Financial Times Europe - 14.09.2019 - 15.09.2019

(Axel Boer) #1

12 ★ FTWeekend 14 September/15 September 2019


COMPANIES


ing as “the ultimate threat to vaping”.
Tighter regulation would also be a
problem for other tobacco companies
with e-cigarette interests, including
London-listed British American
Tobacco and Imperial Brands. Like
Altria and PMI, they have also been
investing heavily in alternatives to tra-
ditional cigarettes as consumers switch
at an accelerating rate. BAT plans to cut
2,300 jobs, saying it would direct the
savingstowardsnewproducts.
Yet even before the White House’s
intervention, US regulators had been
planninge-cigarettecurbs.
Anticipating a crackdown, Juul had
pulled flavoured versions such as
mango and cucumber from shops
although the company — known for
its trendy devices that resemble USB

sticks — still sells other flavours online.
Mr Trump said his administration
would “double and triple up” on the
planned restrictions, extending the ban
to all flavours other than tobacco,
includingthepopularmintandmenthol
varieties.
Juul said it backed “aggressive” action
on flavoured e-cigarettes but many in
theindustryreactedwithalarm.
Gregory Conley, president of the
American Vaping Association, said vap-
ing had helped wean millions of Ameri-
cans off cigarettes and warned such
a sweeping crackdown could create
“another multibillion-dollar black
market”. He added: “Prohibition has
neverworked.”
Not everyone is convinced the plans
from the White House will materialise.

“This could end up just being a tough
speech,” said Mr Conley. The Food and
Drug Administration, for its part, had
been “filled with big talk and little
actionsofar”,MrGroweadded.
Joelle Lester of the Public Health Law
Center said the presidential interven-
tion had “the potential to be a signifi-
cant turning point, but public state-
ments of concern aren’t the same as
meaningfulactiononpublichealth”.
The industry had lobbied successfully
in the US to avoid the constraints to
which it has been subject elsewhere.
UBSanalystssaidinMaythattheUSwas
the “least regulated vapour market in
the world”. Recent headlines about fatal
illnesses have soured attitudes in Wash-
ington,however.
The science behind the outbreak

remains mysterious. The condition
shows up on scans like pneumonia but
patients do not have an infection: some-
thing vapers are inhaling may be caus-
ingtheirlungs’immunesystemtoreact.
Because many of those who have fallen
ill have been vaping cartridges contain-
ing THC, the chemical extracted from
cannabis, one theory is that their lungs
are being inflamed by the vitamin E oil
usedtodilutetheTHC.
But Robert Tarran, a professor at the
University of North Carolina’s Marsico
Lung Institute, said that may be correla-
tion rather than causation, especially
because the medical profession lacks a
full record of who might have been
affected.
“The answer is we don’t know what is
causingthisrightnow,”hesaid.
Prof Tarran is part of a working group
of scientists trying to discover the cause
of the disease, having studied e-ciga-
rettes for five years. They need to study
a large sample of vapers, whether or not
they have the condition, to understand
if the disease could be caused only by a
particular chemical in some cartridges,
or whether it only shows up in certain
people, such as the smoking-related
chronicobstructivepulmonarydiseases
thataffectaboutathirdofsmokers.
One challenge, said Prof Tarran, is
that the FDA does not require vaping
manufacturers to list their ingredients.
The industry sells thousands of differ-

ent flavours, all with slightly different
formulas.
“We have to reverse engineer when
we are trying to figure out what it is and
its potential toxic effects,” he said,
adding that studying THC in particular
was difficult because the substance is
illegal.
Regulators are also split on how much
faith to place in the hypothesis that the
disease is linked only to illegal THC car-
tridges. In the US, the FDA has warned
vapers that it would be “prudent” to
avoidTHCproductsoranyvapingprod-
ucts sold “on the street”. In the UK, Pub-
lic Health England said most cases were
linked to the illicit vaping liquid that is
more “tightly regulated for quality and
safety”intheUKthanintheUS.
Anti-tobacco campaigners have
seized on the suddenly elevated public
concern about vaping. Michael Bloomb-
erg, the former New York mayor, is
putting $160m behind efforts by cities
and states to ban flavoured e-cigarettes
after similar laws passed in Michigan
andSan Francisco. Ms Lester said she
was “cautiously optimistic” that federal
regulationwouldfollow.
Whether or not the Trump adminis-
tration’s plans become law, the intensi-
fied political and scientific scrutiny of
vaping could itself be enough to weigh
onsales.
Regulators are under pressure to
respond now, even as Prof Tarran and
his fellow scientists race to finish their
investigation. “We want to get to the
bottom of a very unusual situation,” Mr
Trumpsaid:“It’ssonew,andit’sbecome
sobig,sofast.”
Additional reporting by James Fontanella-
Khan in New York

