NICOPURE v. FDA: DECLARATION OF JEFF STAMLER, July 8, 2016

July 11, 2016 5:46 pm by Gene Borio

The PDF is Here

EXCERPT:

1. I am the CEO and co-founder of Nicopure Labs, LLC (“Nicopure”). I began working for Nicopure on October 22, 2009. I have personal knowledge of, and am competent to testify regarding, the following.

. . .

13. In total, Nicopure produces over 2,400 types of stock keeping units (“SKUs”), with approximately 40% of those consisting of e-liquid. The remaining 60% of Nicopure’s SKUs are for vaporizers and related parts such as batteries, replacement tanks, empty cartridges, heating coils, wall chargers and adapters, mouthpieces, and USB chargers, none of which contains or is derived from tobacco, and none of which is intended for human consumption. For example, SKU #XG6XPASS- MANU-BLCK is a rechargeable battery, which is not made or derived from tobacco, and which is not intended for human consumption.

14. Of Nicopure’s approximately 950 e-liquid SKUs, 83% contain nicotine.

. . .

21. In contrast to the uncertainty of approval, the immense cost of filing a PMTA for a single product (let alone a product portfolio) is definite. FDA itself estimates that the average cost per e-liquid PMTA will be $131,643, and that the average cost of a vaporizer PMTA will be $440,725.

. . .

32. In other words, as of August 8, 2016, Nicopure cannot continue to bring innovative new products to market without (i) investing the substantial time and money required to prepare a PMTA, and (ii) waiting for FDA to adjudicate the PMTA. That process is likely to take years to complete

. . .

33. But for the Deeming Rule, Nicopure would continue to work to improve the variety, quality, and performance of its e-liquids and vaping devices by researching, developing, and introducing new products.

. . .

44. The Deeming Rule will also restrict Nicopure’s ability to make truthful, nonmisleading statements to consumers. Beginning on the Rule’s effective date, Nicopure will not be able to inform consumers that its products are free of, or contain reduced levels of, any substance, without an order of approval from FDA. These restrictions cover, among other things, truthful, nonmisleading statements that Nicopure’s products are free of smoke, ash, tar, and certain chemicals.

END EXCERPT

FULL TEXT:

Case 1:16-cv-00878-ABJ Document 20-2 Filed 07/08/16 Page 1 of 16

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

NICOPURE LABS, LLC

Plaintiff,

v.

FOOD AND DRUG ADMINISTRATION, et al.,

Defendants.

Civ. No. 1:16-cv-0878-ABJ

DECLARATION OF JEFF STAMLER

I, Jeff Stamler, declare as follows:

1. I am the CEO and co-founder of Nicopure Labs, LLC (“Nicopure”). I began working for Nicopure on October 22, 2009. I have personal knowledge of, and am competent to testify regarding, the following.

2. This declaration describes Nicopure’s business and addresses the impact of the challenged regulations recently promulgated by the Food and Drug Administration (“FDA”), “Deeming Tobacco Products to Be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Restrictions on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products,” No. FDA–2014–N–0189, 81 Fed. Reg. 28,973 (May 10, 2016) (“Deeming Rule” or “the Rule”). The Deeming Rule subjects vaping products—Nicopure’s only type of products—to the onerous

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compliance burdens of the Family Smoking Prevention and Tobacco Control Act (“the TCA”).

BACKGROUND ON VAPING & NICOPURE

3. Nicopure is a limited liability company founded in 2009, with a current principal place of business at 7916 Evolutions Way, Trinity, FL 34655. Nicopure manufactures and distributes various “vaping” products, i.e., products that allow individuals to inhale and exhale vapor (sometimes containing nicotine). This vapor is produced by the heating of “e-liquid” in battery-powered devices known as “vaporizers.”

4. Vaping is a relatively new, quickly growing industry in the United States. In contrast to the traditional tobacco industry, which is stable and consolidated among a handful of large companies, the vaping industry includes thousands of small businesses that manufacture, distribute, or sell vaping products. (See, e.g., AR138,615 (estimating that there are “between 5,000 and 15,000 individual manufacturers and retailers producing e-liquid products in the U.S., nearly all of which are small businesses”).); see also 81 Fed. Reg. at 29,074 (“[T]he final rule will have a significant economic impact on a substantial number of small entities.”).

