Final Rule on Exemption for Substantial Equivalence

8/6/2019 Final Rule on Exemption for Substantial Equivalence

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This section of the FEDERAL REGISTERcontains regulatory documents having generalapplicability and legal effect, most of whichare keyed to and codified in the Code ofFederal Regulations, which is published under50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold bythe Superintendent of Documents. Prices ofnew books are listed in the first FEDERALREGISTER issue of each week.

Rules and Regulations Federal Register38961

Vol. 76, No. 128

Tuesday, July 5, 2011

DEPARTMENT OF HEALTH ANDHUMAN SERVICES

Food and Drug Administration

21 CFR Parts 16 and 1107

[Docket No. FDA2010N0646]RIN 0910AG39

Tobacco Products, Exemptions FromSubstantial Equivalence Requirements

AGENCY : Food and Drug Administration,HHS.ACTION : Final rule.

SUMMARY : The Food and DrugAdministration (FDA) is issuing thisfinal rule to establish procedures forrequesting an exemption from thesubstantial equivalence requirements of the Family Smoking Prevention andTobacco Control Act (Tobacco ControlAct). The final rule describes theprocess and statutory criteria forrequesting an exemption and explainshow FDA reviews requests forexemptions. This regulation satisfies therequirement in the Tobacco Control Actthat FDA issue regulationsimplementing the exemption provision.DATES : This rule is effective August 4,2011.FOR FURTHER INFORMATION CONTACT :Annette Marthaler, Center for TobaccoProducts, Food and Drug

Administration, 9200 Corporate Blvd.,Rockville, MD 208503229, 8772871373, [email protected] . SUPPLEMENTARY INFORMATION :

I. IntroductionIn the Federal Register of January 6,

2011 (76 FR 737), FDA issued a noticeof proposed rulemaking (NPRM) toestablish a procedure for requesting anexemption from the substantialequivalence requirements of the FederalFood, Drug, and Cosmetic Act (theFD&C Act) applicable to tobacco

products. This final rule establishesprocedures for requesting an exemptionunder section 905(j)(3) of the FD&C Act(21 U.S.C. 387e(j)(3)). Among theprocedures included in this final rule isthe requirement that a request for anexemption and all informationsupporting the request be submitted inan electronic format. The final rule alsoaddresses FDAs review of an exemptionrequest and establishes procedures forrescinding an exemption. The final ruleadds these requirements at 1107.1 (21CFR 1107.1).

The FD&C Act requires manufacturersto obtain an order under section910(c)(1)(A)(i) of the FD&C Act (21U.S.C. 387j(c)(1)(A)(i)) before they mayintroduce a new tobacco product intointerstate commerce unless either: (1)FDA has issued an order finding thenew tobacco product to be substantiallyequivalent to an appropriate predicatetobacco product and in compliance withthe requirements of the FD&C Act or (2)the tobacco product is exempt from therequirements related to substantialequivalence under a regulation issuedunder section 905(j)(3) of the FD&C Act(see also section 910(a)(2)(A); 21 U.S.C.387j(a)(2)(A)). This final rule is issuedunder section 905(j)(3)(B) of the FD&CAct, which requires that FDA issue

regulations to implement the provisionon exemptions from the substantialequivalence requirements of theTobacco Control Act by July 1, 2011. (21U.S.C. 387e(j)(3)(B); section 6 of theTobacco Control Act). Section905(j)(3)(A) of the FD&C Act providesthat FDA may exempt from therequirements relating to thedemonstration of substantialequivalence, tobacco products that aremodified by adding or deleting atobacco additive, or by increasing ordecreasing the quantity of an existingtobacco additive, if FDA determines

that: (1) The modification would be aminor modification of a tobacco productthat can be sold under the FD&C Act; (2)a substantial equivalence report is notnecessary to ensure that permitting thetobacco product to be marketed would

be appropriate for protection of thepublic health; and (3) an exemption isotherwise appropriate.

II. Overview of the Final RuleWe considered all of the comments to

the NPRM and the informationsubmitted with the comments. After

considering the comments and to clarifythe information to be submitted in anexemption request, we have changedproposed 1107.1(b) to state that anexemption request must identify thetobacco product(s) that is the subject of the exemption request and, as required

by part 25 (21 CFR part 25), include anenvironmental assessment. On our owninitiative, we also made minor edits tothe introductory language in proposed 1107.1(b) to more clearly state that allsubmissions need to be legible and inthe English language. As discussed inthe NPRM, FDA will provideinformation on its Web site onsubmitting an exemption request in anelectronic format that FDA can review,

process, and archive ( e.g., informationon electronic media and methods of transmission) ( http://www.fda.gov/ TobaccoProducts/default.htm ).

In response to comments expressingconcern regarding the potential burdenof requesting an exemption and afterreconsidering the burden estimates, wehave revised the burden estimates tomore accurately reflect what we believethe burden will be for requesting anexemption. This is discussed in furtherdetail in sections VII and VIII of thisdocument.III. Comments on the Proposed Rule

We received 13 comments on theNPRM. Comments were received fromindividuals, a trade association, andtobacco product manufacturers. Tomake it easier to identify comments andour responses, the word Comment, inparentheses, will appear before eachcomment, and the word Response, inparentheses, will appear before eachresponse. We have combined similarcomments under one comment. Inaddition, several sets of commentsincluded comments on the Guidancefor Industry and FDA StaffSection905(j) Reports: Demonstrating

Substantial Equivalence for TobaccoProducts (76 FR 789, January 6, 2011);those comments will be considered aspart of FDAs review of that document.A. General Comments

(Comment 1) Several commentsgenerally objected to the rulemaking,stating, for example, that there shouldnot be an exemption for the productand suggesting instead that tobaccoproducts be removed from the market.We received one comment thatexpressed concern about using the term

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approval with respect to tobaccoproducts because it implies that FDAsanctioned the product.

(Response) The issuance of a ruleimplementing the substantialequivalence exemption provision of theFD&C Act is explicitly required bysection 905(j)(3)(B) of the FD&C Act.The statute requires FDA to implementthe exemptions provision throughrulemaking. This regulation fulfills thatdirective by establishing the proceduresmanufacturers must follow in order torequest an exemption from thesubstantial equivalence provisions of the law. Neither the proposed nor finalrule uses the term approval.

(Comment 2) One comment statedthat we failed to satisfy our statutoryobligation to implement the FD&C Actand its provision authorizingexemptions from the statutessubstantial equivalence requirements.This comment continued by stating thatthe proposed rule was not a meaningfulattempt to comply with the statutorydirective to issue regulations toimplement the exemption provisionand that, at most, the proposed rulewould act as a placeholder to allowFDA to defer indefinitely itsresponsibilities under section905(j)(3)(B). The comment stated thatthe proposed rule failed to give theexemption provision either meaningfulsubstantive content or a viableprocedural pathway. The comment alsostated that this dereliction wasconcerning given the amount of timethat has passed since the TobaccoControl Act was enacted.(Response) We disagree with thesecomments. The statute requires FDA toimplement the exemptions provisionthrough rulemaking. This regulationfulfills that directive by establishing theprocedures manufacturers must followin order to request an exemption fromthe substantial equivalence provisionsof the law. The rule provides apremarket pathway that will facilitategranting exemptions for tobaccoproducts with minor modifications toadditives that meet the statutory criteria.Many of the comments provided us with

detailed information about the widerange of modifications made to tobaccoproduct additives; these commentssupport the need for an exemptionregulation that will accommodatevarious minor modifications toadditives that meet the exemptioncriteria.

(Comment 3) One comment suggestedthat the rulemaking does not further theobjectives of the Tobacco Control Actand will require the unnecessaryexpenditure of FDA and industryresources on submissions that have no

bearing on the goals sought to beachieved by the Tobacco Control Act.

(Response) We disagree. Theexemption pathway is a significant partof the regulatory scheme Congressenacted to achieve the goals of theTobacco Control Act. The FD&C Act, asamended by the Tobacco Control Act,requires that new tobacco productsundergo some type of premarket review by the FDA. This premarket review may

be through a premarket application(section 910(b) of the FD&C Act; 21U.S.C. 387j(b)), a substantialequivalence report (section 905(j); 21U.S.C. 387e(j)), or a request for anexemption from the substantialequivalence requirements (section905(j)(3)) (section 910(a)(2); 21 U.S.C.387j(a)(2)). To ensure appropriateoversight over tobacco products, it iscrucial that FDA have information aboutmodifications to additives in tobaccoproducts in order to determine whether

the modifications are minor and,accordingly, whether it is appropriate toexempt the tobacco product from thesubstantial equivalence requirements of the statute (assuming the other requiredfindings can be made).

