Monday, November 26, 2012

Despite Best Efforts of Anti-Smoking Groups, Electronic Cigarettes are Here to Stay

The Food and Drug Administration along with at least seven national anti-smoking groups made a valiant effort to remove electronic cigarettes from the market. In 2009, the FDA exerted what it purported was its jurisdiction over electronic cigarettes under the Food, Drug, and Cosmetic Act and effectively banned these products. At the same time, seven national anti-smoking groups promoted the removal of electronic cigarettes from the market. These seven groups, along with the amount of money they received from Pfizer and GlaxoSmithKline between 2009 and 2012, are as follows:


American Academy of Pediatrics: $720,800
American Cancer Society: $252,750
American Heart Association: $136,000
American Lung Association: $190,250
Campaign for Tobacco-Free Kids: $100,000
American Medical Association: $857,500
American Legacy Foundation: $300,000
Action on Smoking and Health: $200,000


American Cancer Society: $602,010
American Lung Association: $143,461
Association for the Treatment of Tobacco Use and Dependence: $5,000
Campaign for Tobacco-Free Kids: $400,000
American Heart Association: $115,000
American Medical Association: $15,000
American Academy of Pediatrics: $65,075
American Legacy Foundation: $10,000

The Rest of the Story

Today, I am happy to opine that despite the best efforts of these anti-smoking organizations, electronic cigarettes are here to stay. The FDA failed in its efforts because the courts ruled that its jurisdiction over these products falls under the Tobacco Act, not the Food, Drug, and Cosmetic Act (in the absence of therapeutic or drug claims made by electronic cigarette companies). The anti-smoking organizations failed in their efforts because the state legislatures which considered bans on electronic cigarettes were swayed by an outpouring of protest from vapers who testified that they would most likely return to cigarette smoking if these devices were taken off the market.

Today, because of a number of subsequent developments in the electronic cigarette market, I can assert that these products are here to stay and that they will form the basis of a competitive and expanding market in the years to come.

Among the important developments (in addition to the D.C. District Court's decision on the FDA's regulatory authority) is the entrance of the major cigarette companies into the electronic cigarette market. I have already discussed the acquition of Blu cigs by Lorillard. Today, I report the efforts of Reynolds American to enter the electronic cigarette market.

According to an article in the Business Journal, Reynolds American has formed a subsidiary called the R.J. Reynolds Vapor Company which is test-marketing what it calls a "digital" cigarette, which is similar to but more advanced technologically than most electronic cigarettes on the market.

According to the article: "Reynolds American President and CEO Dan Delen said during Investors Day presentations Monday morning that the company is focusing over the long-term on emerging smoke-free products such as snus and its new electronic cigarette Vuse that offer larger margins and greater potential for growth. "Everything we're working on from an innovation standpoint has a higher margin than cigarettes," Delen said. "I think we're very well positioned in an evolving market." ... In the growing electronic cigarette category, which offers users a nicotine-infused vapor to inhale, Delen said RAI subsidiary R.J. Reynolds Vapor Co. is preparing to make a "big splash" after a limited launch of its Vuse product earlier this year. Delen said Vuse is more of a "digital cigarette" than merely an electronic one given its use of computer chips that Delen said help offer an experience closer to that of actually smoking. Delen said Vuse is also set apart by being produced domestically, while most electronic cigarettes are produced abroad. "We're not looking to make a little splash in the category," Delen said. "We're looking to make a big splash in the category." ... Delen said ... Reynolds American is focusing on markets centered around emerging products."

Philip Morris has also entered the "non-tobacco" cigarette market, after having purchased the patent to a new nicotine aerosol technology, although it is not clear how closely this new nicotine aerosol system resembles a cigarette rather than an inhaler.

British American Tobacco has also entered the electronic cigarette market. Its Nicoventures division is working on a nicotine inhaler to be launched within the next two years and it is supporting the development of what is apparently some type of non-tobacco, electronic cigarette. According to this same Financial Times article, Imperial Tobacco and Japan Tobacco are also preparing to enter the electronic cigarette market.

All of these tobacco companies realize something that the major anti-smoking groups fail to realize: It is no longer 1954 and the cigarette companies have not just issued their Frank Statement. Nor is it the 1960s, 1970s, 1980s, or 1990s. It is 2012, and the major cigarette companies have - unlike the major anti-smoking groups - begun to embrace the concept of harm reduction in the form of non-tobacco cigarette alternatives that deliver nicotine without the tar, toxins, and carcinogens and which therefore promote smoking cessation with an approach that may be more effective than traditional pharmacological methods.

A second major development is the increasingly effective voice of the vaping community. Vapers are letting their voices be heard, and after hearing the truth from vapers, policy makers are just not able to take the anti-smoking groups' advice and remove these products from the market. The electronic cigarette consumer advocacy and trade groups, internet forums, and vapers themselves have changed the dynamics of the playing field. The voices of the anti-smoking groups and pharmaceutical companies are not the only ones being heard. The true stories being shared by vapers who have successfully quit smoking or greatly reduced the amount they smoke thanks to electronic cigarettes, and who have experienced dramatic improvements in their health, are outweighing the financially conflicted and ideologically-driven voices of the anti-smoking movement. This is not to say that the battle is over, but I do believe that in the U.S. at least, the battle is now going to be over the nature of regulation, not the presence or absence of electronic cigarettes on the market.

An article published yesterday in the Financial reports that the electronic cigarette industry is currently a $2 billion global market. According to the article:

"after an initial fad period where the product was available exclusively on-line, e-cigs are now gaining acceptance as repeat usage products available through a variety of popular distribution channels, including convenience stores and supermarkets (for example, Tesco in the UK has signed a deal to stock E-Vapes) and the product is now no longer the preserve of specialists. ... Little wonder then that Tobacco and Pharma players have begun to sit up and take notice. In the world’s biggest e-cigarette market, the US, two leading tobacco players have entered the e-cig market by either buying an established e-cig brand (as in the case of Lorillard buying Blu for US$135mn in April 2012) or by launching their own e-cigarette brands on the market (eg Swisher’s eponymous e-cigarettes and e-cigars, also in 2012). Larger tobacco companies with more sizeable financial outlay have decided to develop their own alternative cigarette-mimicking nicotine delivery devices, such as global no.2 tobacco player, BAT, which in 2011 set up a company called Nicoventures to develop modified risk and nicotine delivery products. According to its product developer, Kind Consumer, its lead product will be a "pharmaceutically regulated substitute cigarette”. ... Globally, the NRT retail market is worth US$2.4bn (excluding prescription sales), and enjoying stable overall growth, but how long before it is eclipsed by the already US$2bn-strong e-cigarettes market?"

Euromonitor International recently projected that by the year 2050, the non-tobacco cigarette market (which is dominated by electronic cigarettes) will account for 4% of the entire tobacco market.

Sadly, if electronic cigarettes do take off as a more effective tool for getting smokers off their cigarettes and helping to save their lives, it will not be thanks to the efforts of the national anti-smoking groups. It will be despite their best efforts.

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