CEO Talks | U.S. Compliance Rush: E-cigarette Compliance Experts Unveil Inner Workings of FDA Review

Interview with Three U.S. E-cigarette Compliance Experts

Comprehensive PMTA Analysis: Compliance Trends and Future Market Patterns in the U.S.

By 2Firsts

Editor's Note: According to data from multiple market research institutions, the U.S. e-cigarette market reached tens of billions of dollars in size in 2023. The U.S. market is undoubtedly the largest e-cigarette market globally and a "must-compete" territory for major e-cigarette manufacturers.

Although the FDA (U.S. Food and Drug Administration) requires e-cigarettes to submit PMTA before they can be marketed, the FDA has been unable to complete the review work on time due to the large number of PMTA submissions. To date, only a few tobacco-flavored e-cigarettes have been authorized, and one brand of menthol flavored e-cigarettes, but these products do not meet the taste needs of mainstream users. Meanwhile, many unauthorized products continue to circulate in the market. Most e-cigarettes in the U.S. are currently sold on the black market.

The FDA recently announced that they will optimize the PMTA process for e-cigarette products. This move aims to simplify the application procedure and improve the efficiency and transparency of the application review, especially against the backdrop of a significant increase in the number of applications in recent years. This has once again made compliance issues a focal point in the U.S. e-cigarette market.

Some industry insiders predict that in the next two to three years, the U.S. market will be filled with compliant e-cigarette products. In other words, obtaining PMTA authorization is not only a "stepping stone" but also a "weathervane." Which flavors will be banned? Which products will be more likely to gain approval? Which manufacturers will gain more market share? A change in one aspect affects all. The wave of accelerated compliance in the U.S. e-cigarette market may reshape the competitive landscape of the global e-cigarette market.

A race concerning compliance and market share is accelerating, and the winners are likely to become the industry leaders of the future.

[Original article by 2Firsts] Recently, 2Firsts invited the core team of the U.S. compliance company Accorto, including CEO Tom Beaudet and CSO Dr. Vincent Angelico, and CEO of independent CRO Inter Scientific, David Lawson, for an exclusive interview in Shenzhen, China. In the interview, they elaborated on FDA regulatory measures, the impact of PMTA on the market, the U.S. e-cigarette regulatory system, recommendations for Chinese companies, and the role played by 2Firsts, among other topics.

They believe that the FDA has finally begun to review the products of companies that have submitted high-quality applications. At the same time, the FDA plans to start blocking all unauthorized products from entering the U.S. "January 2025 will be a significant moment of change. Any company that hopes to enter the market by January 2025 must start submitting high-quality applications now, otherwise, they may face a situation without market share."

At the end of the interview, they added, "Big things are happening right now!"

Core Points:

1. The FDA has started promoting the review of excellent PMTA applications and is preparing to block all unauthorized products from entering the U.S. market. It is predicted that there will be significant changes in PMTA review and regulation by 2025.

2. The FDA's review of PMTA applications is still immature, and the review process and requirements are still changing. Therefore, PMTA has not yet brought a positive drive to the U.S. market. However, recent trends indicate that the FDA's review requirements are gradually becoming clear.

3. In terms of law enforcement, in addition to the FDA, the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF), U.S. Marshals Service, and the Postal Service are also involved in law enforcement actions against illegal e-cigarettes. These law enforcement agencies will focus on brands with a large market share and review whether these brands attract minors.

4. The FDA's working model is to prioritize the review of large companies because large companies can provide more detailed data. By reviewing large companies, the FDA continuously improves the review standards and processes. Large companies are also willing to participate, which will promote their product standards to influence the industry standards.

5. 2Firsts should leverage its influence in China and globally to help companies better understand and fulfill compliance in the U.S. market.

(The following is the interview transcript)

2Firsts: Please briefly review the implementation process of PMTA in the e-cigarette field, what are the important milestones; what is the current stage of development, and what are the key points that need special attention?

Answer: So far, the FDA has received about 20 million applications. This number fluctuates but is roughly in this range. It is estimated that within a few months after the first deadline in 2020, the FDA received 6.7 million applications.

Among all the received applications, 99.9% of the applications were rejected. Only those companies that spend time and money and conduct very rigorous scientific applications can enter the review stage, and many of these applications are still waiting for a final decision. In fact, in 2022, the FDA had a second application deadline for synthetic nicotine, and this time it received several million additional applications. Once again, more than 99% of the applications were rejected. Therefore, it is clear that only a few companies are trying to apply in the right way.

We know that completing this process correctly is very expensive and time-consuming, but it is the only choice for those companies that hope to operate in the U.S. market for a long time. Recently, Dr. Brian King (Editor's note: Director of the FDA's Center for Tobacco Products) stated that they expect to complete the review of all applications before the end of the summer.

