Author: Taco Tuinstra

  • Logic Rejection Based on Fuzzy Math

    Logic Rejection Based on Fuzzy Math

    Photo: vchalup

    The FDA’s recent rejection of Logic products is based on questionable statistics, says the director of the Center for Substance Use Research.

    By Neil McKeganey

    Last week in Washington, D.C., at the FDLI Tobacco Conference, Brian King, director of U.S. Food and Drug Administration’s Center for Tobacco Products, explained that FDA would be using the recently released 2022 National Youth Tobacco Survey (NYTS) results to inform its judgment as to whether electronic nicotine-delivery system (ENDS) products being assessed under the premarket tobacco product application (PMTA) process would be deemed “appropriate for the protection of the public health.” For those unfamiliar with the National Youth Tobacco Survey, the just-published survey data showed that 9.4 percent of youth in the U.S. had used an e-cigarette in the last 30 days, that 84.9 percent of flavored e-cigarette-using youth had used a nontobacco flavor and that 26.6 percent of those had used menthol-flavored e-liquids.

    If anyone in the audience thought that there might be a disconnect between King’s words and FDA actions, they were proved wrong barely a week later when marketing denial orders (MDO) arrived at the doorstep of Logic Technology Development for its Logic Power Menthol E-Liquid Package and its Logic Pro Menthol E-Liquid Package, with the FDA press release accompanying those denial orders expressly referring to the NYTS findings. In the light of King’s warning, you might think that the company receiving those denial orders could hardly have expected anything else. On the face of it, the NYTS figures are very scary, seemingly justifying immediate action on the part of the FDA. But as with all percentages, you have to look a little closer at what is actually being reported before you push the red button of alarm.

    Within the CDC Mortality and Morbidity Weekly Report setting out the NYTS results, the prevalence of youth use of Logic products is shown to be 4.3 percent. However, that is not 4.3 percent of all U.S. youth but 4.3 percent of the 9.4 percent of youth who were currently vaping within the U.S. With that clarification, the numbers here begin to look very different to the headline announcements. Instead of alarming levels of Logic use among U.S. youth, the extent of that use reported by the CDC researchers is 4.3 percent of 9.4 percent, i.e., 0.4 percent. By their own calculations, the CDC authors estimate this to be 100,000 of all U.S. youth—hardly an epidemic of Logic use.

    But it gets worse than this because the 0.4 percent figure of youth Logic use actually refers to the Logic brand not the two denied products. Unfortunately, the NYTS does not collect information on the specific Logic devices that youth in the U.S. are using. However, research currently underway by the Centre for Substance Use Research in Scotland does have these data. The Scottish researchers have been studying ENDS use among representative samples of U.S. youth and adults in 2021 and 2022, collecting data on over 20 leading ENDS brands and over 200 specific ENDS devices.

    In this Scottish research, out of the 1,215 youth aged 13 to 17 surveyed in 2022, 0.2  percent had ever used a Logic Power and 0.5 percent had ever used a Logic Pro. When the Scottish researchers looked at youth e-cigarette use over the last 30 days, the levels of Logic use shrank even further with 0.1 percent of youth reporting having used the Logic Power in the last 30 days and the level of Logic Pro use so low that it was not even recorded.

    In dispatching the MDOs for these two products, the FDA seems to have set aside a commitment to review the data around individual devices and liquids and to formulate a response in terms of the brand of products being used and justify the denial orders issued by reference to the NYTS data.

    However, there is something even more troubling in the MDOs that have been dispatched this week. If the CDC researchers estimates of only 0.4 percent of U.S. youth having used a specific branded ENDS product is sufficient for the FDA to issue an MDO, one has to wonder at the relative value that is being placed here on the goal of helping adult smokers to quit and the goal of preventing youth vaping. 

    The good news in the NYTS research is that overall levels of e-cigarette use by youth in the U.S. is declining. The bad news is that it would appear from the Logic experience that for as long as the NYTS data reveal any level of youth ENDS use, no matter how small, the FDA may still regard that as sufficient to issue an MDO. The implicit suggestion here then is that the FDA are operating a zero-tolerance approach to youth ENDS use and are prepared to sacrifice the potential benefit of ENDS products for adult smokers on the altar of youth ENDS prevention. 

  • Altria and JT to Sell Heated Products in U.S.

    Altria and JT to Sell Heated Products in U.S.

    Photo: ASDF

    The JT Group and Altria Group, through their Japan Tobacco International and Philip Morris USA subsidiaries, have established a joint venture to market and commercialize heated-tobacco sticks (HTS) products in the U.S. with Ploom-branded devices and Marlboro-branded consumables.

    The two groups also signed a long-term, nonbinding global memorandum of understanding (MOU) to explore commercial opportunities for a wide range of potentially reduced-risk products (RRP).

