The Shifting Outlook for E-Tobacco

David Bennett
June 18, 2018
CSDecisions

The FDA has set its sights on lower-risk alternatives to cigarettes. However, heat-not-burn products and other innovations still face a lengthy road to market.

How regulatory groups view future vaping products as viable, less harmful alternatives to combustible cigarettes will certainly change the future outlook of e-tobacco products.

The prospect not only has industry designers busy at the drawing board, but holds out hope for older category innovations as well. At the forefront is heat-not-burn tobacco technology, which isn’t new, but has been garnering fresh headlines.

Perhaps the most attention is being paid to Philip Morris International (PMI), which has applied to the U.S. Food and Drug Administration (FDA) to be able to sell iQOS in America and for permission to market it as a modified-risk tobacco product. That designation could mean that Philip Morris would be allowed to sell iQOS to consumers as presenting less harm or risk of disease than traditional tobacco.

LEADING THE WAY
In December 2016, PMI became the second company to have its Modified Risk Tobacco Product Application (MRTPA) accepted for review by the FDA in order to market its tobacco product as one that will substantially reduce, or even eliminate altogether, toxicity and/or addictiveness. By heating tobacco instead of burning it, the company says iQOS avoids subjecting smokers to the same levels of carcinogens and other toxic substances found in regular cigarettes.

In the last few years, the manufacturer has spent billions to bring e-tobacco platforms to market. While PMI and its parent, the Altria Group, is making headway, it was reminded this year that regulators still have the final say.
In January 2018, the Tobacco Product Scientific Advisory Committee (TSPAC) voted on several recommendations for the FDA to consider after reviewing an application from PMI for its iQOS product and Marlboro Heatsticks. The nine-member TSPAC panel voted on specific points of PMI application during the public hearing. The votes differed on specific points:

• On a vote of eight in favor and one against, the TPSAC supported the claim that the iQOS product “significantly reduces your body’s exposure to harmful or potentially harmful chemicals.”
• On a vote of five against and two in favor, with one member abstaining, the TPSAC panel stated that PMI had not proved that reducing harmful exposure would “translate to a measurable and substantial reduction in morbidity and mortality.”
• On a vote of eight against and zero in favor, with one member abstaining, the TPSAC did not support the claim that the iQOS product would reduce the risk for tobacco-related diseases.
• On a close vote of five against and four in favor, the majority of TPSAC panel members did not support the claim that “switching completely to iQOS presents less risk of harm than continuing to smoke cigarettes.”

The TSPAC decision rejected the assertion from the company that iQOS reduces health risks. However, some industry experts are forecasting that this ruling provides the tobacco maker enough cushion to address specific TPSAC concerns, and is better prepared to address potential concerns from the FDA, which is expected to render its final decision later this year.

While the regulatory process has merit, it’s still subject to varying interpretation, and uncertainty for stakeholders, said Shane MacGuill, head of tobacco research at Euromonitor International.

“In an ideal world, a regulatory regime, which facilitates—or at least is neutral towards—rapid cycling of product iterations and ongoing open communication with consumers would likely foster more effective innovation in this space and more predictable consumer uptake of reduced risk alternatives,” said MacGuill. “Whether the current regime entirely precludes ‘meaningful adoption,’ I think is a matter of interpretation.”

Last year, based on research headed by MacGuill, Euromonitor projected that the global cigarette market will record a $7.7 billion loss by 2021, compensated by the $13.2 billion spike in heated tobacco products sales in the same period.

Scott Gottlieb, FDA commissioner, announced last July that the agency was delaying agency reviews for e-cigarette products until August 2022. The agency also announced its plan to work toward a regulation that reduces the level of nicotine in traditional, combustible cigarettes to non-addictive levels.

While many manufacturers and retailers see this as a respite from the heavy regulatory cloud that has been circling the burgeoning e-tobacco industry, other stakeholders opine that the current regulatory process may be still too stringent for many alternative products to make it to market anytime soon.