5. Evidence demonstrates that vaping, on balance, is beneficial to the public health. Peer-reviewed studies have concluded that vaping is much safer than using cigarettes, cigars, and other traditional tobacco products, because vaping does not generate the toxins associated with burning and smoking tobacco. Indeed, in separate studies published in April 2016, a group of American tobacco-control ex—

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perts and the Royal College of Physicians concluded that vaping offers significant benefits to the public health by providing an effective alternative to smoking cigarettes. See David T. Levy et al., A Framework for Evaluating the Public Health Impact of E-Cigarettes and Other Vaporized Nicotine Products, Soc’y for Study of Addiction, at 6 (Apr. 2016), available at www.onlinelibrary.wiley.c… (“The evidence suggests a strong potential for [vaporized nicotine products] use to improve population health by reducing or displacing cigarette use in countries where cigarette prevalence is high and smokers are interested in quitting.”); Tobacco Advisory Group of The Royal College of Physicians, Nicotine Without Smoke: Tobacco Harm Reduction, at 189 (Apr. 2016), www.rcplondon.ac.uk/file/3563 (“Large-scale substitution of e-cigarettes, or other non-tobacco nicotine products, for tobacco smoking has the potential to prevent almost all the harm from smoking in society.”); see also Press Release, Geo. Univ. Med. Ctr., Top Tobacco Control Experts to FDA: Studies of E-Cigs Suggest More Benefit Than Harm (Apr. 25, 2016), gumc.georgetown.edu/news/… More-Benefit-Than-Harm (“e-cigarette use is associated with about five percent of the mortality risks of smoking”).

6. Nicopure sells e-liquid under the Halo and eVo brand names. E-liquid generally consists of propylene glycol, vegetable glycerin, and flavoring, and allows for numerous options in terms of flavor and nicotine level. Although some of Nico—

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pure’s e-liquid products contain nicotine, others do not. A normal bottle of Nicopure e-liquid looks as follows.

7. Nicopure sells vaporizers under the Triton, Reactor, Tracer, and G6 brand names. Vaporizers provide a battery-powered heat source to convert e-liquid into vapor, which the user inhales through a mouthpiece.

8. There are two main types of vaporizers: closed-system devices and open-system devices.

9. In closed systems, the amount of liquid, flavor, and nicotine content (if any) is set by the manufacturer and cannot be altered by the consumer. Closed- system products are available in both disposable form (for single use) and “rechargeable” form (e.g., through the use of proprietary replacement cartridges containing e-liquid).

10. In contrast, for open systems (also known as “tank systems”) the consumer separately purchases e-liquid of his or her choosing to use with the vaporizer; the system’s “tank” can be refilled by the consumer with e-liquid sold by Nicopure or by third parties, including retail outlets colloquially named “vape shops” or “juice bars.”

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11. Nicopure sells both open-system devices (under the Triton, Reactor, and Tracer brand names) and closed-system devices (under the G6 brand name). A photograph of Nicopure’s highest-selling vaporizer, Triton, is below. Consumers can fill the Triton with e-liquid of their choosing, including e-liquid that either contains no nicotine or contains nicotine not derived from tobacco.

12. A majority of Nicopure’s revenue is from the sale of e-liquid and open- system vaporizers, which are popular because of their flexibility and options.

13. In total, Nicopure produces over 2,400 types of stock keeping units (“SKUs”), with approximately 40% of those consisting of e-liquid. The remaining 60% of Nicopure’s SKUs are for vaporizers and related parts such as batteries, replacement tanks, empty cartridges, heating coils, wall chargers and adapters, mouthpieces, and USB chargers, none of which contains or is derived from tobacco, and none of which is intended for human consumption. For example, SKU #XG6XPASS- MANU-BLCK is a rechargeable battery, which is not made or derived from tobacco, and which is not intended for human consumption.

14. Of Nicopure’s approximately 950 e-liquid SKUs, 83% contain nicotine. The remaining e-liquid SKUs do not contain nicotine and are not made or derived from tobacco.

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15. The great diversity in e-liquids is perhaps the differentiating feature of the vaping industry’s consumer appeal, and it is key to Nicopure’s success as a company. Consumers choose Nicopure’s e-liquids for their quality and variety.

16. Nicopure is a small business. We have fewer than 130 employees.

17. None of Nicopure’s products contains tobacco. Yet, nearly all are considered “tobacco products” by FDA under the Deeming Rule and subject to the TCA’s compliance burdens. See, e.g., 21 U.S.C. §§ 387a–387k, 387o, 387t. Only a small number of Nicopure’s products, comprising approximately 5% of Nicopure’s SKUs, do not qualify as “tobacco products” under the Deeming Rule. (Examples of these non-deemed products include necklaces, lanyards, cases, and tweezers. See 81 Fed. Reg. at 29,016.)