    “As part of our strategic focus on HTS, we’re very enthusiastic to launch our Ploom brand in the U.S., the world’s largest RRP market in value, through our partnership with the market leader, Altria,” said  Masamichi Terabatake, president and CEO of the JT Group’s tobacco business, in a statement.  

    “We also look forward to entering into a long-term strategic collaboration with Altria to further explore global commercial opportunities in the RRP category. I strongly believe that this cooperation will increase the global harm reduction possibilities for adult consumers and drive incremental value for the JT Group and Altria.”

    “We are excited to begin a new partnership with JT Group, a leading international tobacco company,” said Altria CEO Billy Gifford in a statement. “We believe this relationship can accelerate harm reduction for adult smokers across the globe.”

    “We believe moving beyond smoking in the U.S. requires multiple FDA-authorized products within each smoke-free category to appeal to a diverse range of adult smokers. We believe that our joint venture and pipeline of heated-tobacco products position us well to increase adoption of smoke-free products.”

    The joint venture establishes a new company, Horizon Innovations, for the U.S. commercialization of current and future HTS products owned and developed by either party. Horizon will commercialize HTS products in the U.S. under the Ploom and Marlboro trademarks.

    JTI will have a 25 percent economic interest in Horizon to reflect its HTS product contribution. PM USA will have a 75 percent economic interest, reflecting the company’s strong distribution network and infrastructure, as well as its initial capital contribution of $150 million to Horizon.

    Subsequent capital contributions made to Horizon will be split according to the parties’ respective economic interest. JTI and PM USA will both maintain independent ownership of their respective intellectual properties, including any IP acquired after the formation of the joint venture that supports the development of future HTS products.

    “I strongly believe that this cooperation will increase the global harm reduction possibilities for adult consumers and drive incremental value for the JT Group and Altria.”

    As part of the joint venture, JTI and PM USA will combine their scientific and regulatory expertise to jointly prepare U.S. Food and Drug Administration filings, including a premarket tobacco product application (PMTA) for the latest version of Ploom HTS products. The parties currently expect to submit the PMTA for these products in the first half of 2025. Upon PMTA authorization, JTI will supply HTS devices and PM USA will manufacture HTS consumables for Horizon. In addition, JTI and PM USA have agreed to commercialization milestones for Horizon, which include distribution requirements and minimum levels of cumulative marketing investments.

    “By forming this JV [joint venture], we are bringing together the marketing, innovation, R&D and science capabilities that JTI has developed over the years with Altria’s science, U.S. regulatory experience and vast infrastructure to create a very strong proposition for the U.S. adult smoker,” said JTI CEO Eddy Pirard.

    Separate to the JV, the JT Group and Altria also announced the mutual signing of a nonbinding MOU. Under this MOU, the parties aim to structure a strategic partnership over time to market and commercialize a wide range of potentially reduced-risk products and strengthen their shared development capabilities and geographic reach. The companies believe this collaboration will accelerate global tobacco harm reduction solutions and bring significant value to their respective businesses.

    Altria’s pipeline of heated-tobacco products includes tobacco-heating product formats and new-to-market technologies. “We believe HTC products can appeal to U.S. adult smokers who are open to novel smoke-free products but have not yet found a satisfying alternative to cigarettes,” the company wrote. “This audience includes the millions of U.S. adult smokers who tried, but ultimately rejected, e-vapor products.”

    Altria expects to finalize the design of its HTC platform 1 technology (HTC1) by the end of this year and then begin regulatory preparations for a PMTA submission by the end of 2024.

    The company also expects to partner with JT to launch the HTC1 technology in an international test market in late 2024 or early 2025 using JT’s sales and distribution network.

    Prior to the recent agreement with the JT Group, Altria terminated its noncompete agreement with Juul Labs and sold its exclusive U.S. commercialization rights for the IQOS tobacco-heating system to Philip Morris International for about $2.9 billion.

  • Jacinto Hernandez to Join Altria Board

    Jacinto Hernandez to Join Altria Board

    Photo: Altria Group

    Jacinto “Jase” Hernandez will join Altria’s board of directors on Nov. 1, 2022.

    “Jase brings a significant and deep understanding of the tobacco landscape following his years as an investment analyst covering the U.S. tobacco industry,” said Kathryn McQuade, independent board chair, in a statement. “Our board believes that his industry expertise and financial background will help further advance Altria’s focus on ‘moving beyond smoking’ in pursuit of its vision.”

    Hernandez served as a partner and investment analyst for Capital Group and its subsidiary, Capital World Investors. He joined the Capital Group companies in August 2000 and retired in June 2022 after having spent 22 years covering a variety of industries, including U.S. tobacco, helping lead the research portfolio for one of the largest growth mutual funds in the world and serving in key leadership roles. Hernandez is a director of Pioneer Natural Resources Co.

