Week of March 24 Regulatory Intelligence Recap

Trade Press and Regulatory Summary:

• Fact Sheet: HHS’ Transformation to Make America Healthy Again - Health and Human Services website 

  • The plan combines personnel cuts, centralization of functions, and consolidation of HHS divisions, including: The current 82,000 full-time employees will be reduced to 62,000 28 divisions will be consolidated to 15 10 regional offices will become 5 Human Resources, Information Technology, Procurement, External Affairs, and Policy will be centralized. Regarding FDA, CDC, NIH, and CMS: FDA will decrease its workforce by approximately 3,500 full-time employees, with a focus on streamlining operations and centralizing administrative functions. This reduction will not affect drug, medical device, or food reviewers, nor will it impact inspectors.

• Philip Morris' heated tobacco device IQOS goes on sale in Texas - Reuters

  • Philip Morris International (PM.N), officially launched IQOS in Austin, Texas, on Thursday, kicking off efforts by the world's largest cigarette maker to build a market for its flagship heated tobacco device in the United States. PMI hopes to capture a 10% share of U.S. tobacco and heated tobacco unit volume by 2030 and build a substantial base of new users in the world's top market for smoking alternatives.

• Exclusive: FDA staff struggle to meet product review deadlines after DOGE layoffs - Reuters

  • One scientist at the FDA's Center for Tobacco Products said the center had delayed starting new applications while staff worked on existing submissions, some with reviews that must be completed within 180 days under U.S. law. Several tobacco-related research projects have also been canceled, he said. "We have 180 days to complete those (existing) reviews, and we're not going to come anywhere close to that. It's just not going to happen," the scientist said.

• Multi-pronged land deal primes tobacco company's $600 million Colorado development plans - Costar

  • About the project: After breaking ground on the new Aurora facility late last year, Philip Morris estimated the construction phase alone would create nearly 5,000 jobs before its late 2025 completion. The manufacturing hub, which will produce smoke-free nicotine pouches, is expected to be fully operational by 2026, employing at least 500 full-time roles and generating upward of $550 million annually in economic benefits statewide.

• Senate confirms Marty Makary to lead FDA, Jay Bhattacharya to head NIH - CBS News 

  • The Senate Tuesday confirmed Dr. Marty Makary to run the Food and Drug Administration and Dr. Jay Bhattacharya to lead the National Institutes of Health. Both were confirmed largely along party lines. Makary was confirmed as FDA commissioner by a vote of 56-44, while Bhattacharya was confirmed as NIH director by a margin of 53-47. Three Democrats joined all Republicans in confirming Makary: Sens. Dick Durbin, Maggie Hassan and Jeanne Shaheen. However, no Democrats voted in favor of Bhattacharya.

Onshoring E-Cigarette Hardware Manufacturing: Feasibility Study

Economic Considerations

China produces approximately 90% of global e-cigarette hardware (ENDS), leveraging labor costs of $8–9/hour compared to $28/hour in the United States and lower material expenses. Automation and lean manufacturing may offset the resulting 15–30% increase in U.S. per-unit production costs, though initial capital investments and ongoing maintenance reduce short-term savings. Reshoring eliminates 25% tariffs on Chinese imports and reduces certain logistics expenses (e.g., international shipping and inventory carrying costs, typically 15–20% of total costs). However, domestic shipping and packaging costs, estimated at $8/unit based on industry feedback, significantly exceed China’s subsidized outbound rates, often below $1/unit due to practices such as “technical/water labels.” The Small Business Administration’s (SBA) Made in America Manufacturing Initiative (2025) provides low-interest financing, regulatory relief valued at $100 billion, and grants for facility setup and training, though it does not address domestic transportation costs. Tariff benefits remain contingent on stable U.S.-China trade policies.

Workforce & Training Needs

The U.S. possesses a skilled labor pool in industries such as aerospace and medical devices, yet ENDS manufacturing requires technicians and assemblers in a sector projected to face 2.1 million unfilled jobs by 2030. Competition from technology and automotive industries poses a challenge to recruitment. The SBA’s initiative supports workforce development through partnerships with trade schools, industry associations, and community colleges, alongside national apprenticeship programs in electronics manufacturing. These efforts aim to enhance productivity and reduce labor costs over time, though implementation requires significant investment and may not immediately alleviate shortages.

