Lorillard Sees Improvement in FDA Dialogue
The locally based cigarette manufacturer had hoped to bring new products to the marketplace this year, but that plan ran into regulatory obstacles at the government level, as CSNews Online reported this summer. Those obstacles have led Lorillard to see slowed growth, Kessler explained at the Morgan Stanley Global Consumer & Retail Conference in New York on Tuesday.
"While we are still growing in 2012, we have slowed down in our growth this year," he said. "Last year's 10 percent net sales slowed to about 2 percent net sales growth on a nine-month basis this year. And last year's EPS has slowed to about 7 percent this year."
He acknowledged that Lorillard is still seeing good numbers at that 7 percent but "they are not where we would like them to be at Lorillard," Kessler added.
The company leader pointed to factors for the slowdown: a strategic business plan that has experienced delays due to regulation and the competitive environment. But things may be improving on at least one front -- regulatory.
"Our strategic plan is very simple. We are a cigarette pure play. We have not diversified into smokeless or cigars or other areas of tobacco," Kessler said at the conference. "We believe the opportunity for Lorillard in the cigarette space is tremendous."
Lorillard's strategic plan included expanding into geographic regions it did have a presence and to launch a non-menthol cigarette, Newport Red. The company achieved both those goals in 2011 (Newport Red hit some markets in late 2010) and had hoped to build off that momentum in 2012.
"Eighty percent of our growth last year came from strategic initiatives. We were right on track," Kessler said. "We developed new products and we were ready to launch the next wave and then the next wave after that."
However those plans hit a snag on March 23, 2011 when the FDA implemented new rules requiring tobacco companies to submit new products for approval 90 days before launch, he added. "We are now 14, 15 months into the 90-day approval process. This has gone extremely slow," Kessler said.
As someone who was involved in the discussions on the new 90-day approval process, Kessler explained that he believes the new regulation was never intended to take this long. For its part, the FDA has said there is no deadline for a response or action, he added.
It now seems the tide may be turning. "If I stood up here before you a couple of months ago I would have said it was pretty much radio silence," Kessler said. "I am slightly encouraged to say communications has opened up. We are now hearing from the FDA; they are asking questions.
"I still take the stance that there is no reason to believe that we are not going to work through this process and as an industry -- not just Lorillard -- we will be in a position to be able to launch new products again. I just can't say if that will be two months from now, six months from now or a year from now," he explained.
Despite the delays, Lorillard stands behind its strategic plan. "We believe our strategic plan remains intact, that those new products will come but it's been a little bit of a delay and that's the primary reason we are not growing 4 or 5 percent," Kessler said. "We know that's a high hurdle for the cigarette industry but we think it's doable for Lorillard."