    He will serve as a member of the finance and innovation committees.

    In addition, W. Leo Kiely III, a director since 2011, will retire from service on the board following completion of his current term.

    “We thank Leo for his many contributions in his more than a decade of service to Altria,” said McQuade.

  • Board Supports PMI’s Revised Offer

    Board Supports PMI’s Revised Offer

    Photo: Swedish Match

    Swedish Match’s board of directors has advised shareholders to accept Philip Morris International’s revised offer for the company.

    In May, PMI bid about $16 billion for Swedish Match. Swedish Match’s board of directors recommended shareholders accept the offer, but some investors, including Elliott Management Corp., objected, saying the bid undervalues their firm.

    Earlier this month, PMI increased the price of its bid to SEK116 ($10.34) per share from the SEK106 per share offered in May.

    The offer represents a premium of 52.5 percent compared to the closing share price of SEK76.06 on May 9, 2022 (the last day of trading prior to market speculation regarding a potential public offer for the company), a premium of 52.9 percent compared to the volume-weighted average trading price of SEK75.86 for the shares during the last 30 trading days ended on May 9, and a premium of 60.4 percent compared to the volume-weighted average trading price of SEK72.33 for the shares during the last 90 trading days ended on May 9.

    The resolution to support PMI’s revised offer was supported by all Swedish Match board members except Pär-Ola Olausson, who believes that Swedish Match has the competence and the experience to remain independent in the long-term and that the terms of the revised offer do not reflect the long-term fundamental value of the company, according to a company statement.

    The acceptance deadline for PMI’s offer is Nov. 4, 2022.

  • Activist Investor Urges Overhaul at KT&G

    Activist Investor Urges Overhaul at KT&G

    Photo: KT&G

    A Singapore-based activist investment firm is calling on KT&G to spin off its ginseng business and focus on smoking alternatives, reports The Wall Street Journal.

    Singapore-based Flashlight Capital Partners has acquired a stake of about 1 percent in the South Korean tobacco conglomerate and is pushing for heat-not-burn products to account for at least half of KT&G’s total tobacco revenue by 2027.

    The investment firm also wants KT&G to separate its ginseng business from its core tobacco business to unlock the former’s value and expand it globally. “From our perspective, it defies logic that a ginseng business is owned by a tobacco company,” Flashlight Capital wrote in a letter to KT&G shareholders.

    The investment firm is pushing for KT&G to divest noncore businesses, such as its real estate development arm, the letter said. It wants the company to triple the size of its share buyback program and improve on environmental, social and corporate governance matters.

    Despite recent gains, the company’s share price is close to where it was 15 years ago, according to Flashlight Capital, which also notes that KT&G trades at a discount to its peers and the broader market.

    Previously known as Korea Tobacco and Ginseng, KT&G is one of South Korea’s largest tobacco sellers, with a market capitalization equivalent to about $8.5 billion, according to FactSet.

    The company was established in 1883 as a state-run tobacco manufacturer and privatized in 2002. KT&G is now an international company with the equivalent of $3.6 billion in sales.

    A KT&G spokesman said the company has been closely communicating with shareholders and that it values their relevant comments. “We will continue to work on maximizing shareholder value by implementing shareholder return policies,” the spokesman added.

  • Switzerland Proposes E-Cigarette Taxes

    Switzerland Proposes E-Cigarette Taxes

    Photo: Comugnero Silvana

    The Swiss government has proposed new taxes for electronic cigarettes, reports SWI.

    Under the plan, reusable cigarettes would be subject to a levy of CHF0.20 ($0.20) per milliliter of liquid, and disposable e-cigarettes would attract a tax of CHF1 per milliliter of liquid regardless of the nicotine content.

    The higher tax rate for single use e-cigarettes is intended to deter underage consumption.

    The proposal is forecast to bring in around CHF13.8 million in extra tax revenues per year.

    Earlier this year, voters supported a ballot to limit advertising for all tobacco products that may be seen by young people.

  • VLN Debuts in “Four Corners” States

    VLN Debuts in “Four Corners” States

    Photo: 22nd Century Group

    22nd Century Group is launching its VLN reduced-nicotine content in the “Four Corners” states—Arizona, Utah and New Mexico. The company will leverage both existing partners and new distribution networks. VLN was previously introduced in Colorado and Illinois.

    “With the addition of three more states, we are moving ahead with our plans to rapidly make our innovative products available to a much larger portion of the adult smoker population in the United States,” said John J. Miller, president of 22nd Century’s tobacco business, in a statement.

    “This is a massive market in need of new solutions to help adult smokers smoke less. Every 1 percent share of the U.S. market equates to approximately $800 million in sales at the register, which is about $500 million in revenue to a premium cigarette manufacturer.

