Tag: GTNF 2022

  • Shifting Alliances

    Shifting Alliances

    Financial analysts debate the outlook for Altria and other tobacco companies during the recent GTNF in Washington, D.C. | Photo: Chris Ferenzi Photography

    With a new partner in heated-tobacco products, Altria prepares to compete in a radically different U.S. tobacco market.

    By George Gay

    During the GTNF in September, Bonnie Herzog of Goldman Sachs admitted that she had been wrong about eight years ago to predict that within 10 years, sales of reduced-risk products (RRPs) would overtake those of combustible cigarettes on the U.S. market.

    To my way of thinking, no discredit attaches to this admission because there was no shame in having been wrong in this prediction—at least no shame that could attach to Herzog. What sane person would have argued with her? Eight years ago, after decades of hand-wringing by politicians, health professionals and society at large over the deaths and diseases caused by the consumption of combustible cigarettes, surely everybody was, as a matter of urgency, going to get behind these RRPs to ensure they were developed to their full potential, their benefits were widely communicated, and they were made readily available at prices that were attractive to smokers. After all, here was a solution to a long-term, seemingly intractable problem that would involve almost no outlay from the public purse. It had to be embraced by people of every political stripe. Yeah, right.

    Basically, Herzog made two mistakes eight years ago. She ignored the rule that says you never make predictions about events that will unfold within your lifetime. And, I guess, she assumed the U.S. is run on a set of straight, rational rails rather than, like the rest of the world, along a meandering path of hypocrisy.

    Despite the dog’s breakfast that has been made of the U.S. market for RRPs, the battle for this market was one of the major factors considered by analysts when, during the GTNF investor panel, they considered the relative merits of investing in the U.S.-listed tobacco companies, Altria and Philip Morris International. It was by no means the only factor, but I would like to concentrate on it because it demonstrates the dangers of making predictions.

    Unclear and Unraveling?

    During the panel discussions, PMI was said by one of the panel members, Pam Kaufman of Morgan Stanley, to be unique within the tobacco industry in respect of the success it had enjoyed in executing its strategic transformation. The company now generated 30 percent of its revenue from reduced-risk, smoke-free products, and the Swedish Match acquisition was going to be a game changer, helping PMI to move to a position where 50 percent of its revenues came from smoke-free products by 2025.

    Specifically, on the U.S. market, Swedish Match could be used as a distribution platform for PMI’s heated-tobacco product (HTP), IQOS, bypassing the existing distribution agreement with Altria, which, at the time of the panel discussion, was not in operation because a U.S. International Trade Commission ruling in response to a patent infringement challenge by BAT’s U.S. subsidiary, Reynolds, was preventing IQOS being made available on the U.S. market.

    At the same time, Altria’s strategy around RRPs was seen by Kaufman as being unclear and unraveling. Altria, which was not known for its internal development, she said, lacked a clear reduced-risk exposure because it was reliant on its stake in Juul, with which it had a no-compete agreement and which was facing a lot of challenges, and because of its agreement with PMI on IQOS, which was in question. Kaufman said she was certain that Altria was now investing greater resources than previously in RRPs, but, while it was talking about showing a new HTP by the end of this year, this was far from commercialization as the product would have to go through a Food and Drug Administration premarket tobacco product application process. PMI was years ahead of Altria, which was in a tough position.

    Herzog was more upbeat on Altria’s future in the field of RRPs. She said that people underestimated Altria because it didn’t share as much information as other companies did. She reminded her audience that PMI and Altria were once one company and that Altria owned a lot of the early technology and rights to IQOS, so, maybe, she suggested, given the time when Altria was distributing and selling IQOS for PMI in the U.S., there had been some “learnings and understandings.” She questioned whether it was possible that Altria had built a better product.

    Herzog was more positive, also, about Altria’s ability generally to compete with PMI coming onto the U.S. market through Swedish Match, citing the fact that Altria had dealt with a formidable competitor before: with BAT coming in fully with Reynolds. It was a question of how Altria could transform its product portfolio more toward RRPs, whether those products were already on the market, like On! and those in which it had an interest through its stake in Juul, or the result of things on which it was working. Altria was in the final stages of design of its own oral tobacco and its own HTP.

    Herzog conceded that it was going to take time to bring some of those products to market, given the processes required by the FDA, but it was nevertheless the case that Altria had other products in its arsenal that it could ultimately leverage.

    Rapid Developments

    Writing this story toward the middle of November, it’s obvious that two months can be a long time in respect of the U.S. market for RRPs. Since the panel discussions were held, PMI has secured its takeover of Swedish Match. PMI and Altria have agreed on terms under which Altria will receive from PMI $1.7 billion (on top of $1 billion paid at the inception of the IQOS distribution agreement) to relinquish, from the end of April 2024, its right to distribute IQOS in the U.S. on behalf of PMI. Altria has, while maintaining its economic interest in Juul, which is currently appealing against an FDA order to remove its products from retail shelves, extricated itself from its no-compete agreement and so is free to bring its own e-cigarettes to market or to explore acquisitions in this field. And Altria has signed a joint venture agreement with Japan Tobacco to market HTPs in the U.S. with Ploom-branded devices and Marlboro-branded consumables. They also signed a long-term, nonbinding global memorandum of understanding to explore commercial opportunities for a wide range of RRPs.

    The question is how much of a difference these developments will make to the U.S. market for RRPs, and especially to Altria, whose future has been painted as being bleak by some observers, even after these recent developments. My guess—and this is not a prediction—would be that these developments, on their own, will make little difference immediately and perhaps for some time. IQOS, which has been granted a modified-risk status under which consumers may be given certain information, such as that the product generates lower levels of harmful chemicals than combustible cigarettes, is still not available for sale in the U.S., though, clearly, it is likely to reenter the market relatively soon.

    At the same time, it is likely to take considerably longer to put Ploom and a new HTP from Altria through the FDA procedures necessary for market commercialization. But it is worth bearing in mind a point made by Rupert Wilson of Strategic Business Consulting during the panel discussion. HTPs, he said, had done well on markets where e-cigarettes, for whatever reason, were not a major market contributor, such as Japan, but less well on markets where e-cigarettes had been well received, such as the U.K. The U.S. is a strange market in that e-cigarettes are available but development of them has been held back by regulations, but I would guess that there are just enough e-cigarettes—and other RRPs—available to mean the U.S. is not going to simply become a battleground for HTPs. They will become a significant, but not an exclusive, part of the RRP market.

    There are other factors in play that are probably more important. PMI, which has concentrated heavily on HTPs, is expanding its RRP offering, but even with the help of Swedish Match, which is experienced in dealing with FDA applications, these products will take time to clear FDA hurdles. And Altria could presumably acquire a vaping company that has devices already approved for the U.S. market.

    Some observers point to the fact that Altria, unlike PMI or Swedish Match, is heavily exposed to the U.S. market for combustible cigarettes, which is in decline, especially the premium sector of that market, which seems like not a good place to be during a cost-of-living crisis. But evidence was presented during the panel discussion that demonstrated how, in the past, Altria had been able to increase profits significantly in the face of plummeting cigarette volumes caused in part by steeply rising prices.

    Overall, I tend to agree with Jon Fell of Ash Park Management, who, during the panel discussions, while not dismissing the competitive challenge being thrown down by the arrival of PMI on the U.S. market, said that companies already on that market were highly competitive themselves and that it would be rash to assume they could be brushed aside.

    It would surely also be rash to make predictions when who knows what developments might be announced in the future. During the session usually devoted to possible mergers and acquisitions, the GTNF panelists spent nearly all the available time talking instead about companies investing in R&D, forming alliances, finding new technology partners, bringing people in from other industries to provide new perspectives and moving into new business areas. Something unforeseen must come out of that.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • Accessing Innovation

    Accessing Innovation

    Photos: Chris Frenzi Photography

    The GTNF 2022 once again delivered on its promise to promote respectful debate among stakeholders in the nicotine business. From Sept. 27 to Sept. 29, participants gathered at the Four Seasons hotel in Washington, D.C., to discuss the challenges and opportunities facing their business, with an emphasis on innovation—and the importance of making the fruits of that innovation accessible to consumers worldwide.

    This year’s GTNF was noteworthy for the diverse lineup of participants. More than half of the forum’s participants were not employed by the tobacco industry, and at least 41 percent of speakers addressed the conference for the first time.

    Below is a sampling from the conference.

    Adam Afriyie: The U.K. Example

    Adam Afriyie, Member of Parliament for Windsor and vice chair of the All-Parliamentary Group on Vaping, examined the successful U.K. approach to tobacco harm reduction and the lessons it might hold for other countries.

    This was an appropriate time to do so, he insisted, with life returning to a semblance of order following the Covid-19 pandemic and regulators around the world poised to make decisions—“life-and-death decisions”—about alternatives to smoking.

    Despite progress, smoking still kills 75,000 people in England yearly. Britain’s National Health Service spends about £2.5 billion ($2.82 billion) annually treating smoking-related illnesses. Every year, tobacco use results in economic losses of £17 billion through ill health, absence and low productivity.

    Afriyie distinguished four elements in the U.K. approach, which started with Britain setting a target to make smoking obsolete by 2030.

