FILE UNDER: ELECTRONIC CIGARETTE

The Predicate Product Is Found! What Happens Next?

When the FDA announced plans to regulate the electronic cigarette/vaping industry there was an initial sign of relief with no mention of short term regulatory costs. However, when the small print appeared it very quickly became apparent that there would be significant regulatory costs in the medium to long-term which many believe could decimate the industry.

Buried very deep in the FDA announcement on electronic cigarettes was reference to a mythical “electronic cigarette predicate product” which predates the effective cut off point of 15 February 2007. In simple terms this means that any proven electronic cigarette predicate product available for sale before this date would effectively avoid the potentially enormous regulatory costs. Indeed there is also the possibility that this predicate product could own “grandfather” rights over existing electronic cigarette products.

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So what?

While many questioned the existence of the so-called predicate product it has emerged in the shape of Atlantic Vapor which has evidence that it has a product comparable to tobacco cigarettes sold prior to the cut-off date. Indeed it appears that the first electronic cigarettes were sold in Pennsylvania back in November 2006.

Tobacco giant Altria attempted to keep the discovery of the “predicate product” under wraps but the news has broken in the mass media. It is reported that the Altria has already offered a “seven figure” settlement for the purchase of the “predicate product”. Atlantic Vapor has so far refused the offer on the table suggesting it is well short of the company’s own valuation and in effect inviting other parties to join the auction.

What does this mean in the long term?

We will see whether Atlantic Vapor is good to its word as the company suggested it would rather work with an independent electronic cigarette company. The idea behind this being the fact it would protect the industry, vaping shops and ensure that the tobacco sector is not allowed to flex its financial muscle and dominate the vaping industry. However, there are rumours that other parties are now interested in the potential sale of this “special” product and we await further news in due course.

There are valid concerns within the industry that the acquisition of the “predicate product” and grandfather rights on new variations available today could change the face of the industry. While it is pure speculation at this moment in time experts believe that some of the more popular vaping devices available today would fall under the grandfather rights issue and potentially be forced off the shelves. This is yet another confusing episode in the life of the electronic cigarette/vaping sector and one which looks set to run for some time to come.

Conclusion

While many experts did not pick up on reference by the FDA to the mythical “predicate product” it is widely believed that this mythical product has now been located. It seems to be in the hands of the relatively unknown Atlantic Vapor company which has made it a target for the tobacco giants with their large financial war chests. So far the relative minnow has managed to avoid the clutches of Altria suggesting it would prefer a partnership deal with an existing independent electronic cigarette company.

This all sounds very positive for the industry going forward but the fact is that money talks and the major tobacco companies have enormous war chests and the ability to make Atlantic Vapor a life changing offer. We await developments in due course…………..

Further Reading:

http://www.fda.gov/MedicalDevices/DeviceRegulationandGuidance/HowtoMarketYourDevice/PremarketSubmissions/PremarketNotification510k/ucm134571.htm

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Predicate Product Exists: Altria In Negotiations To Acquire

Mark Benson

For further information about electronic cigarettes please visit the OKCigs.co.uk website.

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