The Future Mapped

Participants in the 2018 Global Tobacco & Nicotine Forum celebrated innovation and worried about bad policies.

By Taco Tuinstra

While the timing was probably a coincidence, the U.S. Food and Drug Administration’s (FDA) Sept. 12 threat against e-liquid flavors underscored the relevance of an already salient program. The Global Tobacco & Nicotine Forum (GTNF), which took place Sept. 11–14 at the Rosewood Hotel in London, focused heavily on ways to reduce the risks to health associated with tobacco consumption. The latest FDA pronouncements provided a perfect example of how not to go about, in the eyes of many participants. Rather than enacting heavy-handed rules and restrictions, GTNF speakers argued, regulators should create a climate that encourages innovation. The market, after all, has a better track record of solving problems than bureaucrats do.

Jerome Abelman, British American Tobacco’s (BAT) general counsel and director of legal and external affairs, drew an analogy with the GTNF host city’s transportation system. When traveling to the forum, said Abelman, he a had a wide variety of options to choose from. He could travel by car (electric, hybrid, diesel, petrol, Uber or traditional black taxi), public transport (bus or Underground), by bike (his own or one obtained through a bike-sharing scheme) or by foot.

“Those choices weren’t available 10 years ago,” said Abelman. A combination of good government policy and innovation by private industry has given Londoners not only more options, but also cleaner air. The same principles, he argued, would help reduce the health risks of tobacco.

Jeff Stier, senior fellow at the U.S. Consumer Choice Center and a keen carnivore, made a similar point using the example of meat consumption.

He related the story of a biochemistry professor, Patrick Brown, who wanted to tackle industrial animal agriculture. When the typical academic approach—organizing a workshop—failed to make a difference, Brown realized that the only way to impact meat production would be to beat it in the free market. “All you have to do is make a product that the current consumers prefer to what they are getting now,” Stier quoted Brown as saying.

Brown started a company called Impossible Foods to develop plant-based and laboratory-grown meat alternatives meant to appeal not to vegetarians but to meat lovers. Helpfully, the FDA backed the safety of Impossible Foods’ plant-sourced hemoglobin.

“While I will not become a vegetarian, the Impossible Burger [one of Impossible Food’s products] increases the likelihood that I will reduce my meat consumption,” said Stier. “That’s good news for those who think the world would be better if I ate less meat. The outcome won’t restrict my freedom; rather, it gives me more choice.”

This happy result was achieved by private sector-driven innovation and timely government clearance of the product—and without costly finger-wagging public education campaigns, according to Stier. Like Abelman, he believes such factors will also drive progress in the effort to reduce the prevalence of tobacco-related diseases.

Derek Yach, president of the Foundation for a Smoke-Free World, drew attention to a wider trend of dirty legacy industries changing their activities to cleaner ones. “The past no longer predicts the future,” he said. “What was once unthinkable is becoming possible through disruptive technologies: Coal companies are shifting toward renewable energy, waste companies are shifting from dumping to recycling, and auto companies are reducing their reliance on the combustion engine.”

Yach went on to describe the characteristics that these companies have in common. “They use technological innovation to transform core businesses,” he said. “They respond to consumer demand for better, healthier and more sustainable products. Change is supported by asset managers and investors, and smarter regulation allows governments to steer sectors to outcomes aligned with sustainable development goals.”

The tobacco industry, said Yach, has a similar opportunity to reduce the unacceptable health toll of smoking. Citing British psychologist Mike Russell’s famous observation that people smoke for nicotine but die from tar, Yach pointed out that the industry now has a portfolio that cuts risk by decoupling nicotine from lethal smoke.

Yet considerable obstacles remain, he noted. For example, the parties to the World Health Organization’s Framework Convention on Tobacco Control—which were scheduled to convene in Geneva shortly after the GTNF—systematically exclude from their discussions “the organizations responsible for creating tobacco-related risks and potentially holding the key to mitigation.”

Consumer misperceptions, nourished by alarmist media stories, are problematic as well. Too many people still view nicotine as a cancer-causing substance, according to Yach, while an increasing number of consumers mistakenly believes e-cigarettes are equally harmful or more harmful than combustible cigarettes.

“Failure to correct misperceptions will keep smokers smoking and encourage governments to ban harm-reduction products, which we have seen happening at an alarming rate,” he said.

