Pursuit of a safer cigarette gathers pace

FINANCIAL TIMES

By Rose Jacobs

When Sir Terry Leahy first heard about a small British start-up called Kind Consumer he felt sure he had found a gap in the market.

Here was a company with a very big idea – a safe way to get smokers their nicotine fix – that was struggling to win backers in the venture capital community.

Sir Terry says: “It may be a weakness in the [VC] investment model: if people are looking for three-year pay-backs, that’s not appropriate for really big ideas.” The former Tesco chief decided to make it one of his first private investments in retirement.

British American Tobacco also appears to be taking the long view. Its subsidiary Nicoventures, formed this year to commercialise non-tobacco nicotine products, has signed its first commercial contract with Kind Consumer. It is a distribution agreement for a device that uses miniaturised breath-operated inhalation technology rather than tobacco to deposit nicotine in the lungs.

That is a big step for BAT into the field of smoking cessation and “harm-reduction”. Philip Morris International has made similar moves. Last week it added to its portfolio a patent developed by a Duke University professor for a “technology employing a unique method for delivering a nicotine-containing aerosol”.

The companies hope not only to capitalise on the £2.2bn ($3.6bn) global market for smoking cessation products, but also to form products so compelling for smokers that they could also target the £263bn global tobacco market.

The idea of a safer cigarette is not new. Tobacco groups have toyed with the idea for 50 years but with no serious breakthroughs from either a health or a business perspective.

RJ Reynolds’ efforts to develop a safer “smokeless” cigarette, described in the book Barbarians at the Gate, were typical: the Premier, which cost more than $800m to develop, flopped in less than a year.

Alex Hearn, founder of Kind Consumer, argues that success this time around depends on more than delivering a safe nicotine hit. The rituals surrounding smoking must also be mimicked, he says, and adds that the products must be affordable and available by the same channels as cigarettes; that means regulatory approval is paramount – an area where electronic cigarettes have stumbled.

Some observers argue that non-tobacco nicotine products that genuinely recreate the smoking experience could help to make up for declining volumes of cigarette sales in the developed world. Many analysts consider the prospect so remote, and potential revenues so small against tobacco, they do not include them in growth models.

For those reasons, perhaps, neither Imperial Tobacco nor Japan Tobacco has made public forays into the harm-reduction field. Instead, the market is dominated by pharmaceutical groups such as GlaxoSmithKline with its NiQuitin products, and Johnson & Johnson with Nicorette.

Some experts argue pharma companies are not the most appropriate distributors. David Sweanor, professor of law at University of Ottawa and a specialist in tobacco and public health, says: “How can you move these things to consumers? The cigarette companies know smokers better than anyone else.”

His is a divisive view within the antismoking lobby. Many activists, particularly in the US, worry that “reduced harm” nicotine products will still hook people, and may serve as a stepping stone to tobacco. Simon Chapman and Ross MacKenzie at the Unviersity of Sydney’s school of public health point out that most people who successfully stop smoking do so without smoking-cessation products. They worry that quitting “is becoming increasingly pathologised”.

Even those open to alternative delivery systems for nicotine – an idea embraced more readily in the UK, including by the government – are deeply wary of tie-ups with tobacco groups. “It wouldn’t be beyond Big Tobacco to buy into these inventions to make sure that they don’t get off the ground,” said one tobacco control activist.

Deborah Arnott, chief executive of UK antismoking group Action on Smoking and Health, argues that consumer goods groups would make more acceptable partners for inventors, and also have the marketing and sales savvy the tobacco groups boast.

BAT points out that Nicoventures is a stand-alone business, with “access to expertise within the group but [at] an arms-length basis.” Mr Hearn says that while he and his colleagues were wary at first, they believe one of their goals – the product be commercially viable, as readily available at the petrol station as the chemist’s – will benefit from BAT’s involvement.

Dr Sweanor forecasts the race will speed up for regulator-approved, user-friendly products that provide nicotine to people who crave it, without killing them. “The global market for cigarettes is half a trillion dollars a year,” he says. “People say: ‘If we only get 2 per cent of the market, that’s not bad: we make billions of dollars, save millions of lives and maybe win a Nobel Prize while we’re at it’.”