(Comment 4) Some comments statedthat FDA needs to address the meaningof new tobacco product before issuinga final exemption regulation. Onecommenter stated that simplyrepeating the language of the statute isinsufficient, noting that the statutorydefinition of new tobacco productincludes the term modification and,depending on how broadly the termmodification is interpreted,potentially thousands of products thatCongress intended to grandfather could

be swept into the category of newtobacco products simply because theyhave undergone routine, consistency-maintaining adjustments that have nopublic health significance. Thecommenter further stated that the lackof notice regarding the meaning of theterms new tobacco product andmodification raises due process andAdministrative Procedure Act concerns

because it is difficult for interestedpersons to provide meaningful

commentary on a proposed exemptionfrom requirements applicable only tonew tobacco products when FDA hasnot revealed its understanding of whatconstitutes a new tobacco product.

(Response) The FD&C Act, asamended in 2009 by the TobaccoControl Act, defines new tobaccoproduct at section 910(a)(1) as anytobacco product (including thoseproducts in test markets) that was notcommercially marketed in the UnitedStates as of February 15, 2007; or anymodification (including a change in

design, any component, any part, or anyconstituent, including a smokeconstituent, or in the content, deliveryor form of nicotine, or any otheradditive or ingredient) of a tobaccoproduct where the modified productwas commercially marketed in theUnited States after February 15, 2007.The definition expressly states that anew tobacco product includes anymodification of a tobacco product wherethe modified product was commerciallymarketed in the United States afterFebruary 15, 2007. Therefore, FDAdisagrees with the suggestion in thecomments that the term new tobaccoproduct has not been sufficientlydefined.

(Comment 5) Some comments statedthat there are categories of routine,consistency-maintaining adjustmentsthat are not intended to alter thechemical or perception properties of theproduct and that, therefore, should not

be treated as modifications for which apremarket application, substantialequivalence report, or exemptionrequest should be required. Thecomments cited to various provisions of the FD&C Act, such as the goodmanufacturing practice provisionsunder section 906(e) of the FD&C Actand the notifications under section904(c) (21 U.S.C. 387d(c)), as support fortheir view that these routineconsistency maintaining adjustmentsare not modifications for whichpremarket review is required, becausethese other provisions are intended to

ensure that we receive information onthese types of adjustments and,consequently, these provisions wouldotherwise be rendered meaningless.Other comments similarly stated thatadjustments made in response tovariations in manufacturing, anddifferences in materials from lot to lotthat are necessary to maintain consistentproduct characteristics, should not beconsidered modifications. Somecomments identified specificadjustments that should not beconsidered modifications, includingspecific adjustments to compensate forthe inherent variability of tobacco, theneed for multiple suppliers forcomponents, and adjustments made atthe suppliers initiative to maintainconsistency. The comments stated thatif modification were interpreted toinclude these adjustments, thatexcessively broad interpretation wouldresult in hundreds of legally marketedproducts being swept into the statutoryand regulatory regime for new tobaccoproducts even though they would nothave changed in any meaningful wayand that this would impose severe


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burdens on both FDA and industry. Onecomment noted that a dictionarydefinition of modification supportedexcluding these adjustments from thescope of modification.

(Response) As previously discussed,the FD&C Act defines the term newtobacco product as specificallyincluding any modification of a tobaccoproduct where the product wascommercially marketed after February15, 2007. The statutory definition is notlimited to modifications intended tohave a certain effect or that are morethan a routine adjustment of theproduct. While FDA agrees that theFD&C Acts reporting obligations andother requirements related to tobaccoproducts would apply to tobaccoproducts modified as the commenterssuggest, we disagree that these variousrequirements suggest that these types of modifications would not subject themodified tobacco product to thepremarket requirements for new tobaccoproducts. Manufacturers and interestedparties should refer to FDAs Web sitefor guidance on current enforcementpolicies related to premarketrequirements for tobacco products(http://www.fda.gov/TobaccoProducts/ default.htm ).

(Comment 6) Some comments statedthat a broad construction of modification in the definition of newtobacco product would allow FDA toeliminate grandfathered products

because, for example, consistency-maintaining changes are routinely made

to grandfathered products to ensurecontinued consistency of the tobaccoproduct.

(Response) We use the termgrandfathered to refer to thosetobacco products that werecommercially marketed in the UnitedStates as of February 15, 2007. Underthe FD&C Act, a grandfatheredproduct is not a new tobacco productand is not subject to the statutespremarket requirements unless theproduct has been modified afterFebruary 15, 2007. The statute providesthat if there has been any modification

(including a change in design, anycomponent, any part, or any constituent,including a smoke constituent, or in thecontent, delivery, or form of nicotine, orany other additive or ingredient) of [the]tobacco product where the modifiedproduct was commercially marketed inthe United States after February 15,2007 the modified product isconsidered a new tobacco product,and is subject to the premarketrequirements. (Section 910(a)(1); 21U.S.C. 387j(a)(1).) This rule is consistentwith that provision.

(Comment 7) Some comments statedthat the proposed rule envisions anapplication and approval process forobtaining exemptions that isprocedurally indistinguishable fromthe process for obtaining a substantialequivalence order.

(Response) We disagree with thesecomments because, as provided in 1107.1, the information required for anew product in an exemption request issignificantly different from theinformation submitted in a substantialequivalence report. Furthermore, afterexamining the detailed comments andinformation submitted to the NPRM,including information on the range of modifications made to tobacco products,we have reconsidered the estimates of the numbers and hours of submissions.We do not expect that an exemptionrequest will be as lengthy or detailed asa 905(j) substantial equivalence report.We believe that the exemption pathway

will be an efficient pathway to marketwhen used for tobacco products withminor modifications to additives, wherethe modifications meet the criteria insection 905(j)(3) of the FD&C Act andwhere tobacco product manufacturersprovide the information required in 1107.1. Sections VII and VIII of thisdocument provide additionalinformation on the revised burdenestimates.

(Comment 8) Several commentssuggested that FDA define minormodification.

(Response) FDA declines to include inthe rule a specific definition of the termminor because the meaning of theterm may vary depending on the type of tobacco product. To enable FDA todetermine whether a particularmodification is minor and therefore may

be exempted from the substantialequivalence requirements, themanufacturer must submit theinformation in 1107.1(b), includinginformation explaining why themodification is minor. Given that thisprogram is just beginning, FDA does nothave the experience needed at thepresent time to provide a usefuldefinition of minor modifications.

Although FDA is not defining minormodifications in this rule, as FDAgains experience in evaluatingexemption requests, FDA will considerissuing a rulemaking defining minormodifications.

(Comment 9) Several commentssuggested that FDA should use the510(k) program applicable to medicaldevices as a model in implementing thesubstantial equivalence and exemptionprovisions. For example, the commentssuggested that FDA place the burden onmanufacturers to make the initial

determination as to whether themodification is minor according to thecriteria in section 905(j)(3) of the FD&CAct. The comments continued bysuggesting that FDA could issue aguidance with a decision-tree tofacilitate the identification of changesthat would not generally require FDApremarket review. Other commentssuggested that reports regarding changesthat do not impact public health shouldnot be required to be reported to FDA,

but rather should be documented by themanufacturer in a memorandum to file,similar to the requirements for medicaldevices cleared through premarketnotifications (510(k)s).

(Response) FDA did consider therequirements applicable to medicaldevices when developing this rule, butconcluded those requirements areinconsistent with section 905(j)(3) of theFD&C Act. Section 905(j)(3) specificallyrequires FDA to make certain findings,

including a determination of whetherthe modification would be a minormodification of a tobacco product thatcan be sold under the FD&C Act, whendetermining whether to exempt atobacco product from the requirement todemonstrate substantial equivalence.B. Comments on Categories of Exemptions

(Comment 10) Several comments alsosuggested that FDA revise the proposedrule to create actual categories of minormodifications, or identify specificmodifications, that meet the statutorycriteria for exemption. The commentssuggested that specific categories of changes could be exempted undersection 905(j)(3) of the FD&C Act,including changes intended to ensureconsistency or minor blend changes(e.g., to ensure that the specifications of a tobacco product are consistently met),changes that do not raise public healthconcerns ( e.g., changes to additives thathave been deemed by FDA as notharmful to health or changes reported toFDA under section 904(c)), changes incommodity ingredients ( e.g., changesin ingredient suppliers or use of interchangeable ingredients obtained

from different manufacturers which arewithin pre-defined specificationtolerances for use in the tobaccoproduct), changes in packaging text orgraphics where the manufacturer doesnot know whether, or does not intendthat, the ingredient will becomeincorporated in the consumed product.One comment stated that, once theAgency decides to grant an exemptionrequest for a particular additive, itshould establish a categorical exemptionfor a range of levels of that additive thatwould then apply to all similar products


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(e.g., all cigarettes or all smokelesstobacco products). One commentsuggested that the Agency develop ageneric catalog of minor modificationsthat are classed by tobacco product typeand manufacturing process upon whichsmall manufacturers could rely inasserting that product modifications areexempt from the substantial equivalencerequirements.(Response) As discussed previously,in developing the proposed rule, weconsidered various approaches,including whether to include categoriesof exemptions in this initial rulemaking,

but determined that we do not currentlyhave sufficient information to enable usto make the findings required by thestatute to support establishing categoriesof exemptions. However, we believe thisinformation will develop as we reviewexemption requests and we intend toestablish categories of exemptions whenwe have such information.