Intellectual Property Considerations

Domestic ENDS production mitigates intellectual property (IP) risks prevalent in China by leveraging U.S. federal courts and the International Trade Commission (ITC) to address counterfeiting and unauthorized replication. A controlled supply chain strengthens protection of proprietary technologies, including battery management systems, atomizers, and firmware, while co-locating design and manufacturing may accelerate innovation cycles. However, reliance on imported components—such as copper wire and heat coils—introduces residual IP vulnerabilities, as full domestic sourcing exceeds initial capital constraints.

Policy & Incentives

U.S. trade policies, including 25% tariffs on Chinese ENDS hardware, incentivize reshoring, though tariff stability depends on future trade negotiations. The SBA’s Made in America Manufacturing Initiative reduces regulatory burdens through tools like the “Red Tape Hotline,” targeting challenges such as the FDA’s Premarket Tobacco Product Application (PMTA) process, which has denied over 99% of submissions. FDA oversight, influenced by public health advocacy, may resist simplification, limiting regulatory relief. Illicit manufacturers exploit lax enforcement and low shipping costs, creating competitive disparities. The SBA enhances capital access via programs like the Working Capital Pilot Program, and states with tobacco heritage (e.g., North Carolina, Kentucky) may provide additional incentives. Regional policy differences—supportive in tobacco states, restrictive elsewhere—further shape feasibility.

Industry Comparisons & Case Studies

Successful reshoring efforts in semiconductors (TSMC’s Arizona facility), automotive batteries (Ford’s Midwest plants), and medical devices (GE’s GeoSpring in Kentucky) demonstrate the viability of automation, phased supply chain localization, and government incentives. However, ENDS manufacturing differs due to its direct-to-consumer (D2C) model, which incurs higher per-unit shipping costs compared to bulk industrial logistics. The SBA’s recommended phased approach—starting with assembly—aligns with these examples but faces unique challenges, including reliance on imported automation equipment and components.

Optimal U.S. Manufacturing Locations

Candidate regions for ENDS manufacturing include:

• Carolinas and Georgia: Benefit from tobacco industry experience, port access, and skilled labor, though rural workforce availability requires development.

• Texas: Offers established transportation infrastructure and a favorable business climate, yet component import dependency persists.

• Midwest (Ohio/Wisconsin): Provides manufacturing expertise and electronics growth (e.g., Intel’s Ohio facility), constrained by transportation capacity.
  The SBA’s initiative may enhance regional incentives, but it does not directly address shipping or sourcing challenges.

Summary & Strategic Recommendations

• Conduct a comprehensive Total Cost of Ownership (TCO) analysis, incorporating domestic shipping costs ($8/unit), imported component expenses, and SBA incentives.

• Invest in automation to offset labor costs, evaluating cost-effective imported equipment versus higher-priced domestic alternatives.

• Utilize the SBA’s Red Tape Hotline to address FDA regulatory challenges, while preparing contingency plans for sustained oversight.

• Establish workforce development programs with educational institutions, prioritizing rapid deployment to compete with other industries.

• Initiate operations with assembly to assess logistics and market response, scaling to full production as cost structures stabilize.

• Leverage “Made in USA” branding to emphasize quality and trust, contingent on competitive pricing.

Total Cost of Ownership (TCO) Analysis

Scenario: Annual production of 1,000,000 e-cigarette devices

Observations:

• China’s total cost of $7.55M reflects low shipping rates, partially enabled by regulatory loopholes.

• The U.S. cost of $14.65M incorporates $8/unit D2C shipping, eliminating tariff savings and increasing logistics expenses by $7.25M annually.

• Imported components and automation equipment further constrain cost competitiveness.

Addressing Key Challenges

Industry critique highlights three primary obstacles to U.S. manufacturing: elevated shipping costs, component sourcing limitations, and dependency on cost-effective Chinese automation equipment. Below are strategies to mitigate these challenges:

1. Shipping and Packaging Costs ($8/unit)

   • Challenge: Domestic D2C shipping costs of $8/unit exceed China’s subsidized rates, inflating total expenses.

   • Mitigation:

     • Establish a centralized distribution hub (e.g., Texas) to reduce last-mile costs to $5–6/unit with negotiated carrier contracts.

