Gottlieb's Departure Creates Uncertainty For Tobacco, Biopharma, Cannabis Industries

Scott Gottlieb’s coming departure as head of the Food and Drug Administration means uncertainty for tobacco companies, drug makers and the cannabis industry — though whether it will be a positive or negative development depends on who replaces him, analysts said Wednesday.

Gottlieb plans to leave the agency in about a month, The Washington Post reported Tuesday.

Win For Big Tobacco?

Among those most closely watching Gottlieb's replacement will be the tobacco industry, in which Gottlieb took a particular interest as he sought to reduce youth e-cigarette use;ban menthol; and reduce nicotine in cigarettes.

“This resignation will likely be viewed as positive for tobacco, as it could push out a proposal on menthol and increases uncertainty about the agency's nicotine reduction goal,” Morgan Stanley analyst Pamela Kaufman said in a Wednesday note. “We expect a positive reaction in tobacco stocks, as [the] resignation likely delays near-term tobacco control objectives.”

Related Link: Analysts Weigh In On The FDA's Position On E-Cigarettes, Menthols

BofA Stays Bullish On Altria

Bank of America Merrill Lynch analyst Lisa Lewandowski reiterated a Buy rating on cigarette maker Altria Group Inc. MO with a $56 price target, noting that it’s unclear what will come in the wake of Gottlieb’s push for more, rather than less, tobacco regulation.

“We do think that any potential FDA plans for additional restrictions on tobacco could be delayed or kicked down the road as the FDA enters a new phase of uncertainty," the analyst said. 

Some media reports suggested Gottlieb’s efforts to curb nicotine addiction, especially among kids, were driven in part by his experiences as a doctor and cancer survivor — and weren’t appreciated by some in the Trump administration and other

Republicans who thought he wasn’t anti-regulation enough for the Trump administration. 

Investors appear optimistic that Trump might pick a less activist successor: shares of Altria were up 2.73 percent at $54.32 at the time of publication Wednesday. 

Shares of British American Tobacco PLC BTI were trading higher by 4.52 percent at $40.20. Shares of Philip Morris International Inc. PM were up 0.31 percent at $87.31. 

RX Approval

Gottlieb’s was seen as more friendly to biopharma companies, particularly small drug innovators, because he pushed to remove regulatory obstacles to get drugs approved more quickly, especially generics and biosimilars.

“His focus on boosting incentives for pharma and biotech companies to innovate and address unmet medical needs was a net positive for innovators in our view,” BofA analyst Graham Parry said in a Tuesday note to biopharma investors.

Gottlieb has been “a key influence and architect … of relatively innovator-friendly, evidence-based Trump administration health care policies and reforms,” the analyst said. “These look to address … high out-of-pocket patient drug costs through increased competition and de-regulation, while preserving the incentives for biopharma companies to invest in R&D and innovate.”

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Cannabis Questions

Gottlieb’s resignation also raises questions about the future of cannabidiol, or CBD, regulation. Responding to pressure from states and members of Congress, Gottlieb had said the FDA understood the desire to clarify the rules on the use of the substance as an ingredient. 

FDA rules prohibit CBD from being sold in food and dietary supplements, but Gottlieb had signaled he wanted the FDA to help find “a pathway” for CBD, possibly via a legislative solution.