    Second, the government and the health establishment accepted the evidence that vaping and other smoking cessation products, such as patches, pouches and snus, are all part of the legitimate arsenal of weapons against smoking—a conclusion that was reinforced by the Department of Health’s conclusion that vaping is at least 95 percent less risky than smoking. “What matters is the relative harm,” said Afriyie. Rather than relying on conjecture, emotion or the fear of Big Tobacco, the government relied on data, he noted.

    Third, the government regulated vaping as a consumer product, setting minimum standards for quality and safety, such as a requirement to sell e-liquids in child-resistant packs. This framework, said Afriyie, allows adults to make informed decisions while protecting children from marketing and harm. All new products must be registered with the Medicines and Healthcare products Regulatory Agency. While vapes are not considered medical products in Britain, this prerequisite installs a discipline among manufacturers to be cognizant of the evidence base behind their offerings, said Afriyie.

    Finally, the government commissioned an independent review of the progress toward its smoke-free objective. Published in June, the Javid Kahn report concluded that Britain would miss its target if it continued on the current trajectory. To get the project back on track, Kahn suggested that vaping must be front and center of the drive to eradicate smoking. In light of widespread misperceptions about vaping—50 percent of general practitioners are unaware that vaping is less harmful than smoking—the report also recommended opening a conduit for the industry to communicate directly to smokers the benefits of switching from cigarettes to vapes.

    While Afriyie was inspired by the level of technical innovations in nicotine-delivery products, he was less encouraged by the equally important innovation or evolution of regulatory frameworks internationally. For example, while heat-not-burn products have been thriving in Japan, vapes are nearly impossible to access in that country because they are treated as medical products rather than consumer products.

    The World Health Organization, too, should adopt the U.K. approach, according to Afriyie. Unfortunately, the global health body’s direction of travel, he said, appears to be made in “smoke-filled” rooms lacking transparency. Rather than basing its policies on science, said Afriyie, the WHO’s stance on tobacco harm reduction products appears to be subject to influences that are not directly to do with public health.

    Concluding his presentation, Afriyie addressed each of the stakeholders in the tobacco harm reduction debate. “My message to smokers is please stop. And if you can’t stop, choose a vaping device or a heat-not-burn product—but move on. My message to investors: Britain is open for business.” His comment drew good-natured laughter, but Afriyie was only half joking, reminding his audience that when it comes to smoking cessation products, Britain is a gateway to the world. “The U.K. regulatory imprimatur on your documentation is a sign of quality and an aid to marketing and acceptance around the globe,” he said.

    “My message to industry: Be good. Conduct open, honest research,” said Afriyie. “If the answers aren’t exactly what you want, don’t hide the results. Every bit of extra information and knowledge that we gain through research is useful.” To regulators, Afriyie stressed the importance of following the science. “Follow the U.K.,” he said. “Do not let the perfect be the enemy of the good.”

    Philip Evans: An Outside Perspective on Innovation

    Philip Evans, senior advisor at the Boston Consulting Group, provided an outside perspective on the challenges and opportunities of transformation through innovation.

    Evans started by reflecting on the successes and failures of other sectors that, like the tobacco industry today, had faced existential crises. He cited Netflix CEO Reed Hastings’ decision to walk away from the business of distributing DVDs in favor of streaming video, thereby transforming the company and creating staggering amounts of economic value—and contrasted that with BP’s fruitless attempt to rebrand as “Beyond Petroleum.”

    What can such experiences teach the tobacco industry about transformation through innovation? Evans identified five lessons.

    First, transformation requires a crisis—the more acute, the better. Transformation takes place regularly in the military—always after defeat, when generals are forced to fundamentally rethink their strategies. And one reason the fast-moving tech industry is so innovative is that when a crisis hits, it tends to hit quickly, which means it cannot be evaded.

    Second, while companies can try to overcome their problems through mergers and acquisitions, this will not necessarily achieve the type of transformation that the tobacco industry is interested in. Evans cited the example of the American Can Co., a low-margin commodity business that transformed itself into a life insurance company by buying other businesses. “Over time, the only thing that transformed was the business card of the chief executive,” said Evans, adding that “a bunch of investment bankers probably got very rich in the process.”

    The third lesson in transformation, according to Evans, is that it almost invariably takes new leaders to set a new direction—and those leaders need a single-minded, long-term vision along with the security and legitimacy to withstand short-term reversals, which is the fourth lesson. Evans notes that successful transformers were often led by a sole proprietor. Bill Gates was able to overcome the threat posed by the internet to Microsoft’s software-based business model in part because he was a uniquely powerful controller and owner of the company.

    As the fifth lesson, Evans stressed the importance of a clearly articulated strategy and purpose. “Companies that lose their way cannot recruit good people,” he said. Talented candidates are attracted by the promise of growth and vitality, especially through innovation.

    Evans then set out to dispel the myth that big companies are unable to innovate. “It’s untrue,” he said. To illustrate his point, he showed a chart plotting the number of patent filings against the population levels in America’s biggest cities. The cities with the most people clearly filed the most patents. “Innovativeness is a function of the breadth and comprehensiveness of the other ideas to which an individual is exposed,” explained Evans. “That exposure is much greater in a large network than it is in a small one. If appropriately structured, there can be positive economies of scale to innovation; big is indeed beautiful.”

    The other secret of cities’ success in innovation is their lack of hierarchies. According to Evans, it’s the hierarchy rather than the scale that squelches the ability of many large organizations to innovate. If a large organization wants to be successful in innovation, it should replicate the hierarchy-free social structure of cities.

    To illustrate his point, Evans showed charts revealing patterns of collaboration within Google, Apple and Amazon—companies that are large and innovative. While each of these companies operates in a different part of the innovation cycle, the charts revealed patterns of considerable collaboration.

    Openness is key, according to Evans. Google, for example, is deeply networked in academia and does not assert intellectual property in the traditional sense.

    This lesson was learned the hard way by the pharmaceutical industry toward the end of the 20th century. In the late 1980s, there was little collaboration among pharmaceutical companies, with each player jealously guarding its intellectual property. When large molecule biotechnology emerged in the early 1990s, many traditional pharmaceutical companies stuck to old models of who owns what—and therefore got marginalized.

    In the ensuing decades, they were forced to buy their way back into the business by acquiring some of these biotech companies. According to Evans, the pharmaceutical companies have since learned their lesson. But the point, he noted, is profound: Innovation requires openness and sharing. “It is incompatible with a lot of the traditional ideas about exclusivity, secrecy and ownership,” he noted.

    Brian King: Leading an Agency Under Scrutiny

    There are plenty of reservations about the way in which the U.S. Food and Drug Administration’s Center for Tobacco Products (CTP) has handled its responsibilities. During a brief speech at the GTNF 2022 in Washington, D.C., the new director of the CTP, Brian King, did little to quell those concerns. He did, however, acknowledge the continuum of risk. “We do have certain products that are lower risk than combustible cigarettes, and that’s an important component of the dialogue,” said King.

    King told attendees that there is an opportunity for the CTP to assess the risk of youth vaping initiation and counterbalance that with the opportunity for adults who use e-cigarettes to quit combustible cigarettes.

    “I think that [the] public health standard is pretty critical to the work we do, and it’s definitely a guiding light in terms of my determinations and decision-making,” he said. “Ultimately, it comes down to the science … it’s very critical, to me, to ensure that we use that as our guiding light. And, of course, the onus is on the applicants to ensure that they are providing the most robust signs possible to inform decision-making.”

    The FDA has long been criticized for its handling of the premarket tobacco product application (PMTA) process and is currently defending multiple lawsuits from vapor companies challenging its marketing denial orders (MDOs), including two from Juul Labs, which recently filed a lawsuit over the regulatory agency’s refusal to disclose documents supporting its MDO.

    Juul claims the agency overlooked more than 6,000 pages of the data it submitted on the aerosols that users inhale, according to Joe Murillo, chief regulatory officer at Juul Labs, who also spoke at the conference.

    King said that a sizeable portion of youth are still vaping flavored and disposable products. However, he also said that the potential benefits for adult smokers are “mutually exclusive” from youth uptake concerns. “I don’t think that they necessarily have to be separate; they can certainly be explored concurrently,” he said. “But again, we need to ensure that we’re considering the science from both ends when making our decisions.”

    King said the agency is “continuing to make progress” on the estimated 1 million PMTAs for nontobacco nicotine products as well. He said over 90 percent of the applications have been completed. “We have 350 acceptances so far, and there’s about 800,000 that have received an RTA [a refuse-to-accept letter], and I’m hopeful that within the next few weeks we should be able to get through all 100 percent of those 1 million.”

    Being accepted for review is only the first step in the PMTA process. There are six stages, or rounds, to the PMTA process. After acceptance is filing, then a substantive review before an action is taken. King called the first step an important one. “[It’s] an important step, and I’m committed to ensuring that we keep things moving as expeditiously as possible,” King said.

    King recently told the AP that he believes “there’s a lot of really important science and innovations” that have occurred in the vaping industry in recent years, adding that the most notable is nicotine salts in e-liquids. “We know that when you smoke a tobacco product, it’s a very efficient way to deliver nicotine across the blood-brain barrier. So it’s been very difficult to rival that efficiency in another product,” said King in the interview. “But in the case of nicotine salts, you have the potential to more efficiently deliver nicotine, which could hold some public health promise in terms of giving smokers enough nicotine that they would transition [off cigarettes] completely.”