We have changed proposed 1107.1(b) to clarify that a request foran exemption must identify the tobaccoproduct(s) that is/are the subject of theexemption request. Although we are notestablishing categories of exemptions atthis time, manufacturers may submitone exemption request for multipletobacco products if the requestidentifies the specific products and theinformation submitted under 1107.1(b)applies to all the specified products.Finally, a manufacturer may submit anexemption request for a tobaccoproduct(s) for a minor modification of an additive if the manufacturer specifiesa range with a maximum and minimumas has been typically used for thattobacco product; again, the request mustinclude the information required in 1107.1(b) in order for us to make thenecessary findings.

As discussed in the NPRM, FDAintends to provide technical and othernonfinancial assistance to small tobaccoproduct manufacturers in complyingwith the premarket requirements of sections 905 and 910 of the FD&C Act,along with other requirements of theFD&C Act. Small tobacco productmanufacturers may contact FDA at

[email protected] forassistance. Additionally, FDA isconsidering the best way to provideinformation about what kinds of modifications have been determined to

be minor. One option might be to createa public database of exemptiondeterminations that may help informmanufacturers when preparingexemption requests. We wouldappreciate feedback from manufacturersabout whether they would be concernedabout disclosure of exemptiondeterminations and whether disclosing

them would provide useful information.The other option would be for FDA toissue guidance in Question and Answerform which could be updated with newinformation on a regular basis.

(Comment 11) One commentsuggested that the final rule shouldallow an exemption request to covermultiple products or a category of products and allow for modificationswithin a certain range. As one example,the comment suggested that, if supported by appropriate toxicologicaldata, an exemption should allow amanufacturer to add a particularingredient to any of its cigaretteproducts up to a specified level, withoutrequiring the manufacturer to file asubstantial equivalence report or aseparate exemption request for eachproduct. Some comments urgedadoption of a final rule that wouldestablish a process focused on whetherthe addition of, or an increase in, the

amount of an additive would increasethe toxicity of the tobacco product.Similarly, other comments suggestedthat an exemption is appropriate whencertain types of minor modificationswould not increase the inherent publichealth risks of the product.

(Response) As discussed previously, asingle exemption request may besubmitted for multiple tobaccoproducts. Note that manufacturers mustidentify each tobacco product proposedto be included within the exemptionand include the information required by 1107.1(b) in the request. Also, amanufacturer may submit an exemptionrequest for a tobacco product(s) for amodification of an additive within aspecified range. As provided in 1107.1(c), the Agencys determinationon whether to grant an exemptionrequest will be based on whether thecriteria in section 905(j)(3) of the FD&CAct are met.

(Comment 12) One comment statedthat the language of section910(a)(2)(A)(ii) of the FD&C Actcontemplates that exemptions fromsubstantial equivalence will becategorical in nature, based on generalregulations promulgated ex ante and

the statute does not require anaffirmative order.(Response) We disagree with the

comment suggesting that section910(a)(2)(A)(ii) requires categoricalexemptions; the language the commentrefers to states that an order undersection 910(c)(1)(A)(i) for a new tobaccoproduct is required unless the tobaccoproduct is exempt from therequirements of section 905(j) pursuantto a regulation issued under section905(j)(3). This rule implements section905(j)(3)s exemption provision by

establishing a pathway formanufacturers to seek exemptions fromthe substantial equivalencerequirements of the FD&C Act. Anexemption granted through thispathway would be an exemptionpursuant to a regulation issued undersection 905(j)(3). The rule is alsoconsistent with language in section905(j)(3) of the FD&C Act requiring FDAto make specific determinations, andlanguage in section 905(j)(1)(A)(ii) of theFD&C Act that indicates that FDA mustaffirmatively grant an exemption.

(Comment 13) Some commentsrequested that the Agency use itsgeneral rulemaking authority undersection 701(a) of the FD&C Act to

broaden the rule to include exemptionsfor more than just the addition ordeletion of a tobacco additive, forexample, to exempt minor modificationsresulting from a companys change invendors, blend maintenance

adjustments, or adjustments in cigaretteventilation to maintain consistentstrength of taste in response toagronomic variations. Similarly, somecomments stated that FDA could issueother types of exemptions based on thewhere otherwise appropriate languagein section 905(j)(3) of the FD&C Act. Forexample, the comment suggested werely on this language to issue industry-wide exemptions for materials and/orcomponents that are mandated by stateor Federal law (such as Fire SafeCompliance paper).

(Response) Under section 905(j)(3),FDA may exempt from the requirementsrelating to the demonstration of substantial equivalence only tobaccoproducts that are modified by adding ordeleting a tobacco product additive, orincreasing or decreasing the quantity of an existing tobacco additive, if FDAmakes three specific findings. One of these findings is that the exemption isotherwise appropriate. Thus, under thestatutory language, exemptions fromsubstantial equivalence requirementsare limited to modifications of additivelevels; the otherwise appropriatelanguage is not a separate ground forexempting a tobacco product from the

substantial equivalence requirements of the statute.(Comment 14) Some comments

suggested that the reduction orelimination of an additive should becategorically exempt from thesubstantial equivalent requirements.These comments referred to section904(c)(3), which requires manufacturersto notify FDA within 60 days afterentering a product into the market whena manufacturer eliminates or decreasesan existing additive, or adds orincreases an additive that has by


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regulation been designated by theSecretary as an additive that is not ahuman or animal carcinogen, orotherwise harmful to health underintended conditions of use. Onecomment suggested that the final ruleshould categorically exempt suchmodifications in recognition of theCongressional determination thatadditions or increases of designatedadditives do not require premarketreview before a manufacturer enters aproduct into the market. The commentalso suggested merging the exemptionprocess with the designation processunder section 904(c)(3).

(Response) As discussed previously,we do not have sufficient information atthis time to establish categoricalexemptions, although we intend toestablish categorical exemptions asinformation develops. Thus, commentsrelated to the designation of additivesthat are not human or animalcarcinogens as being one category of modifications that should be exemptedare premature and outside the scope of this regulation.

C. Comments on Specific Provisions of the Rule

(Comment 15) One commentdiscussed the proposed certificationprovision and noted that Congressexcluded any consideration of

behavioral effects from the substantialequivalence evaluation and in theevaluation of exemption requests forminor modifications. Similarly, other

comments requested clarification thatthe rule would not require tobaccomanufacturers to conduct behavioralresearch because the proposed rulemight be read as meaning that amanufacturer would need to conduct

behavioral research on minors in orderto evaluate a products appeal to minors.One comment stated that the data andcertification requirements poseinsurmountable practical problems

because the comment did not believethat sufficiently sensitive tools exist tomeasure addictiveness, appeal to, or use

by, minors. The comment stated,

however, that toxicity data would likely be needed to evaluate some minormodification exemption requests andthat data should be presented in atruthful manner. The commentsuggested that if the Agency believes acertification is necessary, a moreappropriate requirement would besimilar to 21 CFR 807.87(k) (thisprovision requires that a premarketnotification (510(k)) include a statementthat the submitter believes, to the bestof his or her knowledge, that all dataand information submitted are truthful

and accurate and that no material facthas been omitted).

(Response) We did not intend for theproposed rule to imply that behavioralresearch must be conducted orsubmitted to support a certification.Rather, the rule requires only that thecertification summarize the supportingevidence, which could be a literaturereview, previous studies, or otherinformation. The certification isintended to provide us with assurancethat there is a basis for making thefindings required by section 905(j)(3) of the FD&C Act.D. Comments on FDAs Implementationof the Rule and Review of Requests

(Comment 16) Several commentsstated that the proposed rule wouldcreate an enormously burdensomeprocess, similar to a premarketapplication, for minor modifications totobacco products. For example, severalcomments noted that, if finalized, therule would require a tobacco productmanufacturer to submit three reports toFDA regarding the requested minormodification: The initial minormodification report, a 905(j)(1)(A)(ii)report, and a separate report undersection 904(c)(2) or (c)(3) for any changein a tobacco additive. One commentstated that this would create aduplicative process that would exceedthe requirements for new tobaccoproduct applications and modified risktobacco products, and other commentsstated that the reporting of certainchanges to additives in section 904(c)(2)would be rendered meaningless. Somecomments stated that the processestablished in the proposed rulerequiring submission of an exemptionrequest and, once granted, submissionof a report under section 905(j)(1)(A)(ii)of the FD&C Actis more burdensomeand potentially lengthier thansubmission of a 905(j) substantialequivalence report or a premarkettobacco application.

