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.

FDA Rejects Reynolds Petition to Change Smokeless Warning

Congress in 1986 legislated that smokeless tobacco products carry a warning label, “This product is not a safe alternative to cigarettes.”  In 2011, Reynolds American petitioned the FDA to replace that deceptive language. As I have noted (here), Reynolds’ request was straightforward: “…the Government should, in suitably brief form, tell the whole truth, not mislead by telling only part of the truth” about the health risks of smokeless tobacco use.

On May 11 the FDA denied Reynolds’ petition.  Center for Tobacco Products Director Mitch Zeller defended the action on the grounds that (1) the current not-safe-alternative warning is factual, (2) there is no evidence that the current warning is responsible for the fact that a vast majority of Americans incorrectly believe smokeless tobacco is just as hazardous or more hazardous than smoking, and (3) there is no evidence that the proposed replacement warning would “promote greater understanding of the risks associated with the use of smokeless tobacco products.”  The "greater understanding" phrase is repeated throughout the FDA’s 12-page decision letter. 

The agency’s rejection rests on distorted logic.  First, as I have pointed out for 20 years, the not-safe-alternative warning sets up a straw man; a perfectly safe alternative to cigarettes – or to any consumer product – doesn’t exist.  Extending the FDA’s logic, every consumer product should carry a warning that it is not “safe.” 

I do agree with the FDA’s assertion that the not-safe warning is not responsible for Americans’ misperceptions about smokeless tobacco; major medical organizations (here, here and here),  federal agencies (here and here) and state governments share the blame.  However, the FDA shifts the burden of proof.  Reynolds clearly demonstrated that the warning is inaccurate and misleading, but the agency wants the company to prove that the warning causes the misperceptions.  In effect, the FDA acknowledges that the warnings accomplish the government’s purpose – to portray all tobacco products as equally dangerous.

Most importantly, the FDA says that there is no evidence that Reynolds’ proposed replacement warning – No tobacco product is safe, but this product presents substantially lower risks to health than cigarettes – would “promote greater understanding of the risks associated with the use of smokeless tobacco products.”  Mr. Zeller then repeats a list of diseases vaguely “known” and “shown” to be linked to smokeless tobacco.  But he doesn’t concede that the risks are so low that the government has never produced or cited specific estimates of deaths from smokeless tobacco use.

The Swedish Match MRTP application, discussed previously in this blog, would delete the cancer, gum disease/tooth loss and not-safe-alternative warnings and add a relative risk warning virtually identical to the one Reynolds proposed.  It remains under FDA review.

Kudos to the FDA: E-Cigarettes Are Tobacco Products

On April 25, the FDA abandoned its claim that e-cigarettes are drug delivery devices. In an open letter published on the agency’s website (here), Tobacco Center Director Lawrence Deyton and Drug Center Director Janet Woodcock acknowledged that e-cigarettes are tobacco products and would be subject to regulations under the 2009 Tobacco Act. This is consistent with the January 2010 decision by federal judge Richard Leon (discussed here).

This is a victory on several counts for smokers and for our nation’s public health. First, the FDA decision guarantees that e-cigarettes, which have helped many smokers quit, will remain on the market.

Second, as the Deyton-Woodcock letter indicates, FDA regulation of e-cigarettes will subject them “to general controls, such as registration, product listing, ingredient listing, good manufacturing practice requirements, user fees for certain products, and the adulteration and misbranding provisions, as well as to the premarket review requirements for ‘new tobacco products’ and ‘modified risk tobacco products.’” These requirements will promote the marketing of safe and quality-controlled products.

Finally, this decision could allow pharmaceutical companies to reposition nicotine medicines as recreational alternatives to cigarettes. Today, these products are sold with a therapeutic claim for smoking cessation, but they are expensive, unsatisfying and FDA-approved only for temporary use (10-12 weeks). That accounts for their dismal success rate of only seven percent among smokers (evidence here). I believe pharmaceutical companies should enter the recreational nicotine market with products that satisfy smokers indefinitely and are cheap enough to compete directly with cigarettes. Clearly, the tobacco industry is poised to compete in this new market -- Reynolds American owns Niconovum (here) and British American Tobacco recently formed Nicoventures (here).

In my 1995 book “For Smokers Only” (description here), I shared my perspective on recreational nicotine for smokers:

“Smokers derive a lot of pleasure from smoking tobacco. You may be reading this book because you or your loved one actually enjoys lighting up a cigarette and taking several deep puffs. A smoke may be especially welcome when you are in a stressful situation or when you need to relax. Or you may enjoy smoking when you need to concentrate on a difficult problem at work or at home. Cigarette smoking can activate that mental pressure-relief valve, which is followed by the feeling that the problem can be solved, the crisis will pass. These feelings are real, and not just a figment of your imagination.

“Many tobacco opponents claim that these sensations are not truly pleasurable, but are merely the satisfying of induced cravings and avoidance of withdrawal symptoms. One of the big advantages of the smokeless tobacco solution is that it addresses either view of smoking equally well. That is, it doesn't matter if you are a smoker who is unwilling to quit because you enjoy tobacco, or if you are unable to quit because of nicotine craving and withdrawal. Because in either case you recognize the potential life-shortening effects of this nicotine delivery system. In either case the smokeless tobacco solution can work for you.”

Smoking has been the problem; smoke-free tobacco and nicotine can be the solution. In making the right call on e-cigarettes, the FDA has facilitated that solution.