Clive Bates, director of The Counterfactual, attributed the fierce resistance against working with the tobacco industry to a powerful narrative—“the industry’s interests are fundamentally irreconcilable with public health”—enhanced by aggravating factors, such as the fact that some people don’t like solutions provided by the private sector. The goal of many tobacco control officials, he said, isn’t harm reduction but annihilation. There is a sentiment of “one last push and we’re there,” Bates noted. E-cigarettes, in this account, are seen as a last-ditch survival strategy before the industry is killed off by taxes and regulations.

Confronted with such a hostile environment, the industry should drive the technology transition, embrace the role of “policy champion” and lead innovation, said Bates (also see “Mapping the Future,” Tobacco Reporter, August 2018).

Mark Kehaya, chairman of AMV Holdings, offered a striking example of the private sector’s success in converting smokers to vaping. Sixty percent of guests who shopped with his company in May 2017 were still customers 12 months later, he said—which compares with a success rate of the medical device industry of about 6 percent.

The existing philosophy, noted Kehaya, treats smokers as patients who need medical treatment. A more productive approach, he said, would be to acknowledge that consumers enjoy smoking—and to provide them with a more pleasurable and less risky alternative experience.

Viewed from that perspective, many of the regulations in place make little sense. For example, rather than increasing enjoyment, EU limits on e-liquid bottle sizes and nicotine strengths merely make alternative products difficult to use.  

Advertising restrictions, meanwhile, prevent vapor companies from building a connection with their customers—something that would increase both product enjoyment and the likelihood of smokers converting to less-harmful vapor products.

Regulators should make it quicker and easier to bring continuously better products on the market, according to Kehaya. “The iQOS application should have been a slam dunk,” he noted, referring to the modified-risk tobacco product application that Philip Morris International (PMI) submitted to the FDA in December 2016 and is still awaiting a decision on.

Kehaya said the U.K. is the closest of any country to having a regulatory framework that will allow a smoke-free future. “Brexit offers a unique opportunity to make changes to laws that will accelerate that process,” he added.  

Historical accidents

Indeed, throughout the conference, speakers repeatedly praised the U.K.’s enlightened policies for vaping. In 2015, Public Health England famously declared vaping to be 95 percent less harmful than smoking. Rather than banning or heavily restricting e-cigarettes, as other countries have done, the U.K. government has tolerated them on the market, allowing the sector to grow and improve its offerings.

Today, 5 percent of U.K. citizens vape—more than twice the average share in the EU. At the same time, smoking prevalence has plunged. The U.K. now has the lowest rate of smoking in Europe after Sweden, where the tobacco market is dominated by a smokeless product that is outlawed in other EU member states—snus. Earlier this year, a report published by the House of Commons Science and Technology Committee said that the rules around e-cigarettes should be relaxed even further to encourage more people to vape instead of smoke.

GTNF speaker Matt Ridley, a member of the House of Lords and acclaimed author, attributed Britain’s progressive stance to two historical accidents.

In 2010, he related, advertising executive Rory Sutherland called on his friend David Halpern, who ran the Prime Minister’s Behavioral Insights Team (BIT), popularly known as “The Nudge Unit.” While they were talking, Sutherland pulled out a “cigalike,” which Halpern had never seen before. After investigating the category, Halpern and his team urged against a ban on the product.  

“Indeed, we went further,” Halpern later wrote in a book about the BIT. “We argued that we should deliberately seek to make e-cigarettes widely available and use regulation not to ban them but to improve their quality and reliability.”

The other historical accident, according to Ridley, is the history of harm reduction in the U.K. When the AIDS epidemic took off in the 1980s, Norman Fowler, who was the health secretary in Margaret Thatcher’s government, made the unpopular and unusual decision to provide heroin users with clean needles.

Despite widespread opposition—critics said the initiative was condoning and encouraging illegal drug use—the policy was wildly successful. By 2010, only 1 percent of British drug injectors had HIV, compared with 18 percent in America and 48 percent in Brazil. The concept of harm reduction, therefore, got embedded in the British civil service system, according to Ridley. “The people who had worked in this key policy of harm reduction and drug use were also at the forefront when e-cigarettes came along,” he said.

Ridley reminded his audience that the modern e-cigarette was invented as a harm reduction tool when the Chinese chemist Hon Lik designed a vapor device to help him quit smoking. Harm reduction, he said, is about relative risk; a product does not have to be harmless to be beneficial. “You don’t ban seat belts because they very occasionally kill people,” said Ridley.

