Tobacco Companies’ Best Friends

Anti-tobacco activists portray themselves as enemies of “Big Tobacco,” so they naturally characterize the current panic about vaping among American teens as a new campaign by the industry.  This is fundamentally wrong, according to David Sweanor, a veteran anti-smoking advocate and chair of the advisory board for the Center for Health Law, Policy and Ethics at the University of Ottawa.  In the following guest blog, Sweanor suggests that the war against vaping is cigarette manufacturers’ best hope for a lucrative future.

The presence of the tobacco industry plays a huge role in discussions on tobacco harm reduction and disruptive technology, but I have long found that those who think they are that industry’s greatest enemies are often among its biggest enablers. Yet understanding the fundamentals in play should not be so hard.

We can start with what the financial markets appear to think of the state of these companies, which is seen in the 5-year stock price charts at left. In early 2017, the combined value of the FT500 tobacco companies (PMI, BAT/Reynolds, Altria, Japan Tobacco, Imperial and ITC) surpassed US$700 billion. That was a continuation of a longstanding skyward march of these companies as they benefitted from their ‘nicotine maintenance monopoly’ and raised prices in a cartel-like fashion.

Recently the combined value was down to US$372 billion. In looking at their stock charts we can see clearly when disruption started to bite.

This makes sense when we consider that those valuations are the present value of future anticipated earnings. So long as the companies can, as in the US, make cigarettes for 28 cents a pack and sell them, pre-taxes etc., for over $2.00, and keep raising their prices aggressively, and price elasticity is low, it is a licence to print money. Regulatory barriers thwarting competition keep them secure.

But just as OPEC’s cartel invited alternative sources of energy and taxi cartels created an opportunity for Uber, the nicotine market has long been at risk of disruption, of true competition breaking out. The global cigarette market, at well over $US800 billion annually, huge profit margins, high tax burdens putting them at a price disadvantage, and unhappy customers, creates a tempting target. Regulations, public misinformation, actions by self-styled anti-tobacco groups, and technological challenges protect the cartel. But that protection is no longer assured and buying shares in Big Tobacco today starts to look a bit like buying into New York City taxi medallions just as Uber was getting launched.

The idea that cigarette companies welcome this disruption flies in the face of their stock prices. Yet many in the tobacco control field seem convinced that whatever happens with new technology Big Tobacco will win because, well, they have long dominated the market. Leaving aside that the market apparently disagrees, this is worth thinking about. Disruption has hit a great many businesses over a very long time. Would anyone care to list all the market-dominating companies that did well from such disruption? They typically get blown away, and for very good reasons. They are large, bureaucratic and risk-averse, and have much to lose if they make mistakes. They also typically lack the expertise in the emerging technologies and are held back by those in the company who are committed to the status quo. Meanwhile, lots of start-ups can compete for the emerging market with little to lose but huge upside if they are ultimate winners.

Horse breeders did not come to dominate the tractor business, nor horseless carriages. IBM missed out on software, Microsoft on social media, the Yellow Pages on internet search, NYC taxi medallion owners were not the backers of Uber. Then there were makers of rotary dial phones, beat by the likes of Motorola, in turn beaten by the likes of Nokia, which was trounced by BlackBerry, which in turn lost out to Samsung and Apple.  The list of big, established, market-dominating companies ‘doing a Kodak’ is very, very long.

Also, if Big Tobacco really wanted to facilitate a rapid transition to low risk products they would act very differently. They are, after all, in possession of the best market intelligence. They know what happens when vape products compete directly with cigarettes. They know how many smokers would seriously try to switch if adequately informed about relative risks, and they know how things like risk-proportionate regulation and taxation is likely to impact the markets. But they stay pretty quiet.

I think it is helpful to think of Big Tobacco and alternative nicotine the way we would think of the House of Saud and alternatives to fossil fuels. Big Tobacco must prepare as best they can for a market they think is fundamentally changing. They must sound like they are very supportive, for public relation and legal liability reasons. But the slower the transition, the longer they can reap the rewards of their exceedingly lucrative cartel.

Substituting market intelligence for the current ‘if they seem to want to do it, we will oppose it’ thinking, and the application of some strategy could lead to some quite extraordinary breakthroughs.

Instead of Greenlighting IQOS Sales, FDA Continues to Slow-Walk Safer Cigarette Substitutes

The introduction of heat-not-burn cigarette substitutes in Japan has led to a precipitous reduction in cigarette consumption.  

Tobacco industry analyst Michael Livery of Piper Jaffray recently issued a report on the Japanese market, citing 2017 sales data. The chart at left suggests that Philip Morris International’s IQOS heat sticks (green) and BAT’s Glo products (blue) caused a 13% decline in cigarette consumption for the year.  Livery deliberately underestimated the number of heat sticks sold because of evidence that up “to 20% (4^th Quarter 2017) of iQOS HeatStick volumes…is getting re-sold in China, Thailand, and Hong Kong, and likely other parts of Asia.”

I suggested (here) that a similar result could be possible in the U.S., if the FDA grants marketing approval for such products. The agency, however, appears to be in no rush to make a decision.

Philip Morris submitted a premarket tobacco application (PMTA) to the FDA on March 31, 2017; it has been pending ever since.

According to the FDA (here), if a PMTA is accepted and found to be complete, the agency will file it and begin substantive review.  “After completing its review, FDA intends to issue an order within 180 days after receipt of the Premarket Tobacco Application that the new product may or may not be introduced or delivered for introduction to consumers.” (emphasis added)

The FDA took eight months to grant Swedish Match a PMTA for eight snus products in 2015 (here).  This week marks the twelfth month of FDA consideration of the IQOS PMTA submitted March 31, 2017.

It is often said that regulation is a slow, deliberate process.  But in this instance the FDA is in apparent violation of its own procedural guidelines.  The FDA simply slow walks any decision on safer options for smokers: it took 2.5 years (here) and 4 years (here) to reject requests to correct inaccurate smokeless tobacco warnings.  All of these are examples of regulatory purgatory that I warned about six years ago (here). 

Our country’s smokers and their loved ones deserve better.

What’s the Takeaway from Snus?

A new study from British American Tobacco scientists answers that fascinating question, providing valuable information for consumers and regulators. 

Snus contains nicotine and other constituents that make tobacco satisfying, but it also contains contaminants, albeit in vanishingly small amounts.  It is useful to know how much of these constituents users extract and consume during typical use.

Dr. Helena Digard and colleagues published their research in Chemistry Central Journal (abstract here).  They recruited 21 male snus users in Sweden to use four 1-gram pouched snus products for one hour.  They then compared constituent levels in the used pouches with levels in unused pouches from the same package. 

The researchers found that the percentage extraction of constituents from snus was fairly consistent, even though they were present in concentrations that differed by almost a million-fold.  For example, users extracted about one-quarter of the available salt (sodium and chloride), which was present in milligram quantities in the snus pouches.  Also present in milligram quantities was propylene glycol, the solvent used in many e-cigarettes, of which about 30% was extracted; a third of the available nicotine was consumed.

Several constituents, including ammonium (28% extracted), nitrate (27%), and flavorings (19-30%), were present in microgram quantities (one thousand times smaller than milligrams).  Tobacco-specific nitrosamines were present in nanogram quantities (one millionth of a milligram); about 36% were extracted.

This study’s results were reasonably consistent with those from research published in 2012 by John Caraway and P.X. Chen of Reynolds American (abstract here), although the latter work showed somewhat lower extraction of TSNAs and slightly higher extraction of nicotine.  As Nigard et al. acknowledged, there is wide variation in the percentage of extraction among different snus users and even by a single user on different occasions.