    King also discussed the FDA’s ability to force companies to comply with its MDOs. So far, very few companies that have been told to remove their products from the market have complied. King said the agency has multiple enforcement options to bring both manufacturers and retailers to heel.

    “We have several tools available to us, including advisory actions,” he said. “We also have regulatory enforcement actions, including voluntary recalls as well as various other requested recalls. We can also take administrative action, civil money penalties (in terms of manufacturers, that penalty cannot exceed $15,000 for any single violation or $1 million for any number of violations related to a single action),” explained King. “When it comes to judicial action, we can do seizure, injunction and also criminal prosecution. I will say that when it comes to enforcement and compliance, nothing is off the table.”

    King also updated attendees on the FDA’s external review of the CTP’s procedures, which is being conducted by the Reagan-Udall Foundation. Lauren Silvis, a former FDA chief of staff, was named as chair of the panel that has been asked to “evaluate regulatory processes and agency operations related to tobacco to help the center address new challenges as it works to reduce death and disease from tobacco and achieve its public health mission.”

    “Within only a few weeks of assuming this role, we were told that there would be an external evaluation,” said King. “I actually wholly welcome it. I think it’s a good opportunity, particularly with new leadership, to identify areas where we’re doing things very well but also identify areas where we can enhance our efficiency and effectiveness. I have had meetings with [Silvis] and her team, and I’m confident that we’re going to get very useful information.

    “It’s an ambitious timeline, 60 business days, so it’s going to work out to about 90 days total. It should finish probably by the end of the year, mid-December, and I’m looking forward to the opportunity to hear the recommendations. And I do have a very open mind on this. I’m always for improvement.”

    King expects there will also be opportunities for external engagement, including listening sessions. He could not provide specifics during the speech but said he welcomes feedback from others in terms of informing the CTP’s processes.

    “It’s not a one-size-fits-all, but I do think that we have some great opportunities here,” he said. “I’m fully committed to listening to the evaluator’s input and ensuring that we use it in a very useful way … then we’ll take it from there … I’m sure many of you have heard publicly, my calendar is rapidly filling up, and we are meeting with many—I know I’ve met with several of you in the room already, and I value those opportunities to meet with folks from across the spectrum, whether it be industry or public health … to hear people’s insights, what your priorities are.

    “And those have been very productive and helpful to me. I do listen. I think it’s a very useful opportunity to me in terms of hearing specifically what the recommendations are from industry and what are areas where you feel it would be useful for FDA to engage in to make your life easier in terms of submissions and applications and [what] processes are overly complicated and could be improved,” said King. “I’m fully committed to ensuring that happens.”

    Panel Discussion: The Investment Climate

    The 2009 Family Smoking Prevention and Tobacco Control Act charged the U.S. Food and Drug Administration with regulating tobacco products for the protection of public health, so, from one point of view, it was dismaying to hear a panelist on the investor panel of the recent GTNF describe how, under the tutelage of the FDA, the U.S. tobacco and nicotine market had become a resilient one for combustible cigarettes.

    Of course, this being an investors panel, the panelist’s comment was less about the FDA and more about Altria, whose short-term fortunes are tied to a large extent to the resilience of the combustible segment and whose reduced-risk strategy was said by another panelist to be unclear. Altria’s appeal as an investment opportunity was contrasted with that of another U.S.-listed company, Philip Morris International, which has had success in moving its sales from higher risk to lower risk products.

    The panelists discussed the proposed acquisition of Swedish Match by PMI, which, if it goes ahead, would allow PMI to use SM as a vehicle for marketing in the U.S. the heated-tobacco device IQOS, which has marketing approval and is the subject of an FDA modified-risk order but which is currently banned from being imported following a patents dispute, a ban that is being challenged in the courts. According to one panelist, Altria has an agreement with PMI to market IQOS in the U.S. until April 2024, but there is apparently a question mark over whether the agreement provides for Altria to extend the agreement for another five years.

    This raises the question of how an Altria shorn of its right to market IQOS would fare. Well, apparently, Altria is said to be due to unveil a heated-tobacco product toward the end of this year, but with FDA approval necessary, it would take some time for the company to start commercializing a new product. One interesting comment made the point that while PMI was years ahead of Altria in the heated-tobacco product field, the two companies used to be one.

    There seemed to be an assumption at times that PMI would easily be able to muscle in on the U.S. market, but not everybody was having that. One panelist made the point that Altria and other U.S. companies were likely to prove highly competitive, and another added that IQOS might not be welcomed with open arms by U.S. consumers who had access to a range of reduced-risk products, including e-cigarettes, which had out-competed IQOS on some other markets. But on the other side of this coin, PMI was said to be starting to widen the focus of its reduced-risk strategy in respect of product categories.

    It would seem that a week is a long time in the investment arena. During the panel discussion, Altria was seen as being in a difficult position when it comes to vaping. Its investment in Juul Labs involved a no-competition clause, and Juul has suffered a setback in the form of an FDA marketing denial order (MDO). The panelists indicated that the MDO was being contested, however, and that it would be open to Altria to make an outright bid for Juul. Less than a week after the panel met, however, Altria announced that it had exercised its option to permanently terminate its noncompetition obligations to Juul.

    Surprisingly, perhaps, threats raised by the potential cigarette menthol ban and the imposition of a very low-nicotine cigarette standard in the U.S. were not yet seen as particular drags on tobacco businesses’ appeal to investors since, partly because of likely legal challenges, they were seen as being some way off.

    On a wider front, while PMI was seen as a growth company, it was said to be facing headwinds created by the strength of the dollar and its exit from Russia. Or not. One panelist said that only Imperial Brands had exited Russia completely and that he would be surprised if the other major companies, which had invested heavily in the country, had exited Russia without providing for a way back.

    On a more general level, the investment case for tobacco was seen as strong, partly because most companies—the exception seems to be PMI—are undervalued but also because they offer strong and secure cash flows and high yields. This situation was said not to have changed but to be more appreciated now than it was two or three years ago, particularly in the face of a recession. And while the appeal of tobacco stocks would be negatively impacted by the current increases in interest rates, on the positive side, most tobacco company debt was at fixed rates. Still, environmental, social and governance issues comprised an overhang in respect of getting investors interested in tobacco stock.

    The discussions were heavily skewed toward the U.S. market and U.S. companies to the extent that the chairman apologized for ignoring the world outside the U.S. and Europe. The upcoming EU directives on excise taxes and tobacco products were mentioned, the former in a fairly good light given that it seemed that harmonized taxes would not be set at the same level across product categories but at a lower level on less risky products. Such a rational policy seems at odds with the Tobacco Products Directive, which seems set to retain the irrational ban on snus.

    BAT and Imperial Brands were said to be undervalued by investors. BAT’s multi-category reduced-risk portfolio was held up as the way ahead, and its success with Vuse was highlighted a couple of times. Mention was made of a new management at Imperial that was said to be getting to grips with the business, focusing on the areas where it could perform well, resetting its new-generation products business and creating an opportunity for some geographical divestments.

    Panel Discussion: Global Regulatory Issues

    It’s been almost 60 years since a U.S. Surgeon General first stated the dangers of cigarette smoking and 50 years since scientists found out that the inhalation of smoke rather than nicotine is the major cause of smokers’ health problems. With goals in tobacco harm reduction (THR) long set, regulators should be able to solve the problem and shape rational regulation, argued moderator David Sweanor, adjunct professor of law at the University of Ottawa. “In all cases, it’s only small steps forward. What would happen if we saw this as a matter of urgency and, for instance, allow more products at a time?”

    Gizelle Baker, vice president of global scientific engagement at Philip Morris International, stressed the role of science as a basis for policymaking. “Science isn’t perfect, but it has evolved,” she said. “We need to look at the data we need in the future to correct our idea and come to conclusions that can drive policy. Because the only way to shape policy is to use science, data and facts.” Knowledge about long-term effects or which part of the population in certain countries will use a reduced-risk product (RRP) can only be gained if the products are put on the market, she stated.

    Konstantinos Farsalinos, research fellow at Onassis Cardiac Surgery Center, noted that there are no missing data, only missing common sense. “We will never be fully informed about anything,” he said. “At one point, we have to make a decision.” The bar of proof for THR has been set extremely high, Farsalinos noted. In some markets, this forces smaller companies to leave the market to big companies that can afford the approval process. “We live in a high-risk society—let’s consider THR like any other harm reduction strategies,” he said.

    Marewa Glover, director of the Center of Research Excellence on Indigenous Sovereignty and Smoking, spoke about New Zealand’s Smoke-Free Aotearoa 2025 Action Plan, which is currently under review and includes a smoking ban for all those born after 2008, a drastic reduction of legal retail outlets for RRPs and the reduction of nicotine content in combustible cigarettes to nonaddictive levels. Glover said the draft bill lacks not only common sense but also compassion. “The regulatory intent is to not allow vaping to become normalized but denicotinization,” she said. “As a smoker, you should switch to vaping temporarily and then quit completely. Anyone who quits vaping should never go back.” She predicted a domino effect on other countries and urged regulators not to follow the example of New Zealand.