(Response) These comments refer inpart to the requirement that amanufacturer who obtains an exemptionis also required to report to FDA under

section 905(j)(1)(A)(ii) of the FD&C Act(this requirement is not addressed inthis rulemaking). Specifically, section905(j)(1)(A)(ii) of the FD&C Act requiresthe applicant to report to FDA at least90 days prior to introducing ordelivering for introduction intointerstate commerce the tobacco productthat is the subject of the exemption, the

basis for the applicants determinationthat the tobacco product is modifiedwithin the meaning of [section905(j)(3)], the modifications are to aproduct that is commercially marketed

and in compliance with therequirements of this Act, and all of themodifications are covered byexemptions granted by FDA pursuant to[section 905(j)(3)]. In addition, thissubmission must describe action taken

by [the applicant] to comply with therequirements under section 907 (21U.S.C. 387g) that are applicable to thetobacco product (section 905(j)(1)(B) of the FD&C Act). As noted earlier, theFD&C Act does set up distinctnotification and reporting requirements,including those in sections 904(c) and905(j)(1)(A)(ii), related to additives. Inaddition, in some cases the statute doesrequire manufacturers to make multiplesubmissions before they may market anew tobacco product. We expect,however, that the overall exemptionpathway to market will be less

burdensome than the substantialequivalence or premarket applicationpathways to market. In addition, asdiscussed previously, a singleexemption request may be submitted formultiple tobacco products, as long aseach tobacco product is identified andthe information required by 1107.1(b)is submitted with the request. Also, amanufacturer may submit an exemptionrequest for a modification of an additivewithin a specified range, which wouldminimize potential burden andduplication of information. Moreover, amanufacturer may submit theinformation required by 904(c)(2) inconjunction with the submission of asection 905(j)(1)(A)(ii) report.

(Comment 17) Several commentsnoted that the proposed processprovided no time limit for FDA reviewof exemption requests and,consequently, a manufacturer may haveto wait a long time for FDA to reviewits request for an exemption for a minormodification to its tobacco product. Onecomment suggested that FDA shouldmake a decision on an exemptionrequest within 90 days. This commentalso suggested that one way to achievemore efficient review would be to allowa manufacturer to provide thenotification required under section905(j)(1)(A)(ii) at the same time FDAreviews the exemption request(submitting the information for anexemption request with the report under905(j)(1)(A)(ii)); another commentsuggested that the manufacturerdocument the exemption in its filesrather than submit the section905(j)(1)(A)(ii) report. These commentssuggested that these approaches wouldeliminate the inefficiency of requiringan Agency decision on an exemptionrequest before a manufacturer could


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submit a 90-day notification undersection 905(j)(1)(A)(ii) of the FD&C Act.

(Response) We agree that review of exemption requests should occur in atimely manner, and we do not expectthe review process to be lengthy if therequest includes the information statedin 1107.1(b). We do not expect that theinformation submitted in an exemptionrequest will be as lengthy or detailed asin a 905(j) substantial equivalencereport. We understand that concernsregarding the length of time needed toprepare a submission were due in largepart to the burden estimates in theNPRM; as discussed previously,however, we have revised our burdenestimates. More discussion on the

burden estimate can be found atsections VII and VIII of this rulemaking.

We disagree, however, that the reportunder section 905(j)(1)(A)(ii) of theFD&C Act could be made in conjunctionwith an exemption request under 1107.1 or that documenting theinformation specified in section905(j)(1)(A)(ii) in the manufacturersfiles would be appropriate. Section905(j) requires that each person whoproposes to begin the introduction ordelivery for introduction into interstatecommerce for commercial distribution anew tobacco product must submit eithera report under section 905(j)(1)(A)(i)demonstrating that the new tobaccoproduct is substantially equivalent to anappropriate predicate product, or areport under section 905(j)(1)(A)(ii)stating the basis for their determinationthat the product is modified within themeaning of section 905(j)(3), themodifications are to a commerciallymarketed product, and that themodifications are covered byexemptions granted by FDA. Thus,documenting the information in themanufacturers files would not beappropriate. Furthermore, theinformation required in a report undersection 905(j)(1)(A)(ii) that all of themodifications are covered byexemptions granted by [FDA] will not

be available until FDA grants theexemption; thus, the report undersection 905(j)(1)(A)(ii) may not be

submitted simultaneously with theexemption request.(Comment 18) One comment

proposed an alternative rule that wouldrequire manufacturers to report to FDAa baseline list that would includemaximum use levels of each additivein each product, the maximum uselevels (MULs) of each tobacco type usedin that category, and the establishedranges for all other design parametersused in products in that category. Thecomment suggested that FDA could usethese reports to create a composite list

of MULs and established designparameter ranges for each productcategory based on information fromgrandfathered products and otherlegally marketed products. Thecomposite list would be published inthe Code of Federal Regulations.Manufacturers would be required tosubmit changes to its baseline list toreflect any new tobacco products themanufacturer has legally introducedinto the market. Through an amendmentprocess, tobacco manufacturers couldincrease MULs or expand designparameter ranges when there isevidence that use levels or designparameters are generally recognized asappropriate for public health. Thecomment stated that its proposal wouldalso clarify that adjustments to tobaccoproducts that are not intended to alterthe chemical or perception properties of the product are not modifications andthus do not make the product a new

tobacco product subject to premarketrequirements.(Response) In general, we disagree

that this alternative would appropriatelyimplement section 905(j)(3) of the FD&CAct. We note, for example, that a keypremise of the alternative is thedefinition of modification which, inthe alternative, would be defined, withcertain exceptions, as any change made

by a tobacco product manufacturer* * * that is intended to or does alterthe chemical or perception properties of the product. This definition isinconsistent with the language of section 910(a) of the FD&C Act, whichdoes not include intent as an element of the definition of modification.

(Comment 19) Some commentssuggested that, because regulationsimplementing section 905(j)(3) are notyet in place, FDA should exerciseenforcement discretion for tobaccoproducts that might use that pathway tomarket when the regulations are inplace. These comments suggested thatexemptions from reporting are essentialto a workable system and FDA is boundto receive a significant volume of submissions for minor andinconsequential changes to tobacco

products before such exemptions areissued.(Response) This final rule implements

the exemption provision pathway tomarket and renders this comment moot.

(Comment 20) One commenterrequested an extension of the commentperiod.

(Response) FDA declines to extendthe comment period in an effort toensure that the exemption pathway

becomes available as required bystatute. As indicated in the preamble tothe proposed rule, however, FDA

anticipates that there will be furtherguidance and rulemakings on this topicand will request comment accordingly.IV. Effective Date

For the effective date of this final rulesee the DATES section of this document.V. Legal Authority

Section 905(j)(3)(A) of the FD&C Actprovides that FDA may exempt from therequirements relating to thedemonstration of substantialequivalence tobacco products that aremodified by adding or deleting atobacco additive, or increasing ordecreasing the quantity of an existingtobacco additive, if FDA determines themodification would be a minormodification of a tobacco product thatcan be sold under the FD&C Act; asubstantial equivalence report is notnecessary to ensure that permitting thetobacco product to be marketed would

be appropriate for protection of thepublic health; and an exemption isotherwise appropriate. Section905(j)(3)(B) of the FD&C Act requiresthat FDA issue regulations to implementthe provision on exemptions from thesubstantial equivalence requirements of the Tobacco Control Act. FDA is issuingthis rule as required by section905(j)(3)(B) of the FD&C Act.Additionally, section 701(a) of the FD&CAct (21 U.S.C. 371) gives FDA generalrulemaking authority to issueregulations for the efficient enforcementof the FD&C Act.VI. Environmental Impact

The Agency has determined under 25.30(h) that this action is of a typethat does not individually orcumulatively have a significant effect onthe human environment. Therefore,neither an environmental assessmentnor an environmental impact statementis required.VII. Analysis of Impacts

A. IntroductionFDA has examined the impacts of the

final rule under Executive Order 12866,Executive Order 13563, the Regulatory

Flexibility Act (5 U.S.C. 601612), andthe Unfunded Mandates Reform Act of 1995 (Pub. L. 1044). Executive Orders12866 and 13563 direct Agencies toassess all costs and benefits of availableregulatory alternatives and, whenregulation is necessary, to selectregulatory approaches that maximizenet benefits (including potentialeconomic, environmental, public healthand safety, and other advantages;distributive impacts; and equity). TheAgency believes that this final rule isnot an economically significant


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regulatory action under Executive Order12866.