PRE-MARKET APPROVAL PROCESS

18. The TCA’s most onerous compliance burden is the pre-market approval requirement, 21 U.S.C. § 387j, which will now apply to nearly all of Nicopure’s products by virtue of FDA’s Deeming Rule.

19. Although the TCA offers three pathways for obtaining FDA’s approval, only one—the premarket tobacco application (“PMTA”) process, id. § 387j(b)(1)—will possibly provide a viable path to approval. (See, e.g., AR023,989 (“[N]early all ENDS products will be subject to premarket review.”).) The other pathways are foreclosed because none of Nicopure’s products were marketed as of February 15, 2007. See 21 U.S.C. §§ 387e(j)(3), 387j(a)–(b). Yet even the success of the PMTA pathway is far from certain, as FDA has approved only one PMTA in the agency’s history. See FDA

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News Release, FDA Issues First Product Marketing Orders Through Premarket Tobacco Application Pathway (Nov. 10, 2015), www.fda.gov/NewsEvents/Ne… PressAnnouncements/ucm472026.htm.

20. The sole successful PMTA, for Swedish snus—a product that had been sold in Europe for many years prior to the TCA—illustrates the immense burden involved; that application was supported by, among other things, four clinical pharmacology studies, two clinical trials studying the product as an alternative to smoking, several decades of data (derived from numerous cohort, case-control, and cross-sectional studies) describing the impact of snus on health risks, and testing for harmful and potentially harmful constituents. See FDA, Premarket Tobacco Application (PMTA) Technical Project Lead (TPL) Review: Swedish Match North America, Inc., at 18, 20, 25–26 (Mar. 11, 2015), available at www.fda.gov/downloads/Tob… UCM472123.pdf. Developing similar data for vaping products would require years—potentially decades—of research, which is impossible to achieve within the two-year application period provided under the Deeming Rule. See 81 Fed. Reg. at 28,977.

21. In contrast to the uncertainty of approval, the immense cost of filing a PMTA for a single product (let alone a product portfolio) is definite. FDA itself estimates that the average cost per e-liquid PMTA will be $131,643, and that the average cost of a vaporizer PMTA will be $440,725. (See AR023,998–4,003.)

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22. Based on Nicopure’s due diligence and communications with third- parties who would assist in the creation of PMTAs, however, Nicopure anticipates that PMTAs will cost much more, with each e-liquid PMTA costing at least $5 million, and each vaporizer (or vaporizer component) PMTA costing at least $3 million. Although FDA believes that certain product portfolios will enjoy “efficiencies” of being able to use the same research for similar products, FDA wholly ignores that the complexity of the process is compounded by the managerial burden of having to oversee multiple PMTAs all at once. Indeed, based on its due diligence, Nicopure is unlikely to be able to submit more than a dozen PMTAs within the two-year timeframe prescribed by the Rule because of limits to its ability to finance and oversee the process.

23. Although Nicopure has approximately two years to file PMTAs, it must begin, and has already begun, spending money, man hours, and other resources to start the process. But the sheer number of PMTAs (likely to number in the thousands) will complicate Nicopure’s and the industry’s ability to even conduct the necessary studies in the two-year compliance period. There is simply no precedent to an entire industry being forced to submit PMTAs—conducted by a limited number of third-party research organizations that cannot possibly fully handle the level of demand—in order to survive.

24. In light of the significant anticipated cost, Nicopure is setting aside cash reserves—which is already encumbering Nicopure’s business strategy, draining its financial performance, and limiting the company’s ability to invest in R&D,

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manufacturing, marketing, and labor. And these reserves would be only a miniscule fraction of the cost necessary to submit PMTAs for all of Nicopure’s products.

25. In addition, each PMTA will require considerable investment of time and energy to complete. As a small business trying to compete in a new industry against entrenched, established competition such as from the cigarettes sold by large tobacco companies, Nicopure will be severely disadvantaged if its employees have to devote their attention to complying with the Deeming Rule’s many and onerous regulatory requirements rather than their current jobs of developing new e- liquids and vaporizers; marketing to retailers, wholesalers, and consumers; and manufacturing high-quality vaping products.

26. Having to file PMTAs for Nicopure’s product portfolio leaves the company with an impossible choice. Nicopure’s business strategy is based on consumers who value customization and choice. But due to the strain of filing PMTAs for each product, Nicopure must choose between slashing its product portfolio (and bearing the cost of the unrealized investment to develop that portfolio) or violating the law.