A N D R E W E D G E C L I F F E- J O H N S O N ,
A L I STA I R G R AY A N D H A N N A H KU C H L E R
NEW YORK


The e-cigarette was supposed to be the
future of tobacco — an innovation mar-
keted as“reduced risk” hat could offert
a growth story to an industry in which
the core product is deadly to its custom-
ersandinlong-termdecline.
Six deaths, a mysterious outbreak of
pulmonary illness and an intervention
by Donald Trump have abruptly chal-
lengedthatassumptionandthrowninto
doubt a potential$200bn tobacco
merger, premised in part on vaping’s
continuedpopularityintheUS.
In a matter of weeks, doctors in 33 US
states have connected at least 450 cases
of lung disease to e-cigarette use. After
some of those patients died, the Centers
for Disease Control and Prevention
issued a blunt warning: until more was
known about the causes, the public
should consideravoiding e-cigarettes
altogether.
The threat to the industry intensified
on Wednesday when President Trump
announced that his administration was
lookingintoacompleteban fflavouredo
e-cigarettes. Alex Azar, his health secre-
tary, blamed them for a vaping “surge”
amongAmericanchildren.
“An entire generation of children risk
becoming addicted to nicotine,” he said,
pointing to new data suggesting that
more than a quarter of high school stu-
dents had vaped in the past month — up
from 20 per cent a year earlier, when
regulators first warned about an under-
age“epidemic”.
What happens next will determine
the fate of a $4.5bn industry category
that Wells Fargo estimated had grown
from 2 per cent of the US nicotine
market to 7 per cent in the four years to
thisJuly.
Despite decades of investment in
e-cigarettes from traditional tobacco
makers, nearly all of that growth came
from one newcomer to the industry,
Juul.
Forecasts that e-cigarettes could keep
producing compound annual growth
rates of 15-20 per cent convinced Altria,
the US maker of Marlboro cigarettes, to
spend $13bn last year for a35 per cent
stake n the San Francisco start-up.i
Altria vowed to use its marketing power
tosuperchargeabrandthathadclaimed


more than 70 per cent of the US vaping
market.
In turn, it caught the eye of Philip
MorrisInternational,whichcontrolsthe
Marlborobrandoverseas.Lastmonth,it
emerged that the Lausanne-based
group was in talks with Altria about a
nil-premium merger that would
reshapetheglobaltobaccoindustry.
The deal remains under discussion,
according to people briefed on the talks,
but the politicisation of the debate
around e-cigarettes “doesn’t help”, one
said. The path to a deal for which inves-
tors have shownlittle enthusiasm gets“
steeper”.
Juul’svalue“hastobelowerduetothe
mounting pressure, both legal and regu-
latory”, said Chris Growe, analyst at
Stifel, who described Mr Trump’s warn-


Vaping deaths challenge claims of lower risk


Tobacco industry’s growth hopes set back by outbreak of pulmonary disease and intervention from the White House


Big brands have been investing heavily in alternatives to cigarettes as a growing number of consumers make the switch Eduardo Munoz/Reuters—

Smoke signals


Even before the White


House’s intervention, US


regulators had been


planning e-cigarette curbs


UBS analysts said in May


that the US was the
‘least regulated vapour

market in the world’


More on ft.com
For the latest
news, comment
and analysis on
the healthcare
industry, go to
ft.com/companies/
health-care

450
Cases of lung
disease doctors
across 33 US states
have connected to
e-cigarette use

$13bn
Investment by
Altria in a 35% stake
in Juul, the San
Francisco start-up

Clouds form over vaping industry
Global users (m)

Sources: Euromonitor International; Nielsen













     


Heat-not-burn products

Vapour products







US students citing consumption in the 
days before a  survey ()

E-cigarettes

Cigarettes

Cigars

Smokeless tobacco

Hookahs

Pipe tobacco

    


High School
Middle School


US e-cigarette sales (m)
















    


Year to the end of August




SEPTEMBER 14 2019 Section:Companies Time: 13/9/2019- 17:06 User:cathy.pryor Page Name:CONEWS3, Part,Page,Edition:USA, 12, 1

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