The Regulatory Flexibility Actrequires Agencies to analyze regulatoryoptions that would minimize anysignificant impact of a rule on smallentities. Because the exemptionpathway put into place by this ruleprovides an option that potentiallyreduces costs, the Agency certifies thatthe final rule will not have a significanteconomic impact on a substantialnumber of small entities.

Section 202(a) of the UnfundedMandates Reform Act of 1995 requiresthat Agencies prepare a writtenstatement, which includes anassessment of anticipated costs and

benefits, before proposing any rule thatincludes any Federal mandate that mayresult in the expenditure by State, local,and Tribal governments, in theaggregate, or by the private sector, of $100,000,000 or more (adjustedannually for inflation) in any one year.The current threshold after adjustmentfor inflation is $136 million, using themost current (2010) Implicit PriceDeflator for the Gross Domestic Product.FDA does not expect this final rule toresult in any 1-year expenditure thatwould meet or exceed this amount.B. Public Comments Concerning Impact Analysis

FDA received several commentscovering such topics as the accuracy of FDAs assessment of social costs and

benefits, the accuracy of burdenestimates, compliance withrequirements such as Executive Order12866 and the Regulatory FlexibilityAct, and the effect of this rule on small

businesses.(Comment 21) One comment stated

that bringing a modified product tomarket under the proposed exemptionpathway could cost as much or possiblymore than filing a section 905(j) reportalone because the Agency estimated thatrequesting an exemption and filing asection 905(j) report would each require360 hours. Bringing a product to marketunder an exemption would require bothsubmissions.

(Response) This comment reflectssome misunderstanding of the nature of the reports submitted under 905(j) of theFD&C Act with and without substantialequivalence exemptions. In the absenceof an exemption, a report demonstratingsubstantial equivalence under section905(j)(1)(A)(i) must be submitted. If anexemption has been requested andgranted, a report must still be submittedunder section 905(j)(1)(A)(ii), but it willcite the exemption(s) in place of demonstrating substantial equivalence.The 360-hour estimate refers to a section

905(j) report demonstrating substantialequivalence. A report citing anexemption would be far shorter.

(Comment 22) One comment statedthat FDA incorrectly concluded that theproposed rule was not significant underExecutive Order 12866.

(Response) FDA should have statedthat the proposed rule was not

economically significant. We haveadded that statement to the final rule.(Comment 23) One comment argued

that FDAs conclusion that the proposedrule does not impose social costs isirrational, erroneous, and sounreasonable as to be arbitrary andcapricious. The comment further statedthat FDA inappropriately stacks thedeck by using a baseline scenario inwhich there are no exemptions and that

by this reasoning, it is literallyimpossible for its exemption rule toimpose costs, regardless of how

burdensome or byzantine an exemptionpathway the rule sets forth. In light of the statutory mandate to implementexemptions, the no-exemption scenariocannot be treated as the baseline.Finally, the comment argued that FDAhad not complied with its obligation torationally consider the costs of the rulecompared with alternative means of implementing exemptions.

(Response) FDA disagrees that theproposed rule would impose socialcosts. The current regulatory frameworkrequires submission of a substantialequivalence report (or a premarketapplication) before introducing any newtobacco product, and without

rulemaking this framework wouldcontinue into the future. Substantialequivalence reports have a substantial

burden, preliminarily estimated at 360hours. Use of this baseline isappropriate and does not stack thedeck. The Office of Management andBudgets (OMBs) Circular A4 statesthat the baseline should be the bestassessment of the way the world wouldlook absent the proposed action.Without this rule, all new tobaccoproducts would be required to submit apremarket application or substantialequivalence report.

We do not argue that under the stated baseline it is literally impossible for thisexemption rule to impose costs. Weacknowledge the theoretical possibilitythat uncertainty regarding the kinds of product modifications that may begranted an exemption and the amount of supporting evidence that will berequired as the basis for an exemptioncould impose additional social costs.We think this is extremely unlikely,especially in the long run, becauseuncertainty will be reduced asmanufacturers gain experience with the

regulatory regime. Although thetheoretical possibility exists that thisrule could increase costs in the shortrun, we therefore do not anticipate thatit will increase costs in the long run.

The comment seems to imply that aregulatory alternative in which certaintypes of modifications are automaticallyexempted should be used as the

baseline. This suggestion confuses thechoice of baseline with an analysis of alternatives. Nevertheless, FDArecognizes that there are regulatoryalternatives, such as identifyingcategories of modifications that areexempt, that could have reduced costsmore than this rule will. That is why inthe future, when the Agency hassufficient information to do so, FDAmay identify categories of modificationsthat are exempt.

This comment may be reacting to theapparent lack of cost savings under theexemption pathway, or the perceivedlarge cost of both the exemption andsubstantial equivalence pathways. Asdiscussed elsewhere in this preamble,FDA now believes it significantlyoverestimated the burden of requestingan exemption. Our current estimate,

based on new information, indicatesthat the exemption pathway will offercost savings.

(Comment 24) One comment arguedthat based on the history of FDAs510(k) Program, it is clear that the broadinterpretation of the section 905(j)reporting mandate embodied in currentguidance (Guidance for Industry andFDA StaffSection 905(j) Reports:Demonstrating Substantial Equivalencefor Tobacco Products (76 FR 789,

January 6, 2011)) will impose anincredible and unnecessaryadministrative burden on the Agencyand the tobacco product manufacturingindustry. Many of the submissions will

be unnecessary for protection of thepublic health. FDA estimated that905(j)(3) reports will cost $35,000 each,evidencing the burden on industry of an onerous reporting mandate.

(Response) FDA acknowledges thattobacco product manufacturers may facenew challenges in complying with thevarious provisions of the TobaccoControl Act. However, this rule will notimpose any new obligations onmanufacturers. In the absence of thisrule, all modifications leading to newtobacco products would require thedemonstration of substantialequivalence (if not submission of apremarket application), as discussedpreviously in this document. This ruleprovides an alternative pathway tosubstantial equivalence and premarketapplications for marketing new tobaccoproducts and may reduce both industry


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costs and the burden on FDA of reviewing submissions.

(Comment 25) A comment argued thatthe approach taken in FDAs impactanalysis is legally deficient because itwould allow the Agency to skirt itsobligations under the RegulatoryFlexibility Act by assuming anyregulation issued to implementsubstantial equivalence exemptions iscost free. The comment further statedthat FDA can only avoid therequirements of the RegulatoryFlexibility Act by certifying that the rulewill not have a significant impact on asubstantial number of small businessesand that such a certification must bereasonably supported.

(Response) FDA disagrees that theAgency has skirted any obligationsunder the Regulatory Flexibility Act.FDA proposed to certify that the rulewould not have a significant impact ona substantial number of small entities

because compared to the appropriate baseline, the rule would offer analternative channel that may reducecosts. See the Response to Comment 23for a discussion of the baseline on thisissue.

(Comment 26) A comment argued thatthe approach taken in FDAs impactanalysis is legally deficient because itwould allow the Agency to skirt itsobligations under Executive Order12866 by assuming any regulationissued to implement substantialequivalence exemptions is cost free.FDA must rationally compare the costsand benefits of the proposed rule andconsider reasonable alternatives. Afterassessing costs and benefits FDA mustproceed only upon a reasoneddetermination that the benefits of theintended regulation justify its costs.

(Response) FDA disagrees. Forregulatory actions which are noteconomically significant, ExecutiveOrder 12866 requires a statement of potential costs and benefits. FDA hasrationally compared the costs and

benefits of the proposed rule accordingto the correct baseline, as explained inthe Response to Comment 23. Ananalysis of regulatory alternatives is

only required for economicallysignificant rules.(Comment 27) A comment argued that

the approach taken in FDAs impactanalysis is legally deficient because itwould allow the Agency to skirt itsobligations under the AdministrativeProcedure Act. FDAs assumption thatthe cost of its proposed rule is zerodemonstrates that FDAs assessment of social costs is so unreasonable as to bearbitrary and capricious.

(Response) FDA disagrees with theassertion that the Agencys assessment

of social costs is unreasonable, arbitrary,or capricious. See the Response toComment 23 for a discussion about the

baseline for details.(Comment 28) A comment argued that

FDAs impact analysis is unreasonable because after incorrectly concludingthat the proposed rule is costless, FDAconducts a cursory impact analysisquantifying the cost of preparing anexemption request.

(Response) FDA concluded that theproposed rule was highly unlikely toimpose social costs. We do not concludeor state that preparing and submitting arequest for exemption would be withoutcost. The question of interest in theimpact analysis is the cost of marketinga new tobacco product through theexemption pathway compared to thecost of marketing a new tobacco productthrough the substantial equivalencepathway. FDA provided an estimate of the absolute cost of obtaining anexemption to allow the reader to makeadditional comparisons.