27. FDA estimates that it will take “an average of 1,500 hours to complete a PMTA.” 81 Fed. Reg. at 29,078. Thus, to maintain half of Nicopure’s current product portfolio, Nicopure would have to invest approximately 1.8 million hours (equal to 75,000 days or 205.5 years) in preparing PMTAs.1 Even if Nicopure eliminated 80% of its products in response to the Deeming Rule, submitting PMTAs for the remaining 20% would take approximately 720,000 hours (equal to 30,000 days or 82.2 1 50% of 2,400 products equals 1,200 products. Multiplying FDA’s estimate of 1,500 hours per PMTA times 1,200 products yields 1.8 million hours.

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years) to complete.2 A dedicated team of 10 employees would take nearly a decade to complete that task if all 10 team members worked 24 hours a day, 7 days a week, 365 days a year—yet FDA has allotted only 2 years for compliance. See 81 Fed. Reg. at 29,011.

28. Given the expense and time required to prepare PMTAs, Nicopure expects that the Deeming Rule will force Nicopure permanently to discontinue virtually all of its current products. The discontinuation of these products will result in lost sales and market share.

29. Time is of the essence in obtaining resolution of Nicopure’s challenges to the Deeming Rule. In the event that the Deeming Rule is vacated or remanded and subsequently amended by FDA, Nicopure will not be able to recover the substantial expenses incurred in preparing PMTAs for its products. Moreover, given the substantial amount of time required to prepare PMTAs, Nicopure has no choice but to begin making these investments prior to resolution of this case on the merits.

INABILITY TO INTRODUCE NEW PRODUCTS

30. Nicopure regularly introduces new and innovative vaping products to the market. For example, in 2015, Nicopure introduced approximately 288 new e- liquid products, 6 new vaporizer products, and 23 new vaporizer components.

31. As of the effective date of the Deeming Rule (August 8, 2016), however, Nicopure will be prevented from introducing any new e-liquids or vaporizers into the market without premarket authorization from FDA. See 81 Fed. Reg. at 29,011 2 20% of 2,400 products equals 480 products. Multiplying FDA’s estimate of 1,500 hours per PMTA times 480 products yields 720,000 hours.

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n.13 (“[W]e note that any new tobacco product that was not on the market on the effective date of the rule … is not covered by [FDA’s] compliance policy and will be subject to enforcement if marketed without authorization after the effective date.”).

32. In other words, as of August 8, 2016, Nicopure cannot continue to bring innovative new products to market without (i) investing the substantial time and money required to prepare a PMTA, and (ii) waiting for FDA to adjudicate the PMTA. That process is likely to take years to complete, given FDA’s track record of approving only one PMTA since the TCA was enacted in 2009, and given the considerable number of PMTAs likely to be filed in response to the Deeming Rule.

Thus, as a practical matter Nicopure will be unable to introduce new products for several years.

33. But for the Deeming Rule, Nicopure would continue to work to improve the variety, quality, and performance of its e-liquids and vaping devices by researching, developing, and introducing new products.

34. By halting this innovation, the Deeming Rule harms Nicopure and consumers. For this reason, too, time is of the essence as this Court reviews the legality of FDA’s regulation.

PROHIBITION AGAINST SAMPLING

35. The Deeming Rule will also immediately restrict Nicopure’s ability to market products to consumers. As of the Rule’s effective date, Nicopure (and any downstream retailer) is prohibited from distributing “free samples” of vaping products. 81 Fed. Reg. at 29,054.

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36. Sampling is important to Nicopure’s business-to-business marketing. Indeed, the most important factor in a retailer’s decision to buy Nicopure’s products is whether the retailer likes them—usually based on how the retailer evaluates free samples provided by Nicopure. In short, sampling is the critical part of Nicopure’s marketing strategy, and the Rule bans it outright.

37. Sampling allows retailers to personally experience a product when they otherwise would not because of cost. Without free samples, retailers would be more reluctant to try Nicopure’s products unless they had a pressing need to bear the search costs of finding new inventory. In turn, the retailer’s ultimate judgment of the samples—and whether to purchase—provides valuable feedback to Nicopure about its products, both good and bad. This is why Nicopure attends various tradeshows each year, which provide the most effective way to reach many retailers with free samples that showcase the quality of Nicopure’s products.

38. Sampling is, if anything, even more critical to Nicopure’s consumer marketing. Vaping is not cheap. Nicopure’s highest-selling e-liquid and vaporizer cost $19.99 and $24.99, respectively. For some consumers, these prices are cost- prohibitive. By providing free “sampling kits” to retailers, Nicopure allows consumers— including current smokers looking for a safer alternative—to try its products without having to bear the cost of an entire bottle of e-liquid and a vaporizer (which may or may not be to the person’s liking). Only sampling allows buyers to explore, in detail, the way a product compares to alternatives and to learn about their own preferences.