Much of the opposition to harm reduction products, he said, was based on an extreme version of the cautionary principle—better safe than sorry. “The problem with the extreme version of the cautionary principle is that it effectively holds the new to higher standard than existing technology,” said Ridley. He quoted a friend who memorably defined this principle as, “never do anything for the first time.”

John O’Sullivan, senior fellow at the National Review Institute, noted that risk aversion had risen dramatically in Western society—a development that he considered a serious problem.

O’Sullivan cited the example of a professor giving a lecture on Nazi Germany at an American university who was told his students might not come to the class because it would give them distress. The university set aside quiet rooms with comfortable sofas where students could recover.

“If we become completely risk averse, we become different people,” cautioned O’Reilly.

“In a world from which physical danger had been banished […] would physical courage be likely to survive?” he asked, citing from The Road to Wigan Pier by George Orwell. “The truth is that many of the qualities we admire in human beings can only function in opposition to some kind of disaster, pain or difficulty.”

O’Sullivan stressed that once people have been given all relevant information, they are entitled to enjoy a product that makes life fun or a bit more bearable. A conservative rather than a libertarian, he doesn’t regard this principle as overriding everything else, however. “If something imposes an immediate threat to health, it should be open to control,” he said.

And if the threat can be clearly reduced by scientific innovation, then suppliers have a moral duty—and in time probably a legal duty—to reduce that harm, O’Sullivan added. “They also have a duty toward their shareholders to reduce that harm or else they are going to face crippling legal expenses down the line,” he said.

Peter Nixon, managing director of Philip Morris Limited U.K., related his experience at the forefront of tobacco harm reduction from a business perspective. Having worked for PMI for 15 years, Nixon’s career took an unusual twist when in 2017 the company announced its ambition to end the combustible cigarettes business.

“The first half of my career, I was selling cigarettes, and in the second half of my career, I have been trying to get people off cigarettes,” said Nixon, reflecting on the unusual pivot.

To help achieve its vision of a smoke-free world, PMI is encouraging smokers who cannot or will not quit to transition from combustible products to less-harmful alternatives such as its iQOS tobacco-heating device. Nixon stressed that in this process, the role of science and sales are equally important. “You can have the best products, but if nobody buys them, it is useless,” he said.

Prior to directing PMI’s U.K. business, Nixon led the launch of iQOS in Russia and helped pave the way for the product in Japan. One of the lessons he learned from those experiences was that simply putting the product on the market—like the company was used to doing with cigarettes—is not enough. “When smokers make the change from a smoking product to an alternative, it’s a massive change in their lives, and they have to fully understand the benefits of what they are moving to,” he said. “We have to help consumers make that journey, and it has meant we had to change our business model.”

To educate consumers, PMI has established dedicated iQOS stores in the markets where the product is sold. Unlike with cigarettes, the process doesn’t end with the sale. The company provides coaches to help smokers with their transformation, and many say that such support has been instrumental in helping them switch.

“Six out of 10 who buy iQOS are able to completely quit cigarettes and switch to iQOS,” said Nixon.

The Japanese experience

The most stunning example of smokers abandoning cigarettes, of course, has been in Japan, where between 2016 and 2018, cigarette sales declined by 24 percent. In 40 years of tobacco control and 10–15 years of tobacco harm reduction, this development is unprecedented, according to Delon Human, president of Health Diplomats, who moderated a discussion about the phenomenon at GTNF.

Clive Bates once memorably said that the sky should be darkened by airplanes full of public health specialists flying to Japan to find out why this is happening. Yet somehow it is still the best-kept secret in public health—a condition the panelists attributed to the polarization of the debate. Putt off by the industry’s past behavior, many health advocates are finding it difficult to accept that the sector might be part of the solution.

The panelists explored the factors that contributed to the rapid decline in Japanese cigarette sales and whether it would be possible to replicate the experience elsewhere. E-cigarettes are banned in Japan but tobacco-heating products are legal and have captured a whopping 21–22 percent of the market since they were first introduced to Japan in 2014.

Remarkably, as became clear during the panel discussion, many consumers who switched to such products did so out of social considerations (about ash, smell, etc.) rather than health concerns—a reflection of the emphasis placed on harmony in Japanese society.