(Comment 29) A comment argued thatFDAs impact analysis is unreasonableand so misguided as to demonstratethat FDA has no real understanding of the practical consequences of itsproposed rule for the industry it ischarged with regulating.

(Response) FDA disagrees that theanalysis is misguided or that the Agencyhas no understanding of the industry itis charged with regulating. However, theAgency does acknowledge that becausestatutory deadlines compelled us to startdeveloping a rule for substantial

equivalence exemptions beforesubstantial equivalence reportingrequirements went into effect, there wasconsiderable uncertainty surroundingour estimates as well as the processitself. For this reason we repeatedlyrequested comment throughout thepreliminary impact analysis. Becausewe have gained additional informationand experience since publishing theproposed rule, we have revised ourestimates as discussed in the paragraphsthat follow.

(Comment 30) Multiple commentsasserted that FDAs impact analysis is

unreasonable and dramaticallyunderestimates the costs and burdensassociated with the proposed rule. Onecomment stated that if FDA takes theposition that routine, minor adjustmentsto maintain consistency trigger the needfor an exemption or substantialequivalence report, then FDAs bestestimate that 50 exemption requests will

be submitted per year is absurdly low.Multiple comments indicated that therewill be at least several hundredexemption requests submitted per year,possibly several thousand. One

comment stated that it is arbitrary toestimate that 50 of 233 new productsintroduced each year would be thesubject of an exemption request; FDAsapproach based on counting newproducts is flawed becausemanufacturers will have to filepotentially hundreds of exemptionrequests each year for existing tobaccoproducts; and, the estimate that FDAwill request additional information for40 requests per year is also far too low.

(Response) The estimates referred to by this comment are not estimates of thecost of this rule, but estimates of theabsolute cost of preparing exemptionrequests. As described in thepreliminary regulatory impact analysis,this rule offers a potentially cost-reducing additional pathway formarketing a subset of new tobaccoproducts.

Based on the original estimate that233 new products are introduced eachyear, FDA disagrees that it was arbitraryto choose 50 as our best estimate of howmany exemption requests we wouldreceive. Because the statute sets specificcriteria for when exemptions may begranted, we can clearly expect that notall new products would be eligible.

Since publication of the proposedrule, FDA has gained additionalinformation from viewing commentsand initial substantial equivalencereports and through other activitieswithin the usual scope of operation forFDAs Center for Tobacco Products. Wenow know more about the range andfrequency of modifications that aremade to tobacco products. Based on thisnew information, we have revisedupward the number of exemptionrequests we expect to receive to 500 peryear. We now anticipate requestingadditional information for 150 of theserequests.

(Comment 31) Comments argued thatFDA provided no basis whatsoever,reasonable or otherwise for itsestimates that it will take 360 hours toprepare an exemption request and 50hours to respond to a request foradditional information. Commentsfurther argued that these estimates are

arbitrary and capricious and do notcomply with requirements under thePaperwork Reduction Act (the PRA), theRegulatory Flexibility Act, andExecutive Order 12866; preparing thesesubmissions will take substantiallylonger than estimated; and the lack of

basis for the burden estimate is clear because the same burden estimate, 360hours, was used for demonstration of substantial equivalence and requesting asubstantial equivalence exemption.

(Response) The estimates referred to by this comment are not estimates of the


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cost of this rule, but estimates of theabsolute cost of preparing an exemptionrequest. FDA disagrees that theseestimates are too low and arecompletely without basis. The processesFDA is implementing for substantialequivalence reports and substantialequivalence exemptions are completelynew, so there is considerableuncertainty around the time that suchsubmissions will take to prepare. Theestimates in the proposed rulerepresented the Agencys best estimatesat the time, based on the requirementsset out in the rule and other submissionprocesses administered by the Agency.There was no ideal submission processto which to compare a substantialequivalence exemption request.Although comments have asserted thatthe time it takes to request an exemptionwas underestimated, no alternativeestimates were provided. The fact thatthe burden estimates were originally the

same for demonstrating substantialequivalence and requesting anexemption reflected an effort to beconservative in estimating the costsavings offered by this rule anduncertainty surrounding these burdens.

Since publication of the proposedrule, FDA has gained additionalinformation from reviewing commentsand initial substantial equivalencereports and through other activitieswithin the usual scope of operation forFDAs Center for Tobacco Products. Wenow know more about the range of modifications that are made to tobaccoproducts and are persuaded that weoverestimated the time that will berequired to prepare and submit anexemption request. Based on the limitedinformation required relative to asubstantial equivalence report, we nowestimate that an exemption request fora suitable product, meeting therequirements set forth in this rule, could

be prepared in 12 hours, and that aresponse to a request for additionalinformation could be prepared in 3hours. For more detail see section VIIIof this document.

(Comment 32) One comment arguedthat FDA does not show how costs will

be reduced through this rule because thecost of demonstrating substantialequivalence is not estimated.

(Response) As noted by manycomments, FDA initially estimated thatdemonstrating substantial equivalenceand requesting an exemption wouldeach take 360 hours, which wouldimply that on average costs would notactually be reduced by this rule (thoughcosts could certainly be reduced forsome subset of potentially eligible newtobacco products). The initial estimateof the time required to prepare a

substantial equivalence report iscurrently being updated based on initialsubmissions to the Agency, but weanticipate that the updated estimate willremain substantially higher than ourdownwardly revised estimate of the costof preparing an exemption request.

(Comment 33) Comments argued thatuncertainty about the circumstancesunder which FDA would requestadditional information makes it moredifficult for manufacturers to determinewhether it will be less costly to requestan exemption and that FDA shouldprovide additional informationregarding the types of modifications thatwill be considered for exemptionrequests. One comment further arguedthat spending 360 hours on anexemption request that is ultimatelydenied, and then submitting asubstantial equivalence report, wastesresources.

(Response) FDA disagrees that it isprudent to provide additionalinformation at this time regarding thetypes of modifications that will beconsidered for an exemption, asexplained elsewhere in the preamble.We also note that based on currentinformation, we estimate the burden of submitting an exemption request to befar lower than initially estimated. thecost of responding to a request foradditional information will also belower than initially estimated, andfewer resources will be expended if anexemption request is ultimately denied.Nevertheless, it is up to the individual

manufacturer to make a reasoneddetermination as to whether thelikelihood that an exemption is grantedjustifies the cost of submitting anexemption request. The criteria set forthin the statute and this rule will form the

basis for that determination.(Comment 34) A comment argued that

in estimating the time required toprepare an exemption request, FDA hasnot considered the massive amount of confusion and uncertainty that willstem from the lack of clear definition of minor modification or clear standardsfor what modifications would be eligiblefor exemptions.

(Response) The statute and this ruleplainly state that only modificationspertaining to tobacco product additivescould be eligible for an exemption. Thetime we have estimated that it takes tosubmit an exemption request reflects thereality that we have not set upcategories of modifications which areautomatically exempt. Instead themanufacturer must provide anexplanation as to why the modificationshould be exempt, following therequirements of this rule.

(Comment 35) A comment assertedthat FDA discounts the possibility thatoverall submission costs could increaseas a result of the uncertainty generated

by the proposed rule and pointed outthat FDA does not estimate the annualnumber or percentage of exemptionrequests it expects to deny. Thecomment argues that because thenumber of exemption requests will farexceed 50 per year, the number of requests denied due to inadequateinformation regarding the exemptioncriteria will be higher than FDAanticipates. The comment further statesthat having failed to provide anymeaningful guidance on the exemptioncriteria in the nearly 2 years since theFamily Smoking Prevention andTobacco Control Act was signed intolaw, FDA cannot blithely assume thatthe criteria will somehow become clearin time to save manufacturers fromincurring major, unnecessary costs in

preparing exemption requests that aredenied because they are found not tomeet criteria that FDA has notdivulged. A similar comment arguesthat the cost savings of this rule aremerely theoretical.

(Response) FDA disagrees with thecharacterization that the Agencydiscounted the possibility that overallsubmission costs could increase. Thispossibility was discussed in thepreliminary analysis precisely becausethe Agency did not feel it should beignored. FDA maintains the conclusionthat in the long run, absolute costs for

preparing exemption requests willcertainly not exceed the baseline costsfor demonstrating substantialequivalence because manufacturersalways have the option available of demonstrating substantial equivalencefor these products. Manufacturers canlimit the number of exemption requestswhich are ultimately denied byadhering to the criteria for an exemptionset forth in the statute and this rule.Only modifications pertaining toadditives could possibly be eligible.Although costs could theoretically begenerated in the near term, this isunlikely because the cost savings likelyto result from a single exemption is highrelative to the cost of preparing a singleexemption request.

