Commenting on the upcoming planned departure of U.S. Food and Drug Administration Commissioner Scott Gottlieb, which was confirmed yesterday by President Trump via Twitter, Jefferies analyst Owen Bennett told investors that he sees it as a net positive for tobacco sentiment, particularly for British American Tobacco (BTI), as it should less concerns around a potential menthol ban near-term. While remaining largely bullish on biopharma, his peer at Piper Jaffray acknowledged that Gottlieb’s resignation is a "new and unexpected source of uncertainty" for the sector.
FDA COMMISSIONER RESIGNING: FDA Commissioner Scott Gottlieb, who has been pushing to restrict the sale of flavored e-cigarettes and sought to speed the approval of generic medicines, is resigning in about a month. The departure was confirmed yesterday by President Donald Trump. "Scott Gottlieb, who has done an absolutely terrific job as Commissioner of the FDA, plans to leave government service sometime next month. Scott has helped us to lower drug prices, get a record number of generic drugs approved and onto the market, and so many other things. He and his talents will be greatly missed!," Trump said in a tweet. Among possible successors are Norman Sharpless, director of the National Cancer Institute and a scientist backed by Gottlieb, and Brett Giroir, assistant secretary at the Department of Health and Human Services, the parent department of the FDA, according to The Wall Street Journal’s Thomas Burton and Jennifer Maloney.
POSITIVE FOR TOBACCO SENTIMENT: The resignation of Scott Gottlieb as FDA commissioner is a net positive for tobacco sentiment as it should lessen concerns related to any possible action around a menthol ban near term, Jefferies' Bennett told investors in a research note on Wednesday. Further, the analyst argued that a potential delay to guidelines around e-vapor restrictions could also support both British American and Imperial Brands (IMBBY). Additionally, it could delay the approval of premarket tobacco product applications, or PMTAs, and modified risk tobacco products, or MRTPs, he contended, adding that a delay to IQOS approval could potentially be the most impactful in this respect. Bennett believes this would be a negative for Altria (MO) and Philip Morris (PM), but a positive for British American Tobacco as it already has a heated product approved. On the negative side for the latter, it could potentially lead to a delay of MRTP on Camel snus, he added. Morgan Stanley analyst Pamela Kaufman said she expects a positive reaction in tobacco stocks to the news that FDA Commissioner Scott Gottlieb will resign in April as it likely delays the agency's near-term tobacco control objectives. Gottlieb's resignation creates a vacuum in leadership and uncertainty about the agency's strategy for tobacco control until a new head is appointed, though leadership at the Center of Tobacco Products remains intact under Mitch Zeller, Kaufman tells investors. While his resignation reduces the near-term regulatory overhang on Altria, it could be a "mixed bag for e-cigs," as Gottlieb changed his tone last year due to the youth e-cig epidemic but he had previously increased leniency towards the category when he pushed out the PMTA deadline to 2022 from 2018, added Kaufman
BIOPHARMA UNCERTAINTY: Also commenting on Gottlieb's departure, Piper Jaffray analyst Christopher Raymond told investors that while he remains largely bullish on biopharma, he also acknowledges a "new and unexpected source of uncertainty now" with the announcement. With a track record of favoring innovation and pushing for increased regulatory efficiency while also advocating for more competition, the analyst thinks Gottlieb was about "as market friendly, patient focused and industry friendly as one could have hoped." While Raymond noted that he has no reason to believe the next commissioner will be quite as radical and potentially damaging to the industry, he does think investors would do well to watch this selection process very closely. Publicly traded companies in the space include Aimmune Therapeutics (AIMT), BioCryst Pharmaceuticals (BCRX), Deciphera Pharmaceuticals (DCPH), Fate Therapeutics (FATE), Global Blood Therapeutics (GBT), Immunomedics (IMMU), Incyte (INCY), Jazz Pharmaceuticals (JAZZ), Sarepta Therapeutics (SRPT), Stemline Therapeutics (STML), Acceleron Pharma (XLRN), and Zogenix (ZGNX).
PRICE ACTION: In Wednesday morning trading, shares of British American Tobacco have gained almost 4% to $39.81, while Altria's stock has advanced about 1% to $53.24. Shares of Philip Morris are fractionally down to $86.94.
British American Tobacco
+1.25 (+3.25%)
Imperial Brands
+ (+0.00%)
Altria Group
+0.215 (+0.41%)
Philip Morris
-0.26 (-0.30%)
Bought by NSRGY
-0.75 (-2.94%)
BioCryst
-0.04 (-0.48%)
Deciphera
-0.45 (-1.63%)
Fate Therapeutics
+0.69 (+4.31%)
Bought by PFE
-0.425 (-0.81%)
Acquired by GILD
-0.36 (-2.12%)
Incyte
-0.94 (-1.10%)
Jazz Pharmaceuticals
-0.29 (-0.21%)
Sarepta
-11.78 (-7.92%)
Taken private
-0.29 (-2.42%)
Acceleron
-0.16 (-0.34%)
Zogenix
-0.33 (-0.63%)