Rupert Wilson of Strategic Consulting also pointed out that menthol cigarettes account for a comparatively large share of the Japanese combustible tobacco market. Smokers of such cigarettes, he speculated, might be more receptive to flavored tobacco-heating consumables than smokers of nonmenthol cigarettes. What’s more, Rupert added, the price gap between premium and value cigarettes is smaller in Japan than it is in many other countries, which makes it more likely that smokers of value brands will convert to higher priced tobacco-heating products.  

The affordability of new products was repeatedly raised throughout the GTNF as a potential hurdle to harm reduction. With the majority of cigarettes now being consumed in emerging markets, panelists agreed reduced-risk products should be made available at a wide range of price points. “One size does not fit all,” said one panelist.

While acknowledging the importance of tobacco harm reduction, Suzanne Wise, senior vice president of corporate development at Japan Tobacco International, cautioned that the industry should take care to retain its access to capital. “We must maintain the confidence of the financial markets,” she said.

For decades, investors have looked at tobacco stocks as a reliable source of shareholder returns. The business model was relatively straightforward, with pricing increases offsetting volume decreases. The dramatic impact of noncombustible products in Japan has shaken some investors, according to Wise, causing them to ask pertinent questions such as: Is this the end of a trusted business model? Will the huge amounts channeled into product development pay off—and when? Will consumers transition to less profitable product options, and what impact might this have on margins?

Wise then drew an analogy with the automobile industry, which is also in the middle of groundbreaking transformation. While there’s lots of excitement about driverless cars, she said, commercialization is still a long way off. “Carmakers stress that continuous improvement to conventional products must fund resolution of driverless technology challenges for a long time to come,” she said. “But there is no shortage of capital to fund research and development in the automobile sector, which suggests investors are open to disruption as long as it’s under control.”

The same principle, Wise ventured, applies to the tobacco industry’s transformation. “JTI’s positive growth outlook in the noncombustible category is additional to the strength and sustainability of the traditional business,” she said. The company expects both to evolve in parallel over the next 15–20 years.

Animal spirits

The FDA’s Sept. 12 announcement loomed heavily over the GTNF panel discussions, which, in addition to the Japanese experience, focused on risk communication, regulation and flavorings. Panelists lamented that the threatened ban on flavored e-liquids would extinguish the promise of vapor products as tobacco harm reduction tools, and many discussions focused on how to respond.

Neil McKeganey, founder of the Centre for Drug Misuse Research at the University of Glasgow, urged the industry to establish a robust body of evidence so that it could contest proposed legislative changes with “something other than a purely commercial framework.”

While doing so would not guarantee success, the absence of such evidence would guarantee failure, McKeganey said.

“Little Vape,” he suggested, should become more like Big Tobacco in that respect—or risk losing domain. For example, when the FDA extended its deadline for premarket tobacco product applications, many vapor companies were at the cusp of initiating research. Yet instead of doubling down on those efforts, many simply grasped the opportunity to sell their products for a longer period, McKeganey lamented.  

David Levy, professor of oncology at Georgetown University and an economist, asserted that the impact of regulations would depend on how they affect competition, which he believes is essential in developing lower-risk products.

Controlled by a handful of large players, the traditional cigarette industry, he observed, is anti-competitive with high barriers to entry, no price competition and little innovation. The vapor industry, by contrast, has large numbers of players, low barriers of entry and many outlets in addition to mass market retail, which dominates in cigarette sales.

The fierce competition in the vapor category has caused product quality to increase and prices to decline considerably in a short time. Regulation, said Levy, should maintain a level playing field so that competition remains.

The GTNF concluded with an eight-member panel discussion moderated by Mark Littlewood, director general of the Institute of Economic Affairs. Instructed to rate their level of optimism about the regulatory environment on a scale of 1 to 10, the panel returned a gloomy average of 4.5. Yet when an audience member later asked what to tell a potential investor in the vapor sector, the panelists were unanimous in their advice—invest now. One speaker pointed to the $800 billion cigarette market that could be eaten into, another expressed confidence that science would eventually prevail, while yet another said that it would require only three to five countries with U.K-style regulations to make the global vapor market take off.

Despite its considerable promise, tobacco harm reduction continues to face many challenges, including inaccurate consumer perceptions, hostile politics and misguided regulations. In addition, there is the problem of deviating goals: While the industry is trying to get people off of smoking, many in the medical community want to get them off of tobacco and related products altogether. But one thing became crystal clear during the 2018 GTNF: If harm reduction fails, it will not be due to a lack of industry commitment to the concept.