     • Implement batch ordering or subscription models to lower per-unit shipping to $3–4 through consolidated shipments.

     • Advocate for regulatory action to close international shipping loopholes, enhancing cost parity over time.

   • Implication: Requires initial logistics investment and potential adjustments to customer purchasing patterns.

2. Component Sourcing Limitations

   • Challenge: A $10M startup budget supports assembly but not in-house production of components like copper wire or heat coils, necessitating imports.

   • Mitigation:

     • Source partial inputs from U.S. suppliers (e.g., recycled metals) to reduce reliance on imports.

     • Pursue a phased localization strategy, reinvesting profits to develop domestic component production over time.

     • Simplify product designs to minimize complex imported parts, focusing on stampable and moldable elements.

   • Implication: Increases early costs and delays full “Made in USA” certification until supply chains mature.

3. Automation Equipment Dependency

   • Challenge: Cost-effective automation equipment, priced 10 times lower from China, dominates the market, while U.S. alternatives are often imported and modified.

   • Mitigation:

     • Procure Chinese equipment and enhance it locally with U.S.-standard components (e.g., bolts, mounts) to meet safety and operational requirements.

     • Lease automation equipment initially to preserve capital for other priorities, such as shipping optimization.

     • Transition to domestic equipment as production scales and justifies higher investment.

   • Implication: Balances cost and compliance in the short term, with long-term shifts to U.S.-made equipment.

Conclusion

This TCO indicates U.S. manufacturing costs ($14.65M) exceed China’s ($7.55M), driven by $8/unit shipping and external sourcing dependencies. Mitigation strategies—centralized distribution, phased component localization, and optimized automation—could reduce costs to $10–12M annually, though this remains above China’s baseline. Success hinges on execution of logistics efficiencies, strategic investments, and regulatory support. The “Made in USA” value proposition may justify a premium if quality and trust resonate with consumers, provided cost reductions align with market expectations.

Deep Dive - Application of Structural Similarity and Functional Equivalence in Bridging PMTA Data Sets

1. Bridging via Ingredient Class or Structural Similarity

Strategy: Demonstrate that the new ingredient is structurally, chemically, or toxicologically similar to a previously authorized ingredient in an existing PMTA.

How to implement:

• Use QSAR modeling, read-across data, or chemical class grouping to justify equivalency.

• Reference toxicological literature, FDA’s Toxicological Principles for the Safety Assessment of Food Ingredients, or existing GRAS approvals.

• Provide a side-by-side comparison of physicochemical properties, metabolic fate, and expected HPHC profile contribution.

Regulatory Advantage: Reduces need for new toxicology or analytical testing, especially if the ingredient is non-reactive and present at low levels.

Example: Substituting sucralose with another synthetic sweetener like acesulfame potassium, showing both have similar metabolic inertness and lack of pyrolysis-derived HPHCs under product-use conditions.

2. Bridging via Engineering Equivalence & Functional Comparability

Strategy: Show that the updated ENDS device (with next-gen chip, improved battery, or minor internal tweaks) is functionally equivalent to the previously authorized device in all ways that could impact aerosol delivery, user exposure, and safety.

How to implement:

• Compare engineering specs: Provide a side-by-side table of technical specifications (e.g., coil resistance, power output, puff profile, temperature regulation) and show that critical performance parameters are unchanged.

• Justify no new emissions testing: If design controls ensure aerosol output remains within same range, reference existing emissions and toxicology data. You can use bench testing, puffing regimens, and power control limits to justify that no increase in HPHCs is expected.

• Use design verification data: Include ISO 17025-certified electrical and mechanical safety tests, showing compliance with UL 8139 or equivalent. Show that the improvements (e.g., battery life, chip responsiveness) enhance safety without changing user exposure.

• Explain regulatory containment: Clarify that the user interface, usage behavior, and nicotine delivery remain within the same exposure envelope as the previously reviewed product.

Regulatory Advantage: Can avoid re-doing clinical or toxicological studies if performance, safety, and exposure stay the same or improve with no new risks introduced.

Example: "The new chip enables faster charging and enhanced temperature stability, but aerosol mass output, puff duration, and nicotine yield remain equivalent to the original device, as shown in engineering validation data and existing chemistry profiles."