The biggest challenge facing the U.S. e-cigarette market is the issue of flavor attraction to underage users. We know that most e-cigarettes are much safer than traditional cigarettes. The issue of underage users' use of flavored products seems to be an important reason for many delays in approval. It was not until recently that some progress was made on this issue. Just a few weeks ago, the FDA approved a non-tobacco flavor for the first time, which is an important development. This shows that the FDA is finally ready to start reviewing the products of companies that have submitted high-quality applications. However, at the same time, the FDA plans to start blocking all unauthorized products from entering the U.S. market.

"PMTA is Still in a Very Early Stage"

2Firsts: How do you evaluate the impact of PMTA on the U.S. e-cigarette market? What positive effects has it brought, and what problems exist?

Answer: It is currently difficult to see the positive effects of PMTA because the entire process is still in a very early stage. When thinking about this issue, I think it is important to first emphasize that although the U.S. has been implementing PMTA since 2016, the process is still in its infancy. Despite multiple inspections and strict regulatory enforcement, it can be seen that the FDA is still immature in reviewing products, which is reflected in its changing requirements, review processes, and communication methods.

The current situation is that the FDA does not approve or authorize these applications, almost all of which are given a negative response. I think this is mainly due to a lack of information and insufficient understanding of the review standards. As more and more product applications are reviewed, we gradually understand that the FDA has specific requirements for certain types of research or evidence in the products, and this evidence must be able to prove the benefits of the product to public health. For example, recently the FDA has clearly required applicants to provide specific types of research or evidence in some communications to support their applications and incorporate these requirements into the review framework.

"One of the Focuses of Regulation is to Prevent Minors from Accessing These Products."

2Firsts: What is the regulatory system for e-cigarettes in the United States, and in addition to the familiar FDA, which other federal agencies are involved? How is the regulation of e-cigarettes divided between the federal and state levels?

Answer: The current law enforcement is not comprehensive. The number of products entering the U.S. market is very large, and the number of applications is also very large, exceeding the expected processing capacity. For example, we occasionally see warning letters and seizure reports for products that do not have compliant applications. However, these incidents are sporadic and not the norm. To deal with this issue, regulatory agencies have formed a special task force to integrate the resources of the Bureau of Alcohol, Tobacco, Firearms, and Explosives, the U.S. Marshals Service, and the Postal Service. These measures have begun to provide them with the manpower needed to deal with the large number of products entering the market.

At present, the law enforcement work is mainly focused on the sales point. In convenience stores, we have seen some similar situations, and related news reports have also mentioned that they actually go to various sales points to check and impose fines of up to $20,000 on businesses that sell unapproved products. They usually pay attention to some brands that have appeared in their large-scale research and have a large market share. One of the focuses of regulation is to prevent minors from accessing these products, which is also an important task for them.

Due to the limited ability of federal agencies to effectively enforce regulations, various states have begun to take their own measures for regulation.

The situation in each state is very complex, and they are all trying to use the federal legal system to understand the situation within their own states. In fact, each state operates in its own way, which means that each state has its own set of "mazes (mazes)," and you must go through these procedures to figure out how to operate compliantly in that state.

FDA Takes Application of Large Companies as "Gold Standard"

2Firsts: There is criticism outside that the FDA's slow regulatory actions on e-cigarettes have led to the current situation in the U.S. market - the vast majority of products have not passed PMTA, and if manufacturers want to be fully compliant, they may not be able to compete with illegal products. How do you view this phenomenon? What suggestions do you have for the FDA; what efforts do you think Chinese manufacturers should make to optimize this situation?

(1) The FDA did not initially expect such a large number of applications and is currently improving the review standards and processes.

Answer: The regulations initially formulated did not anticipate such a large number of e-cigarette product applications. In the 1970s, the FDA did not expect to receive such a large number of applications. At that time, there were only a few million products on the U.S. market.

The FDA is now dealing with these applications and focusing on products with larger market shares. In addition to those applications that have been banned from the market, the FDA is also ensuring a standardized review process.

For federal agencies like the FDA, it is very important to be able to fully review each application. We have seen that the FDA has issued new internal memos over the past few decades to standardize many internal review processes, ensuring that all products are assessed through the same review channels and standards.

The FDA has experienced many challenges in the early review process, but these issues have improved as the FDA has become more familiar with and mastered these standards and their scientific basis. For Chinese manufacturers, they are better prepared to face these challenges. A few months ago, we may not have been clear about these situations, but now we can clearly communicate that this process is making significant progress. For example, with the approval of the first flavored product, we now have a clear understanding of the data standards. This is an important advancement in the current regulatory process.