    “These four states will demonstrate our scalable and repeatable state launch blueprint for VLN, which we are now leveraging to rapidly put our product in front of an ever-growing population of adult smokers looking for a way to smoke less.

    “Additionally, we have the benefit of favorable MRTP excise tax structures for tobacco products sold in Utah and New Mexico, similar to the beneficial programs in Colorado, that can assist us in getting the word out to adults who can benefit from our products.

    22nd Century Group’s proprietary VLN cigarettes smoke, smell and taste like a cigarette but contain approximately 95 percent less nicotine than conventional cigarettes, a level shown to be nonaddictive, according to 22nd Century Group.

  • Turning Point Reports Quarterly Results

    Turning Point Reports Quarterly Results

    Photo: crizzystudio

    Turning Point Brands (TPB) reported net sales of $107.8 million for the third quarter ended Sept. 30, 2022, down 1.9 percent.

    Net sales for Zig-Zag and Stoker’s products increased 23.3 percent and 10 percent, respectively, while net sales for new-generation products declined by 40.3 percent. Gross profit decreased 2.9 percent to $52.7 million and net income decreased 14.3 percent to $11.5 million.

    “Zig-Zag and Stoker’s segments demonstrated strong double-digit growth during the quarter despite a challenging economic backdrop with inflationary pressures continuing to impact consumers,” said TPB President and CEO Graham Purdy in a statement.

    “Zig-Zag benefitted from solid growth in the U.S. papers and Canadian businesses during the quarter and the successful launch of CLIPPER lighters.

    “Meanwhile, Stoker’s MST experienced continued share gains driven by consumer trade-down to the value category. NewGen sales decreased slightly compared to the previous quarter, and the segment remained profitable as we monitor ongoing regulatory developments.

    “We continued to return capital to our shareholders during the quarter while maintaining a strong cash balance that provides us with the ability to navigate the current financing environment. While our competitive position remains strong and we outperformed our markets during the quarter, it is prudent to adjust our outlook for the year in light of the current economic environment.”

  • Judge Halts Corporate Communications Decree

    Judge Halts Corporate Communications Decree

    Photo: Tobacco Reporter archive

    A court in Uruguay has issued an injunction preventing the implementation of a decree that would have allowed tobacco companies to print information on cigarette sticks and to include inserts in tobacco packs.

    Public health campaigners had criticized the decree as undermining Uruguay’s plain tobacco packaging law.

    After President Lacalle Pou issued the decree, health campaigners filed a constitutional lawsuit to reverse it. The judge ruled that the decree jeopardized children’s rights and infringed on Uruguay’s international obligations to health and human rights laws.

    Anti-smoking activists welcomed the ruling. “We applaud the tireless advocates in Uruguay who fought this measure in court and won,” wrote Matthew L. Myers, president of the Campaign for Tobacco-Free Kids, in a statement.

    “While the Lacalle Pou administration has shown an alarming willingness to cave to the interests of Big Tobacco, the public health community in Uruguay remains a steadfast guardian of the country’s renowned tobacco control laws.

    “Uruguay’s actions should serve as a reminder to advocates and governments around the world to be ever vigilant of Big Tobacco companies as they seek to undo decades of progress in driving down rates of tobacco use.”

  • Essentra Sells Filters Businesses

    Essentra Sells Filters Businesses

    Photo: Essentra

    Essentra has sold its filters and packaging businesses and appointed a new CEO.

    In a statement released Oct. 3, the company said it had disposed Essentra Filter Holdings to Frank Acquisition Four, which is part of Centaury Management and owned by the investment office of the Markus family.

    The deal, which is expected to complete Jan. 31, 2023, values the filters business at approximately £262.1 million ($301 million). For the year ended Dec. 31, 2021, filters delivered adjusted operating profit of £28.2 million.

    Essentra’s packaging division was sold to the Mayr-Melnhof Group for £312 million. The sale to Mayr-Melnhof excluded Essentra’s Indian packaging business, which represents less than 1 percent of the group revenues and was purchased by BBM Bommidala.

    Paul Forman will step down as CEO on Dec. 31, 2022. He will be succeeded by Scott Fawcett, currently the managing director of Essentra’s components division. Fawcett will join the board on Jan. 1, 2023.

    The sale of the filter business follows a strategic review launched in October 2021.

    “The sale of filters marks the final step of our journey to become a pure-play components business,” said Forman. “Essentra has a bright future as a leading global manufacturer and distributor of components with a clear strategy and significant opportunities to accelerate growth and expand market share.

    “This transaction strengthens Essentra’s balance sheet and enables the group to return a meaningful portion of the proceeds to shareholders whilst maintaining the flexibility to invest in organic and inorganic growth.”