicate product, currently unknown, will essentially define the most available pathway to market and the ability to sell electronic cigarettes.

That means that if the predicate product is a cigalike, with two flavors, then the only products that would be available to the public for sale would be cigalike products with two flavors, because only those products are able to prove substantial equivalence.

That could mean that all the vendors currently supplying inventory to thousands of vape shops would suddenly be unable to sell their products.

The February 15, 2007 Grandfather Date

the predicate product is any tobacco product in the ecig category that was sold before feb 15 2007

This past November, House Speaker John Boehner was joined by several congressional leaders in sending a letter to the FDA asking that the February 15, 2007 grandfather date be changed to either April 2014 or to the effective date of the regulations.

The letter read, “As a practical matter, many newly deemed products could be removed from the market. … The cost and barriers surrounding a new product submission would largely prevent new entries, posing an unwarranted regulatory barrier to innovation. … This is a critical issue, and we request that manufacturers of newly deemed tobacco products have the same market entry opportunities as manufacturers of cigarettes and other currently regulated tobacco products. … Any final provision on this issue should ensure equity among all regulated tobacco products and encourage innovation while achieving the purpose of the law.

The FDA has yet to respond to the letter but it is clear that we are currently in a climate where the portrayal of electronic cigarettes is mostly negative. While some members of Congress may be calling for leniency in e-cig regulations, it seems that local and state governments are responding to the negative portrayal of e-cigarettes with an unending list of bans and restrictions.

Just last week the California Department of Public Health declared e-cigarettes to be a health hazard. Study data has been cherry picked and then represented as being typical.

Data has been manipulated to support scary headlines warning people away from e-cigs and back into the arms of tobacco. There are legitimate concerns about e-liquid ingredients being distributed by unqualified vendors but for the most part the negatives are amplified while the positives are muted. Suffice to say that the e-cigarette smear campaign is currently in high gear.

Given the current climate of concern and the influence of lobbyists, the FDA may not be willing to compromise on changing the date from February 15, 2007. This would mean that all “new” entries into the e-cigarette category would be required to begin an FDA approval process from scratch as a new submission.

The February 15, 2007 date does not just apply to electronic cigarettes; it applies to all new tobacco products. If the FDA allows an exception for electronic cigarettes it may also be opening the door to a litany of additional tobacco products. The FDA would become alarmingly overburdened as it attempts to enforce the mandate of the Tobacco Control Act that was first introduced to the 110th Congress on, of course, April 15, 2007.

This date was not randomly chosen, it was tied to the legislative act under which e-cigarettes are destined to become regulated. There’s more. When the Tobacco Control Act was finalized and signed into law June 2009 as the Family Smoking Prevention and the Tobacco Control Act, many critics began referring to the legislation as the Marlboro Protection Act precisely because of that February 15, 2007 cut-off date for grandfathering of existing products. In other words, Marlboro’s parent-company, Altria, has a powerful and effective lobby.

The behind-the-scenes machinations cannot truly be detailed but much can be inferred from the results. This is typical of the constant dance between lobbyists, regulators and politicians. This dance has been going on since the first democracy and the music is still going strong today. In this case, while the FDA can technically exercise discretion over the February 15, 2007 date, there are other powerful influences at play.

Ultimately, given that Altria made a seven-figure offer to acquire the predicate product, deriving conclusions becomes a less-than-complex task. The predicate product could very well be the ecig industry game-changer, with huge ramifications for anyone and everyone in the business.

UPDATE: The FDA regulations have moved forward without the introduction of the predicate product.

Several leading ecig companies are fighting the stifling regulations. We believe in supporting the companies that are stepping up to the plate and fighting for your right to be smoke free with vapor. The first to step up to the fight was Halo Cigs and Nicopure.

Matt

Team ECCR

For more information on this article please contact: matt@electroniccigaretteconsumerreviews.com

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