(2) The FDA is accustomed to starting with the review of large companies, using the applications of large companies as the "gold standard"

The FDA uses the initial applications of large companies to determine important evaluation standards and methods. Regarding the FDA's review method, I would like to add that usually when the agency enters a new field (just like when reviewing drugs), it first deals with the applications submitted by large pharmaceutical companies, which usually contain very detailed large-scale studies and a large amount of data. This is why we see that some large companies, whether they are from China, the United States, or other countries, their products that were submitted early may have undergone a longer review to prove the safety of the products. However, once the applications of these large companies are approved, the evaluation standards and methods formed on their basis will become the "gold standard (gold standard)" and affect the standards of the entire industry. Therefore, you will see that some companies invest a lot of money to make themselves the basis for setting standards. This is actually the process we are going through right now.

(3) Why the applications of large companies are approved first?

This is why you will see the products of some large companies being approved. These companies have a unique and in-depth approach to answering the questions raised by regulatory agencies. This is very important for regulatory agencies like the FDA because these large applications contain more information than necessary, which helps the FDA to more clearly assess the safety of the products and ultimately answer whether these products meet the public health interests, whether these products have obvious advantages compared to other products, and other questions.

(4) Returning the market to compliant companies

We believe that a method must be found to distinguish companies that are striving to be compliant from those that are not compliant. Regulatory agencies cannot expect e-cigarette companies to wait three or four years for results after investing funds for application. To this end, we have arranged a meeting with CTP (Office of Tobacco Control) in September to discuss this issue. Compared with companies that try to evade regulations, we hope to allow companies that comply with regulations to continue to sell their products in the market while allowing regulatory agencies to complete the review process. This will return the market space to those compliant e-cigarette companies, or at least open the market space to those compliant companies. This will help improve the ability to launch new products.

"Chinese Local Companies are in a Core Position in Global Market"

2Firsts: How do you view the role and value of Chinese supply chain companies in the global industry; how do you hope to strengthen ties and cooperation with Chinese companies in the future?

Answer: There is no doubt that Chinese local companies are in a core position in the global market, and the entire industry would not exist without the support of Chinese manufacturers. But the other way around is also true, your companies rely on the global market to support operations.

At present, most e-cigarette brands in the U.S. market are in a gray area. If we can promote the FDA to strengthen regulation and ensure that only those companies that operate compliantly can operate in the market, then we can share the $32 billion market share of the U.S. market. The market potential is huge, and in the future, 20 to 30 e-cigarette companies with approved products will emerge. Therefore, it is worth spending millions of dollars to apply correctly and compliantly.

Since 2000, I have been working in China and have been cooperating with different types of companies. So far, I have been to China more than 60 times. We don't want only large tobacco companies to dominate the market, we want to help these young Chinese e-cigarette companies succeed. It's very frustrating for you and us to see that no one believes that any product will be approved on the market.

Now everything is changing. In the past two months, many things have changed significantly. Now it is clear that the time has come, and the illegal e-cigarette market will be closed. And those companies that want to operate compliantly will gain a huge market share.

Over time, the PMTA process will become more efficient. The continuous improvement of information and the increasing specificity of the agency's requirements will shorten the approval turnaround time and reduce related costs. Ultimately, the process will be able to support the continuous introduction of new products, with the goal of completing the approval within 18 months.

We believe that in 2025 and the following years, the entire process will become more predictable. If the changes happen before the end of this year, we will see significant changes, and now is the time.

"You Play Crucial Role in Helping Companies Understand Importance of Compliance in U.S. Market."

2Firsts: In helping Chinese companies enter the U.S. market more compliantly and promoting the FDA to regulate more efficiently, what role do you think 2Firsts can play and what actions can be promoted.

Answer: I think you are doing a good job. One of the best things you can do is to report truthfully and help companies identify various misconceptions in the market. You meet the right people and help companies realize the importance of compliance and understand the direction of market development.

Now is the critical moment for companies to start submitting high-quality applications because this round of opportunities will end soon. Maybe one day there will be a notice that companies will no longer be allowed to continue applying. January 2025 will be a significant moment of change. Any e-cigarette company that hopes to enter the U.S. market by January 2025 must start submitting high-quality applications now, otherwise, they may face a situation without market share. Therefore, understanding the upcoming changes and being prepared is crucial for companies.

We believe that you play a crucial role in helping companies understand the importance of compliance in the U.S. market and how to implement it, because you have so many loyal users.

2Firsts welcomes entrepreneurs from around the world to sign up for interviews. If you are also willing to share your thoughts through 2Firsts and engage in dialogue with global readers, please contact us: Alan@2firsts.com.