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39. Nicopure has invested a substantial amount of time and money to develop a marketing strategy centered on product sampling. Most recently, Nicopure purchased three recreational vehicles (RVs) for Nicopure representatives to tour the country, to talk about Nicopure’s products, and to offer free samples to age-verified adults. These RVs will enable Nicopure to engage face-to-face with consumers, which is otherwise possible only for retailers or convention attendees.

40. Additionally, Nicopure has donated more than $50,000 of product samples to the Vape a Vet Project non-profit, which helps military veterans “‘conquer’ tobacco habits by providing a healthier alternative at no cost to them.” The Vape a Vet Project, www.vapeavet.org. Although Nicopure wants to continue its relationship with the Vape a Vet Project, that partnership—along with the heart of Nicopure’s marketing strategy—is foreclosed by the Deeming Rule.

41. Nicopure does not and will not give samples of any of its products to minors. Indeed, Nicopure supports and is not challenging the Deeming Rule’s prohibition on the sale of vaping products to minors. See 81 Fed. Reg. at 29,057.

42. Nicopure is unaware of any instances in which a minor received or obtained a free sample of a Nicopure product.

43. Because of the importance of sampling to Nicopure’s business, the Deeming Rule causes Nicopure considerable harm the moment it goes into effect. Time is of the essence as this Court reviews the legality of FDA’s sampling ban.

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RESTRICTIONS ON MODIFIED-RISK CLAIMS

44. The Deeming Rule will also restrict Nicopure’s ability to make truthful, nonmisleading statements to consumers. Beginning on the Rule’s effective date, Nicopure will not be able to inform consumers that its products are free of, or contain reduced levels of, any substance, without an order of approval from FDA. These restrictions cover, among other things, truthful, nonmisleading statements that Nicopure’s products are free of smoke, ash, tar, and certain chemicals.

45. Consumer education about Nicopure’s products is an important part of Nicopure’s business strategy, especially because vaping is so new. As part of that education, Nicopure makes a number of truthful, nonmisleading statements to consumers in a variety of media, including on the Internet. On the website for Nicopure’s Halo-branded e-liquid, Nicopure notes that “[n]othing is burned,” “no smoke is released,” and “[n]o ash” is made from vaping. Halo, Vaping Knowledge Center, www.halocigs.com/new-to-v… Elsewhere on the same site, Nicopure explains that unlike tobacco smoke, vapor has “no [t]ar” and only has “a fraction of the 4000 chemicals currently found in standard tobacco cigarettes.” Halo, What is an Electronic Cigarette?, www.halocigs.com/why-halo… These statements are true, factual, and inform consumers about their choices.

46. Nicopure also specifically informs consumers that its products are “diacetyl and acetyl propionyl free.” Halo, G6 Starter Kit, www.halocigs.com/starterk… g6. Nicopure invested a significant amount of time and more than $184,000 to test its products to ensure that diacetyl and acetyl propionyl are absent. Customers

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frequently ask Nicopure whether its e-liquids contain diacetyl or acetyl propionyl. Consumers also routinely ask whether Nicopure products contain certain ingredients, such as peanuts, due to allergies and other concerns. The Deeming Rule restricts Nicopure from answering those questions truthfully.

47. As of the Rule’s effective date, Nicopure cannot market products with these statements, cannot use already produced packaging with these statements, and must alter its advertising. See 81 Fed. Reg. at 29,053. Because Nicopure (and the entire industry) cannot make truthful statements about vaping products to smokers without advance government approval, many individuals will inevitably not switch and will continue to use cigarettes, a product that causes “over 400,000 deaths in the United States each year.” Pub. L. No. 111–31, 123 Stat. 1777, §§ 2(13) (2009).

48. As FDA concedes, vaping products “are different than conventional tobacco products.” 81 Fed. Reg. at 28,997. Compared with smoking cigarettes, vaping offers “substantial reductions in the exposure to harmful constituents” and eliminates “most of the chemicals causing smoking-related disease from combusted tobacco use.” Id. at 29,030–31 (citing study issued by U.K. government expert panel).

As a result, vaping is “likely to be much less, if at all, harmful to users or bystanders” when “compared with cigarettes.” Id. at 29,031 (quoting peer-reviewed study). Nicopure wants to inform consumers of what FDA has already told the public at large, yet the Deeming Rule prevents Nicopure from doing so.

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