While we agree that the number of exemption requests will be higher thaninitially estimated, we do not attempt toestimate the number (or proportion) thatwill ultimately be denied because itdepends on the quality and suitability of the submissions. In light of currentlyavailable information, the exemptionpathway is reasonably expected to offercost savings.


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1 A possible offsetting factor is that these dataonly include firms with payroll, and there could besome small tobacco product manufacturers withoutpayroll.

2 Manufacturers, wholesalers, and retailers couldall theoretically import tobacco products. Censusdata do not distinguish firms that import from firmsthat do not.

(Comment 36) Comments argued thatdue to the high estimated cost of preparing exemption requests, FDAshould assist small businesses by settingup categorical exemptions anddeveloping a catalog of minormodifications (by product type andmanufacturing process) that are exemptfrom substantial equivalencerequirements.(Response) Our reasons for not settingup categorical exemptions at this timeare discussed elsewhere in thepreamble. FDA reiterates that this ruleactivates an additional pathway formarketing new tobacco products,providing manufacturers with an optionthat may reduce costs. Therefore thisrule imposes no incremental burdenfrom which to provide relief.

However, FDA also acknowledges thatsetting up categorical exemptions ordeveloping a catalog of minormodifications could offer greaterpotential cost savings for tobaccoproduct manufacturers, many of whichare small, in complying withrequirements under the Tobacco ControlAct. That is why the Agency maychoose to set up categorical exemptionsin the future when there is moreinformation about what categorieswould be appropriate.

(Comment 37) Manufacturerscommented that FDA should issueindustry-wide exemptions from 905(j)requirements, or 910 requirements if applicable, for modifications that arerequired to comply with a change instate or Federal law because notexempting such modifications couldcause small manufacturers to go out of

business and would place an undue burden on small manufacturers.

(Response) FDA disagrees thatdeclining to broaden the scope of theexemption pathway places an undue

burden on small manufacturers. FDAreiterates that this rule establishes anadditional pathway for marketing newtobacco products, providingmanufacturers with an option that mayreduce costs. Therefore this ruleimposes no incremental burden fromwhich to provide relief. For changes in

additives, small manufacturers mayrequest an exemption. The absolute costof requesting an exemption is expectedto be far less than originally estimated,and the potential cost savings relative todemonstrating substantial equivalencefar greater. Although broadening thescope of the exemption pathway couldoffer a larger potential reduction incosts, FDA declines to do so asexplained elsewhere in the preamble.

(Comment 38) Manufacturerscommented that the estimated 360hours it would take to prepare an

exemption request would be an unduly burdensome requirement to place onsmall manufacturers for the addition ordeletion of an additive, or a change inthe quantity of an additive. Thecomments stated that smallmanufacturers do not have in-housescientists or engineers who can spendall their time preparing exemptionrequests and could be driven out of

business by this requirement.(Response) As discussed previously in

this document, FDA has reviseddownward the estimate of the time ittakes to prepare an exemption request.FDA reiterates that because this ruleactivates an alternative pathway formarketing new tobacco products thatmay reduce costs, it imposes noincremental burden from which toprovide relief. Regardless of whether thepreparation of submissions to FDA isdone entirely in-house or with the helpof contractors, the cost should not

increase as a result of this rule. Smallmanufacturers would have to preparesubstantial equivalence reports for allnew products (not requiring a premarketapplication) in the absence of this rule.Small manufacturers may realize somesavings by submitting exemptionrequests for a subset of their newproducts rather than demonstratingsubstantial equivalence.C. Baseline

Under the current regulatoryframework, tobacco productmanufacturers must submit to FDAeither a premarket application or areport under section 905(j)(1)(A)(i)demonstrating substantial equivalenceto an appropriate predicate product, andFDA must issue the appropriatecorresponding order, before a newtobacco product may be introduced ordelivered for introduction into interstatecommerce. This rulemaking activates athird option, the substantial equivalenceexemption pathway for marketing newtobacco products. Compared with thecost associated with the current

baseline, this rule may result in costsavings if tobacco manufacturersrequest, and are granted, substantial

equivalence exemptions for some newtobacco products.D. Number of Affected Entities

This final rule may potentially applyto any tobacco product manufacturer orimporter whose products are regulatedunder the Tobacco Control Act.Statistics of U.S. Businesses dataindicate that there are 20 domesticcigarette manufacturers and 46 othertobacco product manufacturers (U.S.Census, 2009). Because other tobaccoproduct manufacturers would include

cigar and pipe tobacco manufacturers,not all 46 firms represent manufacturersthat are currently regulated under theTobacco Control Act. 1 An unknownnumber of importers would be affected. 2 It is possible that not all potentiallyaffected manufacturers and importerswill choose to request exemptions.

E. Number of Exemption RequestsThe number of new productsintroduced in a given year is thetheoretical maximum number that could

be introduced under a substantialequivalence exemption. However, somenew products may not be substantiallyequivalent to an appropriate predicatetobacco product and will requirepremarket authorization under section910(c), in which case they will certainlynot be eligible for an exemption. Theremaining products could demonstratesubstantial equivalence in a905(j)(1)(A)(i) report. Under this final

rule, a subset of those substantiallyequivalent products will be eligible forpossible introduction into interstatecommerce through the substantialequivalence exemption pathway.

FDA considers AC Nielsen scannerdata, industry comments, andexperience from substantial equivalencereports submitted since passage of theTobacco Control Act in order to estimatethe number of exemptions that may berequested on an annual basis. Weassume the average number of newproducts introduced annually will beapproximately the same going forwardas in recent years. However, it is alsopossible that requirements imposed bythe Tobacco Control Act will leadmanufacturers to introduce newproducts at a lower rate in the future.

Using AC Nielsen scanner datacovering late 2007 to late 2009, FDAcounts a Universal Product Code (UPC)as introduced in 2008 if total dollarsales in late 2007 were zero, but totaldollar sales in 2008 were greater thanzero. With this definition, FDA findsthat 628 new cigarette UPCs, 215 newchewing tobacco UPCs, 36 new smokingtobacco UPCs (excluding pipe tobacco),and 36 new cigarette paper UPCs wereintroduced in 2008. This sums to anestimated 915 new UPCs in 2008.

Unique UPCs are often assigned todifferent types of packaging forotherwise identical products. In thepreliminary regulatory impact analysis,


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3 An environmental assessment would berequired with either pathway.

FDA excluded from consideration newUPCs that appeared to be for productsthat differed from existing products onlyin packaging. In response to commentsstating that our initial approachundercounted new tobacco products

because of the extremely minor changesthat are often made to existing products,we consider all new UPCs in this finalregulatory impact analysis. The numberof new UPCs still may not accuratelyreflect the number of new tobaccoproducts if enough modifications are sominor that they do not trigger a UPCchange. FDA does not know the extentto which this may be the case, but basedon comments from industry andexperience with substantial equivalencereports, relatively minor modificationsare more common than originallythought.

As outlined previously, some newproducts may require premarketauthorization under section 910(c), and

an unknown proportion of theremaining products would beintroduced through the exemptionpathway. This rule does not require aone-to-one correspondence between theexemption requests and new productsintroduced through the exemptionpathway. Based on the number andcontent of substantial equivalencereports FDA has received so far, FDAestimates that in the first years after theprocedure is in place, 500 exemptionrequests will be submitted per yearcovering 750 new tobacco products.This number has been revised upwardsubstantially from the estimate in thepreliminary regulatory impact analysisas FDA has learned from industrycomments and from substantialequivalence reports that tobaccoproduct manufacturers make manysmall modifications to their productswhich may qualify for an exemption.FDA anticipates requesting additionalinformation to support 150 of thoseexemption requests. This number isuncertain because it depends on thequality of the initial requests.F. Benefits and Costs

The main effect of this final rule

would be a potential reduction in thecosts of introducing new tobaccoproducts compared with the current

baseline. Under the baseline scenario,all new products that do not undergopremarket review under section 910(c)must submit a substantial equivalencereport under section 905(j)(1)(A)(i). If anexemption request is submitted andgranted, a manufacturer would be ableto submit a different 905(j) report inwhich, under section 905(j)(1)(A)(ii), adiscussion of the exemption(s) is usedin place of the demonstration of

substantial equivalence. On a per-product basis, when one exemptionrequest covers one new tobacco product,the cost savings attributable to this ruleequals the difference between the cost of demonstrating substantial equivalenceand the cost of both requesting anexemption and submitting a reportunder section 905(j)(1)(A)(ii). 3 Thesavings could be greater in cases inwhich a single exemption request isused for multiple products.