    The objective of THR, said Sharon Goodall, group head of regulatory science at BAT, is very clear: to reduce the number of smoking-related deaths. The sentiment of positivity that comes with this prospect should be maintained in the industry’s talks with regulators who are willing to change their approach toward THR. “We must not get distracted. We must react to individual events but remain focused on the long-term outcome. There are insufficiencies in the system, markets without open dialogue, therefore we must continue to work with regulators.”

    Focusing on the role of market structure and competition in the U.S., David Levy, professor of oncology at Georgetown University, pointed out that before 2005, the cigarette industry was static and homogeneous and, for tobacco control, the epitomized enemy. After 2005, the market fragmented, with consumers using multiple products. After 2012, e-cigarettes quickly gained market share.

    Tobacco companies responded by producing their own e-cigarettes. They played a role but didn’t control the market. Vaping became a highly competitive market. Recently, it has been joined by heated-tobacco products, which, Levy said, could play an important role as they solved problems e-cigarettes couldn’t solve. “Companies have to be serious in THR because it’s decisive for their businesses,” he said. “New Zealand and the U.K. have done well in THR. In low[-income] and middle-income countries [LMICs], such as India or Pakistan, oral nicotine could replace the highly harmful chewing tobaccos. However, restrictive policies, such as a ban of RRPs, will drive smokers back to cigarettes.” Levy saw clues for a closer cooperation between the industry and public health.

    Fadi Maayta, president and co-founder of Alternative Nicotine Delivery Solutions, provided a snapshot of the situation in LMICs by portraying the Middle East and North Africa (MENA) region, which he called a forgotten region in the picture of THR.

    Of the 547 million who live in the region, there are 140 million adult smokers. In some countries like Jordan, there is a smoking incidence of more than 60 percent, and cigarette sales are growing across the region. Governments are employing the typical measures to curb consumption, such as tax hikes and increases in customs. Saudi Arabia was the region’s only country to introduce plain packaging, which resulted in a burgeoning illicit cigarette market.

    Eight out of the 22 MENA markets have regulated vape products whereas the remaining 14 have banned them altogether. In these markets, however, vape products are still around—and unregulated. But even in regulated markets, 80 percent to 90 percent of the markets are illicit products because the government followed an aggressive path when regulating the products, introducing a fiscal and regulatory framework that is stricter than that for cigarettes.

    “Throughout the region, misinformation is polluting the whole idea of THR,” said Maayta. “Regulators rely on articles about the harm of e-cigarettes, instead [of] on robust science, and still believe that nicotine causes cancer.” An opportunity, he said, could be to cooperate with global THR associations.

    Plenary Panel: Innovating for Tomorrow

    When creating a smoke-free world, innovation must take place not only in terms of products but also in terms of regulation, communication and sustainability. That was one of the messages of the “Innovating for Tomorrow” panel discussion during the recent GTNF in Washington, D.C.

    Ming Deng, head of the Next-Generation Products (NGPs) Industry Study at Yunnan University, spoke about his desire to make NGPs smart and mobile. At present, he said, the electronic functions that differentiate an NGP from a combustible cigarette just serve as a marketing tool. However, the Artificial Intelligence of Things (AIoT)—the combination of artificial intelligence and the Internet of Things—offers considerable opportunity to improve human-machine interactions and enhance data management and analytics, among other benefits. “With AIoT, producers could trace consumers’ needs and innovate products accordingly,” said Deng.

    For Meisen Liu, R&D director at Shenzhen Zinwi Bio-Tech, lower temperature atomization is one of the most important objectives in current research as it is safer for human health. A higher atomization temperature causes atomizing agents to decompose into harmful aldehydes whereas atomizing agents with a low boiling point decrease the atomizing temperature and reduce the emission of harmful substances. Liu also described how nicotine salts derived from different acids had different properties regarding sensory stimulation or taste. His company, he said, had created a new type of nicotine salt that allows for enhanced stimulation in markets where the amount of nicotine in e-liquids is restricted.

    Kevin Peng, advanced technology scientist at ALD Group, spoke about technologies to reduce the carbon footprint of vape product manufacturing and consumption. Earlier this year, his company launched a “green cigarette,” a disposable vape product featuring 6 percent lower carbon emissions than combustible cigarettes. The company also developed a super-slim pod for reusable vaping devices made from a material that has only one-third of the carbon emission of ALD’s older materials. This way, he said, his company had achieved a 50 percent emission reduction compared to other pod products.

    ALD also conducted an emission assessment for its organization and products. “ESG [environmental, social and governance] is a much more difficult thing than we thought,” Peng stated. “We found that most suppliers are not very responsive in terms of such requirements.” He called for a unified industry ESG standard for suppliers, which would make it easier to reduce emissions.

    To help accelerate its transformation, BAT established Btomorrow Ventures two-and-a-half years ago. Lisa Smith, the subsidiary’s managing director, related how Btomorrow had set up a number of innovative ecosystems. “It’s a highly competitive market,” she said. “It’s difficult to find the best innovators out there.” Her company’s role is to be the “handshake” to the outside world to show that BAT is an appropriate partner for innovators. Among the many tasks in BAT’s transformation are to quickly promote the ESG agenda and move beyond nicotine. In order to achieve the latter, she said, the company had to build science and credibility.

    ICCPP, a provider of solutions for e-cigarettes and heated-tobacco products, believes that the key to innovation in vaporization might be the ceramic coil. The company, which focuses on research and manufacture of electronic atomizing technologies and is the parent company of the Voopoo vaping brand, introduced the world’s first nano-microcrystalline ceramic core in 2021. According to William Yu, vice president of global ODM business at ICCPP, the core is based on environmentally friendly mineral materials that result in an increased nicotine delivery and stable flavors. In combination with a powder-free technology and a porous structure, the core enables a significant increase in atomization, according to Yu. The company also develops environmentally friendly products, such as a disposable cigarette made from special recyclable paper.

    Continuing to innovate is essential as the industry is at a crossroads, said George Cassels-Smith, CEO of Tobacco Technology Inc. (TTI). After the Food and Drug Administration, through its onerous market authorization processes, had “frozen” the U.S. market for next-generation products, TTI opened a new manufacturing site in Italy, which according to Cassels-Smith is more open to innovation. “It’s vital to involve science, which is one of the pillars of what is a quick-moving new technology,” he said. “It needs expertise to focus on this direction because, ultimately, we must find superior products to combustible cigarettes.”

    Additional GTNF 2022 session summaries >>

  • Product Stewardship

    Product Stewardship

    Photo: Chris Ferenzi Photography

    Product stewardship, which in general means the responsibility of a manufacturer for his product, is something everyone has a stake in. Regulators make sure that consumers get a product that is in a form that is supposed to be in accordance with its specifications. Because of their reputation and consumer experience, companies pursue the same goal.

    More definitions of what product stewardship stands for in their respective companies were provided by panelists in the GTNF Product Stewardship panel discussion. Stefanie Miller, vice president of global scientific engagement at Juul Labs, said that when people outside the nicotine industry thought about product stewardship, labor conditions and the environment tended to be at the forefront of conversations. “At Juul, however, we’re presently in a major fight for our company because many people don’t understand the potential health benefits realized by having our product on the market.” Unlike Wall Street, where Miller worked as a tobacco industry analyst before joining Juul, Juul bases its decisions on science, she emphasized. “As product stewards, we must study every facet of our products so that we can have an open and honest discussion about how they impact adult smokers looking for less harmful alternatives. And we must hold to account those who propagate misinformation.”

    As a toxicologist, Donna Smith, associate fellow of preclinical within regulatory sciences for Altria Client Services, said she worried about the individual health risk of a product. Given the right regulatory framework, she argued, the reduced-risk product (RRP) category could make a greater impact in this next decade than has been seen in the last 50 years. In her view, product stewardship consisted of three phases: First, the “identify” stage where the chemical ingredients of the product and their quality are assessed. Second, the calculation phase, during which the substances you have added to the product and the things the product is producing are determined so that the results can be compared to published values that are used in the same sense of evaluation, as is common for drugs, cosmetics or foods. Third, the “investigate/validate” phase, where your product is put through whatever biological testing the manufacturer feels necessary to demonstrate that this particular product doesn’t increase harm to the consumer. “Knowing what goes into their product and managing suppliers properly is the most important thing any manufacturer can do.”

    As senior manager of global scientific engagement at Philip Morris International, Carrie Wade, who has a background in opioid addiction research, said she was sitting between the regulatory and product teams making sure everything runs smoothly. Her role in product stewardship is building trust with the stakeholders so that consumers are aware of what PMI is doing. “One thing I’d like to see improved is to reach harder-to-reach people who benefit the most from tobacco harm reduction (THR),” she related. “People with a lower socioeconomic status smoke more and die earlier. We can help them with a diversification of products and more affordable and appealing products that are less out of reach for these people.”

    For Elaine Round, vice president of scientific and regulatory affairs at RAI Services Company, product stewardship starts with ingredients and safety assessments of devices and their components and requires a comprehensive quality management system as well as a postmarket surveillance system to monitor and address adverse events that may happen. “All these components go into FDA [U.S. Food and Drug Administration] applications and are being scrutinized by the agency,” she said. Product stewardship, she added, was ensuring that the reduced-risk products her company brought to market had maximized their harm reduction potential and offered the biggest possible benefit to the adult smoker.

