UPDATE 2-U.S. judge tosses FDA panel report on menthol cigarettes

(Updates with FDA reaction paragraph 8)

NEW YORK, July 21 (Reuters) - A federal judge ruled on Monday in favor of two tobacco companies that challenged a 2011 U.S. Food and Drug Administration committee report on menthol cigarettes, finding three of the panel’s members had conflicts of interests.

U.S. District Court Judge Richard Leon ordered the FDA reconstitute the committee and barred the agency from using the panel’s findings, which said removing menthol cigarettes from the market would benefit public health.

Lorillard Inc and Reynolds American Inc’s R.J. Reynolds Tobacco Co unit filed the lawsuit in 2011 arguing the panel’s members were biased against the industry.

Three of the panel’s expert doctors had worked for lawyers suing tobacco manufacturers or consulted for pharmaceutical companies designing smoking-cessation drugs, the opinion said.

There were eight voting members serving on the committee at the time the lawsuit was filed including health professionals and a non-FDA government representative, according to the original complaint. A ninth voting member represents the general public.

“The presence of conflicted members on the Committee irrevocably tainted its very composition and its work product,” Leon wrote in ruling filed at the U.S. District Court in Washington, D.C.

He called the panel’s findings and recommendations “at a minimum suspect, and, at worst, untrustworthy”.

FDA spokeswoman Stephanie Yao said the agency was reviewing the decision to determine how to proceed.

A 2009 law gave the FDA regulatory power over tobacco products and specifically banned chocolate, fruit and other flavorings that lawmakers said enticed children to start smoking. The legislation convened the panel of outside experts to weigh the public health risks of menthols, which have a mint-flavored additive.

Menthols now make up 31.4 percent of the cigarette market compared with 26 percent in 2002, according to research firm Morningstar.

Reynolds American has proposed a $25 billion acquisition of smaller rival Lorillard Inc in a move that signals the industry is betting on the continued growth of menthol sales. Lorillard makes the Newport brand of mentholated cigarettes.

David Howard, an R.J. Reynolds spokesman, said the company was pleased with the ruling, calling it a “confirmation by the court that the rights and protections of the law afforded other companies apply to tobacco companies as well.”

Leon has sided with the tobacco companies in the past. In February 2012, he struck down the FDA’s requirement that cigarette packaging carry large, graphic warnings about the dangers of smoking.

In March 2013 the FDA gave up trying to require such warnings, showing rotting teeth, diseased lungs and other images.

The case is Lorillard Inc et al v. United States Food And Drug Administration et al, in the U.S. District Court District of Columbia, No. 1:11-cv-00440-RJL (Additional reporting by Jonathan Stempel; Editing by Mohammad Zargham)