28 July 2017 by lberuti
“The overwhelming amount of death and disease attributable to tobacco is caused by addiction to cigarettes – the only legal consumer product that, when used as intended, will kill half of long term users”, said FDA Commissioner Scott Gottlieb in a statement announcing the U.S. Food and Drug Administration plans to explore regulating the level of nicotine in conventional cigarettes. It could represent one of the most sweeping effort by the federal administration to reduce smoking and it has the potential to reshape the tobacco industry. While the plan to crack down on nicotine levels – the very ingredient that keeps smokers loyal – is bad news for the cigarette business, the impact could be tempered for companies like Philip Morris and MO ( Altria Group Inc ) which have been putting emphasis on innovations they say have less health risk. The two sister companies have been working on iQOS, a device that gives a nicotine hit by heating tobacco instead of burning it. Nevertheless, the initial market reaction was to send tobacco companies’ risk premia wider across the board : Mo’s was 9bps wider at 36bps, BATSLN’s ( Britisn American Tobacco Plc ) was 4bps wider at 56bps and IMBLN’s ( Imperial Brands Plc ). Relative value trades will come later!