    Panelists agreed that there is still room for improvement. When Miller still worked at Wall Street, she observed how nicotine companies were unable to communicate the problem of e-cigarette or vaping product use-associated lung injury to regulators. For Round, getting a product to market is a major challenge, especially in the U.S. “RRPs are almost held to higher standards than other industries’ products because of the tobacco industry’s past,” she said.

    By working in the field of product stewardship, panelists pointed out, they had been able to make a difference. Smith mentioned her team’s ability to have a lot of the infrastructure and expertise in place to move to where they see the consumer is going. Round related her pride after she and her team had put their first premarket tobacco product application together. Miller saw it as positive that Juul gets a lot of its science published. “It’s good to see it’s treated like any other legitimate science. This is the result of amazing product stewardship surrounding the product.”

    To maximize efficiency of product regulation, panelists suggested to introduce consensus-type standards as are already in place for drugs and medical devices and to make sure that product standards were clearly communicated. No. 1 on their wish list, however, is the implementation of a standard for a product’s appropriateness for the protection of public health.

  • Clearing the Air: Policy That Better Serves Society

    Clearing the Air: Policy That Better Serves Society

    Photo: Chris Ferenzi Photography

    The opening panel of this year’s GTNF looked at the challenges in shaping a sensible regulatory framework for reduced-risk products. The way researchers silo disciplinary expertise certainly is a contributing factor to the regulatory space for tobacco harm reduction (THR) being so polarized, argued Sam Hampsher-Monk, managing director at BOTEC Analysis. “Often, empirical research is presented in a decontextualized way,” he said. “Publishers of scientific media seem to look for articles on e-cigarettes true to the motto ‘the more extreme, the better,’ thus sacrificing the middle ground.”

    Scientists, too, tend to surround themselves with people who think like them, he added, which leads to the creation of echo chambers. “With e-cigarettes specifically, part of the problem is that we’re using unexamined moral judgements to interpret the available evidence, but when we do this, we need to provide reasons for whatever judgement we make. As this rarely happens, an analytical conversation will quickly move to a subjective one.”

    Hampsher-Monk said that no scientific contribution should be taken for face value but needed to be scrutinized regardless of authorship.

    Empirical economist James Prieger, a professor of economics and public policy at the School of Public Policy at Pepperdine University, said that in other industries, such as telecommunications, it was common and unproblematic that economists were paid by companies to do research, whereas in tobacco research, any sort of funding from the industry or even indirectly from the industry was being ignored. However, the more people produce data, the better, he pointed out. “The industry has access to data that I as an academic could never replicate. On the other hand, I as an academic have access to arguably some more brain power. Put the data out there, and let it go through some refereeing process.”

    For a recent study looking at the barriers to THR, Pritika Kumar, senior fellow for integrated harm reduction policy at the R Street Institute, spoke to social workers, psychologists, nurses and several harm reduction (HR) coalitions across the U.S. as well as physicians working in HR coalitions. The obstacles highlighted by participants included physicians lacking the training and experience of leading these conversations with patients other than advising them to quit or call a quit-line number. HR coalitions, which are funded by departments of health, should be tobacco-free, which has often led to bizarre rules; one doctor in a HR coalition told Kumar that people could bring their syringes but not their vapes. “The problem is that messaging around safer nicotine products is so inconsistent,” Kumar said. “While at the FDA’s website there are some hints at THR, the CDC’s [Centers for Disease Control and Prevention] site is all about how harmful these products are. Physicians don’t get clear information, which would be extremely important.”

    Prieger stated that physicians and others needed sources of information that they could hand on to patients. He described the difference between the U.K. and the U.S. in the treatment of pregnant smokers: In the U.K., pregnant smokers having trouble quitting smoking during the first trimester receive a printed sheet with information about e-cigarettes and why pregnant smokers should switch. By contrast, in the U.S., the Pediatrician Association explicitly states that e-cigarettes are not safer.

    Misconceptions about THR prevail in many parts of the world and have a big impact on decision makers in a situation where, as surveys have shown, 70 percent of doctors believe that nicotine causes cancer. To meet this challenge, the stakeholder groups that THR advocates are talking to need to be broadened, Kumar said. “The narrative is currently shaped by public health or well-funded public pressure groups. I see that politicians gravitate toward data that makes sense to them based on their constituents, not so much policy that is really informed by science. Policymakers have no idea how things unfold in enforcement.”

    Ironically, THR products face most resistance among legislators in low-income and middle-income countries, where large parts of the population consume harmful forms of tobacco. In Russia, Indonesia, China, India and Bangladesh combined, there are about 700 million people who smoke combustible cigarettes. Most of these countries have banned e-cigarettes or enacted policies not favorable to THR. As moderator Sudhanshu Patwardhan, director of the Center for Health Research and Education, suggested, there seem to be only two policy options—either a free, Wild West-style market or a prohibitive market.

    Hampsher-Monk rejected the thought of such a false dichotomy, though, saying that politicians often simply copy neighboring countries’ regulatory decisions. However, regulators need to make sure that the unintended consequences of their decisions don’t outweigh the benefits and avoid a replication of failures elsewhere. He explained that with smoking and nicotine use being complicated issues, it is rather unlikely that two populations will respond in the same way to the same regulations.

    Panelists agreed that, in their endeavor to protect youths, health authorities greatly neglect the requirements of adult smokers seeking to switch to less hazardous alternatives. To the latter, flavors are an important criterion, so flavor bans hinder harm reduction efforts. On the other hand, studies have shown that the combustible cigarette and e-cigarette markets for youths are linked; a higher excise tax on vaping has shown to increase youth smoking. “The idea of protecting the children is diametrically opposed to helping adult smokers quit,” Hampsher-Monk concluded, “because if you forego a chance to help adult smokers quit, they will continue to model smoking to their children.”

  • Kingsley Wheaton

    Kingsley Wheaton

    Photo: Chris Ferenzi

    Kingsley Wheaton, chief growth officer at BAT, posed an interesting question at the recent GTNF. “So, we must be even more courageous, speak to the outside world further still and come together even more,” he said near the end of his presentation. “Greater collaboration is key. Is it time, for example, for the GTNF to move from the networked forum that it is to operating more like a fully fledged NGO [nongovernmental organization]?”

    Such a suggestion certainly provides something to ponder. For instance, while I take it that, since the suggestion was put forward by BAT, such an NGO would be legally viable, how would it be viewed by those cynical of the tobacco/nicotine industry’s motives and skeptical about the direction of travel of tobacco harm reduction (THR) as mapped out by those who participate in GTNFs?

    I imagine that the suggestion was prompted by a concern that, whereas the concept and application of THR principles have weaved and are weaving a certain magic, the spell might be broken without further impetus, without further change. Indeed, the word change was used 12 times in the presentation.

    But why is change necessary? After all, Wheaton told his audience that “[i]n the U.K., the U.S., Canada, France, New Zealand, Japan and Sweden, the needle is moving toward tobacco harm reduction.” In the U.K., Japan and Sweden, he said, more than half of BAT’s revenues now come from new-category products while across Europe that figure was more than 20 percent.

    Well, change is necessary, I guess, because, on the flip side, globally, the needle stubbornly refuses to move fast enough. Overall, five-sixths of the company’s revenues still come from combustible products.

    Of course, there are any number of general and country-specific issues determining why the countries named have moved the THR needle further than many of those not mentioned have, and many of those issues cannot be addressed by the tobacco/nicotine industry. Indeed, it was evident, listening to the presentation, that the industry cannot, on its own, end tobacco smoking. Far from it. “Can we look forward to a day when BAT sells its last cigarette?” Wheaton asked, before answering, “Yes, I think that is indeed within long-range view. But it will require more than just the efforts of industry or governments.”

    Even the development and marketing of less risky tobacco and nicotine products is not just down to the industry, I guess. There is no point in developing products whose viability will fall foul of unhelpful regulation in a significant number of countries. I caught the end of the GTNF panel discussion on innovation at which the moderator ended the session by bewailing the fact that the innovations that had been discussed were unlikely to be introduced in the U.S. because of regulatory hurdles in that country. And the U.S., remember, is one of the countries that is counted among those that are moving the THR needle.

    Most of the suggestions that Wheaton put forward as being necessary to reinvigorate THR have been made before but have proved devilishly difficult to implement. For instance, Wheaton made the point that in order to allow consumers to make informed decisions about what types of tobacco/nicotine products to use, public health needed to communicate risk accurately, and the industry needed the marketing freedoms to be allowed to communicate responsibly the benefits of switching from higher risk products to lower risk products. This is true, but while there is some movement in some countries toward such positions, in many countries, official information about the risks associated with tobacco and nicotine products is generally confusing and, in some cases, misleading.

    While it was a little disappointing, I thought, that Wheaton did not spend time discussing the relative environmental merits of the various tobacco and nicotine products on offer, which the engaged consumer would also seek, he did make the point that the industry needed to demonstrate that it can change sustainably. This is correct in my view. There is little point in prolonging the lives of individuals if we are going to help bring forward the death of humanity at large.