FDA has concluded that wesignificantly overestimated the burdenof requesting a substantial equivalenceexemption as we prepared the proposedrule. The estimate, 360 hours, was basedin part on other submission processesthe Agency has direct experience with,

but there was no ideal existingsubmission process to which to comparea substantial equivalence exemptionrequest. We did not yet have experiencereviewing the substantial equivalence

reports this pathway provides anexemption from. Since publication of the proposed rule, we have gainedadditional information from reviewingcomments and initial substantialequivalence reports and through otheractivities within the usual scope of operation of FDAs Center for TobaccoProducts. We now know more about therange of modifications that are made totobacco products. Based on the limitedinformation required to be submittedrelative to a substantial equivalencereport, we now estimate that preparingan exemption request will require 12hours for the requirements of 1107.1(b)(1) through 1107.1(b)(8). Wealso estimate an additional 12 hourswill be required to prepare theenvironmental assessment, for a total of 24 hours. For more detail on theestimate, see section VIII of thisdocument, which explains that anexemption request does not require acomparison to a predicate or inclusionof information on multiplecharacteristics, but rather requireslimited information for the product thatis the subject of the exemption requestand on the modification of the additive.

Based on the requirements set forth in

the codified language, FDA anticipatesthat preparation of most sections wouldrequire technical scientific andengineering expertise. Legal input andreview would also play a role.Therefore, in valuing the time cost, FDAuses the weighted average of tobaccomanufacturing industry-specific hourlywages for life, physical, and socialscience occupations ($30.91),architecture and engineering

occupations ($40.93), and legaloccupations ($71.83) (Ref. U.S. BLS,2010). FDA assigns these occupationalcategories weights of 40 percent, 40percent, and 20 percent. The resultingcomposite wage is $43.10. FDA thendoubles this amount to $86.20 toaccount for benefits and overhead.Multiplying this wage by the burdenestimates above yields a cost perexemption request of $1,034 for therequirements of 1107.1(b)(1) through 1107.1(b)(8) and an additional $1,034for the environmental assessment, or atotal of $2,069. FDA anticipates thatwhen it asks a manufacturer to provideadditional information in support of anexemption request, it will take anaverage of 3 hours to prepare theadditional information. Using the samehourly cost of labor, providingadditional information is estimated toresult in an additional cost of $259.

Under the Tobacco Control Act,

completion of the substantialequivalence pathway for marketing anew tobacco product requiressubmission of a report under section905(j)(1)(A)(ii). This is a basicrequirement that is expected to take 3hours. Valued at a wage of $86.20, itwould then cost $259 to submit onereport under section 905(j)(1)(A)(ii).

In the case that one exemption requestcovers one product and the exemptionis granted without a request foradditional information, the substantialequivalence exemption pathway(consisting of an exemption request,including an environmental assessment,and a subsequent report under section905(j)(1)(A)(ii) for a product embodyingone modification) would take 27 hoursat a cost of $2,328. These are electivecosts in that firms will not choose thispathway unless the potential savingsrelative to demonstrating substantialequivalence justifies the risk of submitting an exemption request that isultimately denied. The preliminary time

burden estimate for submitting asubstantial equivalence report undersection 905(j)(1)(A)(i) was 360 hours.This estimate is currently being updated

based on the initial submissions to the

Agency, but for a new tobacco productsatisfying the criteria for an exemption,we anticipate that the burden of preparing a substantial equivalencereport and an environmental assessmentwill continue to be appreciably higherthan the burden described previouslyfor utilizing the exemption pathway.

Based on FDAs expectation that 500exemption requests will be received peryear, the absolute cost of preparingexemption requests would be $517,224for the requirements of 1107.1(b)(1)through 1107.1(b)(8) and an additional


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$517,224 for the environmentalassessments. The absolute cost of replying to requests for additionalinformation would be $38,792 if, asanticipated, we ask for additionalinformation supporting 150 of the 500requests. If these exemptions are citedin the 905(j)(1)(A)(ii) reports for 750new products, those reports would costan additional $193,959. If all theseexemptions were granted, the totalsavings attributable to this rule would

be the difference between the cost of bringing all 750 products to marketthrough the substantial equivalencepathway and the sum of the four costsenumerated above. However, the costsavings is expected to be lower becauseit is unlikely that all the requestedexemptions would be granted.

In order to grant an exemption, FDAmust find, among other things, that areport demonstrating substantialequivalence would not be necessary to

ensure that permitting the tobaccoproduct to be marketed would beappropriate for protection of the publichealth. Furthermore, an exemptioncould be rescinded if found to beinappropriate, and the process forrescission would depend on whetherthere is a serious risk to public health.Therefore, FDA does not anticipate thatsetting up this mechanism for obtainingsubstantial equivalence exemptions willresult in costs to public health.

Under this final rule, there may still be some uncertainty on the part of manufacturers about what kinds of product modifications may be grantedan exemption and how muchsupporting evidence will be required asthe basis for an exemption. If somemanufacturers are more conservative inrequesting exemptions than FDA would

be in granting them, they may not fullyavail themselves of the potential costsavings. Alternatively, if somemanufacturers are too optimistic aboutwhat types of modifications will beexempt, they will incur higher costs

because they will have to submitsubstantial equivalence reports inaddition to having submittedunsuccessful exemption requests.

FDA acknowledges the theoreticalpossibility that overall submission costscould increase as the result of thisuncertainty. This would happen if somany unsuccessful exemption requestswere submitted that the excess costsassociated with them exceeded any costsavings from exemptions that weregranted. This situation is unlikely tooccur, especially in the long run. Thecost of submitting an exemption requestis expected to be low relative to thepotential savings. As time goes on andmanufacturers gain experience with

submission costs and the requirementsthat must be met for exemptions, theymight continue to submit unsuccessfulexemption requests, but this wouldincreasingly be a well-informed choice

based on an accurate estimation of theprobability of being granted anexemption and the excess cost of preparing an unsuccessful requestcompared with the cost savingsattributable to an exemption. Moreover,it is possible that some of theinformation compiled for an exemptionrequest would be reused as part of ademonstration of substantialequivalence, thus reducing the effortexpended in preparing both types of submissions.G. Conclusion

In summary, the substantialequivalence exemption requirementslaid out in this final rule offer anadditional channel for legallyintroducing new tobacco products thatresult from minor modifications of tobacco products that can be sold underthe FD&C Act. Successfully introducinga product through this channel isexpected to reduce costs. If manufacturers do not want to riskhaving to submit substantialequivalence reports in addition tohaving submitted unsuccessfulexemption requests, they may choose tomaintain the status quo and not pursuesubstantial equivalence exemptions.H. Regulatory Flexibility Act

The Tobacco Control Act requires thattobacco product manufacturers obtaineither a marketing authorization orderunder section 910(c) or an order undersection 910(a)(2) finding the newtobacco product to be substantiallyequivalent to an appropriate predicatetobacco product before introducing anew product into interstate commerce.Although this requirement is costly, theoption of requesting an exemption as setforth in this final rule provides analternative pathway that potentiallyreduces costs. Manufacturers of newtobacco products may choose not to usethis alternative pathway to market their

products. Therefore, this final ruleimposes no incremental burden fromwhich to provide relief and will nothave a significant impact on asubstantial number of small entities.VIII. Paperwork Reduction Act of 1995

This final rule contains informationcollection requirements that are subjectto review by OMB under the PRA (44U.S.C. 35013520). The title,description, and respondent descriptionof the information collection provisionsare shown in the paragraphs that follow

with an estimate of the annual reportingand recordkeeping burden. Included inthe estimate is the time for reviewinginstructions, searching existing datasources, gathering and maintaining thedata needed, and completing andreviewing each collection of information.

Title: Exemptions from SubstantialEquivalence Requirements for TobaccoProducts, Final Rule.

Description: In this final rule, apathway would be established by FDAfor manufacturers to request exemptionsfrom the substantial equivalencerequirements of the FD&C Act. As itacquires more information about theadditives in tobacco products fromwhich to establish categories of exemptions, FDA may issue additionalregulations or guidance on this subject.This rule would implement section905(j)(3) of the FD&C Act, under whichFDA may exempt tobacco products thatare modified by adding or deleting atobacco additive, or increasing ordecreasing the quantity of an existingtobacco additive, if FDA determinesthat: (1) The modification would be aminor modification of a tobacco productthat can be sold under the FD&C Act, (2)a report is not necessary to ensure thatpermitting the tobacco product to bemarketed would be appropriate forprotection of the public health, and (3)an exemption is otherwise appropriate.

The rule also explains that anexemption request may be made only bythe manufacturer of a legally marketedtobacco product for a minormodification to that manufacturersproduct and the request (and supportinginformation) must be submitted in anelectronic format that FDA can process,review, and archive. In addition, therequest and all supporting informationmust be legible and i

Final Rule on Exemption for Substantial Equivalence

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