    BAT has a good record when it comes to research into lower risk products, and Wheaton made the point that science was the key to unlocking the potential of industry transformation from selling higher risk tobacco products to selling lower risk nicotine products. But he will know as well as anybody that not all the “science” points in the same direction because not all research is conducted in a scientific manner. At least one other GTNF session was taken up with a presentation demonstrating that the findings of some research funded by the U.S. Food and Drug Administration were not supported by the evidence but were nevertheless likely to influence regulations.

    Wheaton admits that he doesn’t have all the answers. But he has laid down the challenge. “It is no longer the time for talk but time to act because tobacco harm reduction is too important for us not to,” he said.

    “Ladies and gentlemen, we are standing at a crossroads. It’s either more of the same, more ‘quit or die,’ more path of least resistance, or we can chart a new course with tobacco harm reduction as our goal.”–George Gay

    The full text of Wheaton’s presentation is available here.

     

     

  • Differential Progress

    Differential Progress

    Photo: Nopphon

    Will the valuable insights revealed in the Tobacco Transformation Index accelerate tobacco harm reduction?

    By George Gay

    The second biennial report on the Tobacco Transformation Index (TTI), which details the findings of two further years of research into the efforts made by the world’s 15 largest tobacco companies to reduce the harm caused by the consumption of their products, was launched at the recently staged GTNF. The 140-page 2022 report evaluates tobacco companies’ actions across six business functions, designated “categories” and 35 underlying indicators that are said to cover “measures indicative of harm reduction ….”

    Of the 15 tobacco companies examined, three are state controlled, nine are publicly traded (including Egypt’s Eastern Co., in which the government owns a majority stake), and three are privately held. Together, they are said to account for about 90 percent of global tobacco product volume sales. The geographical sweep of the index takes in 36 countries spread across the globe and accounting for about 85 percent of the global population of adult smokers.

    Erik Bloomquist

    The report contains a huge amount of information, clearly presented and backed with a statistical methodology that aims for transparency and, despite its robust nature, is open to review. The global nicotine and tobacco investment analyst and consultant Erik Bloomquist, who is chairman of the TTI’s technical committee, said during the GTNF investor panel, which he chaired, that everybody should be visiting the TTI website because it contained a “fantastic” amount of “incredibly valuable” information.

    Meanwhile, a press note issued on Sept. 28 by the TTI, which is a Foundation for a Smoke-Free World* initiative and whose research partner is Euromonitor International, said research had demonstrated “differential progress toward harm reduction across the 15 largest tobacco companies,” and highlighted:

    • That high-risk products made up about 95 percent of retail sales volume across the 15 largest tobacco companies during 2021, with reduced-risk products (RRPs) making up 5 percent;
    • That tobacco harm reduction (THR) momentum was developing across a subset of the 15 companies, albeit to varying degrees; and
    • That with companies having been analyzed across the six categories and 35 indicators on their actions to reduce the harm caused by tobacco use, Swedish Match was found to have been making the most relative progress.

    The press note went on to list the following takeaways from the 2022 index findings:

    • “Only Swedish Match sells a greater volume of RRPs than substantially more harmful combustibles, due in most part to the popularity of its snus in Sweden and nontobacco nicotine pouches in the U.S. …
    • “Four index companies directed the majority of capital and R&D investments toward RRPs. In addition, five index companies, including three state-owned entities, made incremental investments or early indications of movement toward future production of RRPs during the review period.
    • “However, tobacco companies are … failing to invest in harm reduction in low-[income] and middle-income countries, with the vast majority of sales for their RRPs concentrated in markets with the highest disposable income. Notably, RRPs are banned in a number of countries around the world.”

    For those who like lists, the 2022 index’s overall scores set the companies’ relative rankings as follows, with their 2020 relative rankings in parenthesis: Swedish Match 1 (1), Philip Morris International 2 (2), Altria Group 3 (4), BAT 4 (3), Imperial Brands 5 (5), Japan Tobacco Group 6 (6), KT&G Corp. 7 (7), Swisher 8 (8), ITC 9 (9), China National Tobacco Corp. 10 (10), Vietnam National Tobacco Corp. 11 (12), Tobacco Authority of Thailand 12 (11), Eastern Co. 13 (13), Gudang Garam 14 (14) and Djarum 15 (15).

    As can be seen, there was little shifting of positions, but the devil is in the details, and there was more relative movement in each of the six categories that were researched: strategy and management, product offer, product sales, marketing policy and compliance, capital allocation and expenditure, and lobbying and advocacy. And this differentiation is seen as important, though, in fairness, it has to be set against any number of factors, some of which, such as portfolios, companies have control over, and in respect of some of which, such as regulations, they are largely at the mercy of outside forces, especially those companies operating mainly in countries that ban RRPs. And there are some factors that might be seen as sitting in between. Increases in sales of higher risk products, for instance, are seen as negatives.

    Sense of Proportion

    The report clearly has some important information, which is likely to become even more valuable in the future if, as seems likely, more of the 15 companies engage with the TTI. Six companies, mainly the multinationals, provided feedback in respect of the 2022 report.

    Nevertheless, I have reservations about what is going on here. Glancing through the minutiae of the huge report and the 84-page methodology that defines the way the report’s data is arrived at, I couldn’t help wondering whether we weren’t in danger of losing our sense of proportion, even losing track of our objectives. To a large extent, tobacco transformation is pushing at an open door because consumers undoubtedly want the choices that new-generation products offer, and the business case is compelling.

    David Janazzo

    But what truly concerned me as somebody living in a country whose economy is being systematically tanked by the last remaining devotees of trickle-down economics was that the TTI seemed to be embracing trickle-down THR. For instance, the TTI was described in the Sept. 28 press note as having been created “to accelerate the reduction of harm caused by tobacco use by ranking the world’s 15 largest tobacco companies on their relative progress or the lack thereof.” From ranking tobacco companies in this way to accelerating THR sounds to me like a bit of a stretch. Certainly, it seems to beat something of an indirect path toward THR.

    In fairness, though, I should say that the TTI program officer, David Janazzo, in his insights introduction to the 2022 report, added that part of the purpose of the index was “to inform the public about the activities of the tobacco industry that influence achieving a smoke-free world.” Such an undertaking, if it could be achieved, would certainly have a more direct influence. But I don’t see that happening. The report talks of “stakeholders,” but that term is not defined, and whereas, as far as I have been told, it potentially includes everybody, such a claim to inclusivity falls a little flat if you try to imagine smokers around the world engaging with a 140-page report and an 84-page methodology. Unsurprisingly, currently, stakeholders are largely confined to tobacco/nicotine companies, researchers and investors.

    Relative Rankings

    The TTI throws up a number of oddities, not the least of which has to do with the understandable decision to compare the 15 largest tobacco companies. Gudang Garam against BAT seems to be a total mismatch, and, given that the index is aimed at informing, in large part, potential investors, the presence of companies that are not publicly traded, though understandable from a nudge theory standpoint, nevertheless looks strange. PMI was said in the press note to be ranked second in the 2022 index and Djarum last, and while I understand that this is how the index’s methodology sees the tobacco world, I have to ask, is this a fair reflection of tobacco harm? If you constructed an index that ranked companies on the number of people worldwide who currently were harmed by consuming those companies’ products, I would guess that Djarum would move up the rankings.

    It was disappointing, in my view, that the 2022 report did not cover the environmental credentials of the RRPs on offer, either relative to each other or relative to the higher risk combustible cigarettes they are supposed to replace, though I understand such matters might be covered in the third iteration of the report, which is due out in 2024. RRPs are supposed to comprise a disruptive technology and, if disruptive means anything, it surely means speedy. Is it wise to wait so long for such information to trickle down? We have on the one hand a problem with the diseases caused to individual smokers, which are tragic on an individual basis but contained, and, on the other hand, an existential environmental crisis enveloping everybody, and we seemingly choose to try to fix the first problem and not the second.

    Timing is important, and one of the main weaknesses of the TTI seems to be its two-year time frame. The 2022 report took in research through the end of 2021 while the next report is due out in 2024, so this suggests that, unless interim updated TTI reports are issued, the publication schedule is going to provide a three-year drag on the incorporation of anything of significance that occurred in early 2022.

    To my way of thinking, the commitment to THR is driven and will be driven by regulations and taxes, and one benefit of the index is that it might influence governments in these areas. And this is important. Taxes are currently set in some jurisdictions so that some RRPs attract revenues much greater than those of combustible cigarettes, and investors are clearly going to put pressure on companies to transform their portfolios while the profits generated by the sale of RRPs are higher than those from the sale of combustible cigarettes. Of course, you would have to be terribly naive to imagine that those same investors would keep up the pressure if the profit advantage were wiped out. There is nothing wrong with this if you believe that the market should be the ultimate arbiter of what is good, though one has to accept, too, that things might head in the other direction.

    Finally, I would be concerned that the cynics will have a field day because while the TTI is listed as an initiative of the foundation, in my view, it is not spelled out prominently enough where the foundation’s money comes from: PMI. Despite the fact that the foundation is independent, those cynics will see that the number two company on the list is PMI, which is possibly about to acquire the number one company and move into the number one spot. All above board, I’m sure, but these things have to be seen from the point of view of those with different agendas.

    My argument is not that the application of trickle-down THR would be socially destructive in the way that trickle-down economics has been but that it would be slow and there would be more efficacious ways of approaching THR. Why spend the foundation’s money carrying out research that is going to benefit mostly analysts, banks and pension funds that have the resources to carry out such research on their own behalf? Surely, the money should be spent on projects that will more directly help smokers. Even helicopter THR might be preferable to trickle-down THR.

    *The Foundation for a Smoke-Free World is an independent nonprofit organization created in 2017 with the mission to end smoking within this generation.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • Perceptions of Nicotine

    Perceptions of Nicotine

    Photo: Chris Ferenzi Photography

    Participants in “The Perceptions of Nicotine” panel during the GTNF 2022, held in Washington, D.C., in September, began the conversation by drawing comparisons to similar consumer products, most notably caffeine. Nicotine is found in tobacco leaves, but it’s also found, at lower levels, in plants, such as tomatoes, potatoes, eggplants and sweet peppers. However, by far its predominant source is in tobacco leaves.

    Caffeine can also be found in multiple food sources, including coffee beans, tea, cocoa beans, Kola nuts and guarana berries. The amount of caffeine in guarana berry seeds is about the same as the amount of nicotine in tobacco leaves, up to about 4 percent, according to a panelist. Unlike caffeine, however, nicotine is tied to tobacco. Nicotine is a public pariah while caffeine is socially acceptable. The panelist agreed that this is due to the differences in how the public has been educated on these products. Medical professionals, for example, get much of their information from medical societies, one panelist noted.

    One challenge is that the public and even many medical specialists don’t distinguish between nicotine and smoking. “I think that’s part of the problem,” a speaker said. “How do we untangle that? Nicotine does not produce disease. It’s not carcinogenic. It does increase heart rate and blood pressure. And perhaps there are some positives … it’s a stimulant, it induces pleasure and it improves concentration, reaction time [and] performance on some tasks, but it can also reduce stress and anxiety.”

    For consumers, when asked why they smoke, the most common answer is for enjoyment and pleasure; however, nicotine ranks low on the list of motivations. But when you ask a smoker, “Why do you find smoking difficult to quit?” the answer is “because I’m addicted—addicted to nicotine.” One panelist said when consumers want medical information, more than 70 percent say the first place they go is the internet. The misinformation is rampant, even from seemingly trustworthy sources.

    “The first place that they turn for health-related information is the internet. More than 70 percent of people say that’s the first place they go when they’re looking for information … because it’s easy to use, and they find information that way,” a panelist said. “Just doing the quick search yesterday, you put in electronic cigarettes into the Google search engine, and the first thing you see is the Center[s for] Disease Control [and] Prevention website, which is great; it’s a government resource. The Office on Smoking and Health is the place within the federal government for information on health and smoking.

    “But when you click on that link, the first thing you see is information on the EVALI [e-cigarette or vaping product use-associated lung injury] outbreak. The headline is [about an] outbreak of lung injuries from e-cigarettes and vaping products. That’s not the right way to help people understand the comparative risks between cigarettes and electronic cigarettes and nicotine-replacement therapy and other lower risk [nicotine] products.”

    Many years ago, smoking and addiction were joined together, and that has now created the assumption in the public that nicotine use equals smoking, which equals addiction. It’s not helping people who smoke understand how they might be able to use the products that are available, including lower risk tobacco and nicotine-containing products as well as nicotine-replacement therapy, to quit smoking. Panelists agreed the misconception was doing more harm than good for public health.

    The way vaping and tobacco products are regulated is also partly to blame, according to the panel. Tobacco companies are very limited in the amount of information they can provide on their products. Swedish Match, for example, was the first company to receive an authorization for a modified-risk tobacco product. The U.S. Food and Drug Administration, however, severely restricted the ways in which Swedish Match could communicate the lower risk of its product to consumers.

    “We got super excited internally. I mean, here we have a product, it had no carcinogens, no tar, no nitrosamines, significant risk reductions, and when we started looking at how and what we can communicate, it was incredibly limited … as we were going through our process, we had [tried] to figure out how to tell consumers this was different without telling them it was different,” explained a panelist representing Swedish Match. “It was very challenging. We were trying to figure out how to use different colors and different cues. It was a brand-new category, so we’re trying to educate people on a brand-new category with a can, and you didn’t even know what was in it …. It was incredibly difficult to try to do that.”

    Swedish Match also gathered customer testimonials, but regulations kept the company from doing anything with them. Another panelist explained that consumers do not separate nicotine from tobacco. Nearly 80 percent of the population agree that those are virtually the same. When asked to compare the risks of products, people list tobacco as the most harmful, followed closely by nicotine and then alcohol.

    Caffeine, however, is on the other end of the scale. “Caffeine is on a totally different end of the spectrum. Interestingly, when we think about where the market is moving and things are moving relative to legality, you look at CBD, look at THC, [and caffeine] is more closely associated from a harm perspective to CBD and THC,” a speaker said. “In terms of addictiveness, 96 percent of U.S. consumers would say that nicotine is addictive. Only 76 percent say that caffeine is addictive. But then, you look at harmfulness to health. You can see this wide gap that exists in terms of … the core chemical, 89 percent versus 46 percent in terms of harmfulness to health [nicotine versus caffeine].”

    The panelists argued that people who smoke combustible cigarettes are less likely to try less harmful products if they perceive those products to be no different than what they’re currently using in terms of harm. There’s very little motivation for them to try them. There is also very little the industry can do to reverse the misinformation surrounding nicotine.

    “The industry’s hands are tied with regard to the voice that the industry can have. But I think the role that the industry can play in it is to continue to develop high-quality, lower risk products that are acceptable alternatives for cigarettes for people who smoked cigarettes, and then get those through the regulatory process,” a panelist said. “It’s up to the FDA to communicate to consumers that there are less risky products to consume nicotine.”

  • ‘Forgotten’ Smokers

    ‘Forgotten’ Smokers

    Photo: Chris Ferenzi

    Rather than being “forgotten,” as the session’s title suggested, people who smoke are an unexplored, stigmatized and often misunderstood species, according to the participants in a GTNF discussion about consumers. While consumer centricity has become a buzzword in the reduced-risk product industry, companies still have a lot to learn about their target group.

    Altria, whose vision is to responsibly lead the transition to a smoke-free future, examined the plight of consumers on their journey to less hazardous products. “We had done a comprehensive research program about the interest in vape products, but what was really missing was to bring the voice of the consumer directly to the organization,” said Brent Taylor, managing director of consumer and marketplace insights at Altria.

    Last year, the company initiated “Project 21,” a study of 21 consumers of combustible tobacco who were interested in switching to less harmful nicotine products (see “Listening to Nicotine Users,” Tobacco Reporter, September 2022). Over 21 days, Altria’s researchers catalogued the study participants’ behavior via videos and weekly surveys. The participants were asked to “do their best” but didn’t get any guidance, as Altria wanted to learn how they tackled the challenge on their own. Their progress was checked after three weeks, three months and six months.

    After six months, 15 participants were still smoke-free. The people who were most successful were those who really wanted to switch and held themselves accountable. The project also showed that many factors unrelated to the product category, such as a bad day at work, impacted the success of participants in transitioning. Each of the journeys was unique and entailed its own set of complications. For all participants, it was a highly emotional experience, according to Altria.

    Kim “Skip” Murray, a person who vapes and a tobacco harm reduction (THR) advocate who until last year ran a vape shop in Minnesota, related experiences from her customers that illustrate how external factors, such as misinformation and economic strain, can impact attempts at switching. One of her customers, a Vietnam veteran with chronic obstructive pulmonary disease, returned to smoking for some months after press reports and health authorities mistakenly attributed the e-cigarette or vaping product use-associated lung injury (EVALI) outbreak to nicotine vapes.

    Some clients reverted to more harmful but less expensive cigarettes when their budgets were tight. Discouragingly, the Food and Drug Administration’s marketing denial orders forced products off the market that had helped Murray’s customers quit cigarettes while leaving combustible products widely available. Murray said she was unable to dispel the myths about EVALI and many of the other false narratives about vaping. The number of people who came into her shop wanting to quit dropped substantially, eventually forcing her out of business.

    Alex Clark, CEO of the Consumer Advocacy for Smoke-free Alternatives Association, stressed the importance of language in the smoking and health debate. “Smoker,” he said, has become a pejorative term. “We’re now focusing on people who have a history of being underprivileged, undeserved and oppressed—people who we don’t see in offices or at conferences; people who have been pushed to the margin of society.” Having smoked heavily in his youth, Clark recalled being told that his habit was a character flaw. The stigma of having no control over his decisions and essentially being a drug addict, Clark said, stuck with him even after he had switched to vaping.

    Most of the 30 million Americans who smoke today belong to vulnerable groups, suffering, for instance, from mental illness or unemployment, according to health behavior consultant Cheryl K. Olson. Among people in custody, the percentage of people who smoke is four times higher across the world. Together with other researchers, Olson explored the potential of vape products for use in a prison environment and found that the acceptance was 95 percent. “For vulnerable groups, harm reduction is a realistic goal if nicotine abstinence is not,” she said. “Our findings about these groups have the potential to rebalance the conversation about appropriateness for the protection of public health.”

    Will Godfrey, editor-in-chief of Filter and executive director of the Influence Foundation, bemoaned the lack of synergy between harm reduction for illegal drugs and harm reduction for tobacco.

    Many illegal drug users smoke, and it would make sense to apply harm reduction strategies to both habits. In reality, those running drug-related programs are often unwilling to apply harm reduction to tobacco use. Bizarrely, some needle exchange programs for intravenous drug users are accompanied by anti-vaping policies, noted Godfrey.

    He blamed the “deep suspicion” of the nicotine industry within the left-wing harm reduction movement as well as the growing influence of Bloomberg Philanthropies, a big funder of anti-smoking programs that is notoriously hostile to vapor products.

    Godfrey urged the administrators of drug harm reduction programs to extend the harm reduction principle to smoking. “It is vital that THR, including the industry, builds momentum in this direction,” he said. “The hostility to the industry won’t go away but is surmountable, as the role of pharma in drug harm reduction has shown.”

     

  • Joe Murillo

    Joe Murillo

    Photo: Chris Ferenzi Photography

    Joe Murillo is right. It is hard to believe that the U.S. Food and Drug Administration reviewed Juul’s premarket tobacco product application (PMTA) thoroughly. Murillo, chief regulatory officer for Juul Labs, told attendees of the GTNF 2022 that the regulatory agency wrongly issued Juul a marketing denial order (MDO). That order was later stayed by both a court and the FDA itself.

    The FDA says it follows the science; Murillo counters that the entire process is “substantively and procedurally flawed,” adding that the MDO was not based on a fair and complete review of the science in Juul’s PMTAs.

    “Our PMTAs included over 125,000 pages of data. They included information and analyses from over 110 scientific studies, and these studies cut across nonclinical, clinical and behavioral research programs,” he said. “We assessed our products relative to combustible cigarettes … and relative to other marketed [electronic nicotine-delivery system] ENDS products. It seems as though, among other things, FDA overlooked at least 6,000 pages of these data.”

    Murillo said that the FDA prides itself on having the “highest scientific integrity and public health focus, shielded from political interference.” That statement mirrored what was said by the director of the FDA’s Center for Tobacco Products, Brian King, who spoke at the same conference. “Ultimately, it comes down to the science … it’s very critical, to me, to ensure that we use that as our guiding light,” King said (see “Reservations Required,” page ?).

    Despite that stated commitment, the PMTA review process appears to be susceptible to politics, according to Murillo. He noted that the FDA has been under immense pressure to deny Juul Labs’ applications and remove Juul products from the U.S. market. “This political pressure cannot continue,” said Murillo. “FDA cannot allow the hostile conversations around tobacco harm reduction to seep into what should be a science and evidence-based process. The very integrity of the FDA’s review process is now called into question. The FDA must guard against politics and improper attempts to influence their scientific decision-making. We need to find common ground, turn down the temperature of the rhetoric and put people who smoke [combustible cigarettes] at the center.”

    Juul Labs is now in a fight for its future. After the e-cigarette maker appealed the MDO in court, the FDA on July 5 stayed its own order. The agency announced that it would review its decision after determining that “There are scientific issues unique to this application that warrant additional review.” Alongside the agency’s internal review, Juul Labs also submitted its own administrative appeal with the FDA.

    “In this appeal, we demonstrate how the agency’s denial of our applications was substantively and procedurally flawed,” said Murillo. “We requested, among other relief, that FDA rescind its denial and put our applications back into substantive review. Throughout this process, Juul products will remain on the market, and we are confident we can address any further questions the agency may have. So, we will continue to fight for the millions of adults who use our products. They deserve a complete review of the science and evidence we presented as required by law and without political interference.”

    Murillo said that while underage use is a concern, last year’s National Youth Tobacco Survey (NYTS) showed a significant decline in underage use compared with just two years ago, and youth use of cigarettes continues to decline to historic lows. Murillo said the decline in underage years can be attributed to many factors, including raising the minimum purchasing age to 21 and measures to further restrict access and limit appeal.

    “But not all trends related to underage use are positive. Many of us are worried about the rise of disposable flavored products among youth,” he said. “In the United States, fly-by-night companies have flooded the market with illegally marketed products. These products flout laws and regulations and present a public health danger.”

    According to Murillo, regulators must improve and prioritize enforcement. “True Age, NACS and other stakeholders are firmly committed to reducing and preventing underage access to tobacco products at retail,” he said. “Scientists and public policy experts have put forward thoughtful solutions to preserve the harm reduction opportunity for adults while also protecting youth.”

    Meanwhile, regulatory uncertainty has created immense barriers to innovation in reduced-risk products. This uncertainty diminishes confidence in the products themselves and the category, according to Murillo, who said that uncertainty “has a chilling effect” on investment and further innovation.

    “To be crystal clear, this uncertainty only prolongs cigarette use,” he said. “Despite challenges for alternatives like ours, with the PMTA process, new combustible cigarettes continue to receive authorization via substantial equivalents and even PMTA and MRTPA [modified-risk tobacco product application] pathways; 13 years after the passage of the Tobacco Control Act, cigarettes remain far and away the most used tobacco product in the United States, making up over 75 percent of the market.

    “Less than 3 percent of the total tracked ENDS market is authorized under FDA’s PMTA process … the rest of the market, the vast majority of ENDS products fall into one of three precarious buckets,” explains Murillo. “One, those being sold illegally. This includes companies that have not even submitted to the PMTAs. Two, those awaiting a marketing decision from FDA after years of review; or three, those stuck in a highly opaque administrative process—one that’s subject to a shifting requirement and unpredictable timelines.”

    Innovative products that are specifically designed to advance public health have a steep road ahead in the U.S. Murillo said this is alarming. While the technology is available to accelerate the displacement of combustible cigarettes, a slow and uncertain path to the market is a significant obstacle.

    “The data suggests that ENDS sales are displacing cigarette sales. So, we can see an emerging path to end the combustible cigarette once and for all. Unfortunately, that path remains blocked by a political and regulatory environment that inhibits meaningful progress … I think most of us in this room appreciate that combustible cigarettes will one day be obsolete,” he said. “Undoubtedly, that is our company’s goal. It’s not a question of whether, but of when … As an industry, we can accelerate this public health goal through product innovation and evidence-based policy development. But the viability of the marketplace is at stake, especially for those companies that don’t sell cigarettes.”

    Murillo said an example of innovation in a market that is more accepting of ENDS products as a tool toward harm reduction can be found in the U.K., where Juul Labs launched its Juul 2 product last year. The platform includes cutting-edge technology designed to deliver a more consistent vapor experience with improved nicotine delivery. Its temperature control minimizes the production of toxicants, and the platform can help address underage use through its pod technology.

    “We’ve also developed a mobile app that can be used for age verification and locking the device when it’s out of the range of a user’s phone,” said Murillo. “The app has other features that enhance the experience for users as they switch away from cigarettes. We’re confident that Juul 2 delivers a better experience for adult smokers than products currently available, which should result in increased switching from combustible cigarettes.”

    In the end, Murillo said he is disappointed with where the ENDS industry is currently, but he has a genuine belief that there is an endgame for combustible tobacco. “Society cannot allow the death and disease associated with smoking to be a part of the incremental progress we’ve made,” he said. “Absent a renewed and fundamental commitment to the very concept of harm reduction, we will lose this opportunity.”

  • Kim Reed

    Kim Reed

    Photo: ITG Brands

    Having joined ITG Brands, the U.S. subsidiary of Imperial Brands, in June 2021 with a background in other consumer goods, Kim Reed related her aims and strategies in her new role. ITG Brands is the third-largest tobacco manufacturer in the U.S. and best known for its Winston, Kool, Salem and Maverick cigarette brands. The company also manufactures mass-market cigars and blu vapor products.

    ITG Brands was formed in June 2015 after Imperial Brands acquired the above-mentioned cigarette brands along with blu Cigs, which Reynolds American Inc. and Lorillard had to divest to satisfy the Federal Trade Commission’s competition requirements. Cigar brands already owned by Imperial included Backwoods, Dutch Masters and Phillies.

    The U.S., Reed pointed out, is an attractive tobacco market with affordable products, relative marketing freedoms and a transparent, science-based regulatory environment. ITG Brands, she emphasized, is keen to understand its customers. At its size, Reed said, ITG Brands can’t be everything to everyone, but it has a portfolio for all price segments and the advantage of remaining relatively nimble and able to respond quickly to changing consumer demands and preferences.

    ITG Brands has been investing in its Winston and Kool Brands while providing a smoking alternative with its blu e-cigarettes. The company’s sales force has increased to include more than 200 people. While focusing on taste and quality, the company has singled out racing, festivals and music as key touchpoints for communication with adult smokers.

    At the start of her tenure at the helm of ITG Brands, Reed aimed to build a salesforce that best serves their consumers and customers. The salesforce was built to be diverse and dynamic to reflect the diverse consumers the company serves, she said. Reed said she found her experience with other consumer goods companies, such as Pepsi, helpful when she took over at ITG Brands.

    “I try to use lessons learned from consumers to guide not only our business choices but also my personal leadership style,” she explained. “Insights about consumers are critical, and it’s critical to share them with people in our company that work in functions that may be otherwise far removed from daily interaction with consumers.”

    ITG Brands, she concluded, has started a multi-year transformation plan that, based on many initiatives, should strengthen its performance.