At the E-Cigarette Summit, a conference on regulatory and public health developments held in D.C. earlier this year, Mitch Zeller, director of the FDA’s Center for Tobacco Products, called for a national dialogue about the difference between nicotine use and cigarettes.

FDA officials have said publicly the goal is to spur innovation of tobacco products that may be less harmful for adults than cigarettes.

Terry Schmitz is a zone leader for Kwik Trip Inc. and its Tobacco Outlet Plus division. He has followed the progressions in the e-tobacco market since 2007. Schmitz has helped bring many new vaping and e-cigarette products to the company’s 40 Tobacco Outlet locations, as well as Kwik Trip’s nearly 600 sites.

The 32-year Kwik Trip veteran has a working knowledge of new innovations such as EAS’ Cue Vapor System pod mod system, which uses its own proprietary pre-filled flavor cartridges and is gaining much traction, and the runaway success of JUUL. Such innovations have brought the whole e-tobacco industry forward, he said.

Schmitz said the panel discussion in January regarding iQOS was beneficial because it continues the conversation about a product that provides a smoking sensation with less risk. He views Zeller’s statement as a positive step in the process.

“The better they (FDA) understand the product, the more they talk to sponsors of these new products, their knowledge will increase, and hopefully they make the make the right decision to bring these products to market.”

TEXAS TOBACCO
Phil Metzinger is the vice president of specialty beverage and tobacco operations for Brookshire Brothers, which operates four Brookshire Express c-stores and 45 Tobacco Barn stores in Texas, and another three in Louisiana. The company also operates 114 grocery stores, and is developing new hybrid c-store sites in Texas, which will eventually be branded Brookshire Express as well.

Brookshire Brothers, which sold off 30 c-stores two years ago, has carried vape products since 2007.

“The category is up for us,” said Metzinger, referring to recent sales. “It’s changed somewhat. We don’t do a lot of open systems any longer, it’s mostly closed systems that have some type of a pod or packet that pops in.”

In fact, Metzinger predicts that the FDA will eventually regulate open system vaporizers with more frequency in the future. These include vape pens, box mods, rebuildable atomizers and tanks including devices that allow consumers to replace coils, refill with e-liquid and use the same tank or atomizer on several mods.

Closed system vaporizers, on the other hand, are vape products that use refillable or non-refillable pods or cartridges. These have a precise amount of e-liquid and a precise nicotine concentration.

While advances in both types continue to be introduced to the market, it’s market innovations such as heat-not-burn technology that some experts argue will reconfigure the e-tobacco industry.

“There’s a reason people like tobacco and cigarettes,” said Metzinger. “It has a calming effect on your brain. The question is can the vaping industry can ever mimic that.” Metzinger, who has seen iQOS demonstrated first hand, said he views the heat-not-burn technology as the best means for delivering a similar consumer experience.

OTHER PLAYERS
While other major tobacco companies including R.J. Reynolds, also a leader in the e-cig/vapor market, and JTI, are growing their own heat-not-burn product lines, the focus remains on how iQOS fares.

Greg Conley, president of the American Vaping Association, predicts the FDA will grant PMI’s application later this year, opening the door for the company to begin bring iQOS to U.S. markets, beginning in the first quarter of 2019.

He acknowledges that victory could open the door to other vaping introductions along the same lines as the evolving heat-not-burn technology.
IQOS is currently sold in at least foreign countries outside of the U.S. As PMI continues to gather market data in those countries, it will help the
company compile more information for the FDA to review.

As a result, the e-tobacco landscape could appear quite different in the following years as other manufacturers look to bring their own vapor products to market—depending on the size of the manufacturer.

“This is not a market a little player can be in; it requires you to be a big company,” said Conley.

ON THE HORIZON
MacGuill already finds the current state of e-tobacco flush with opportunity for both manufacturers and retailers that follow modern trends.

“Along with heated tobacco, the next couple of years will see a big increase in the availability (probably to the point of saturation) of pod capsule products such as the JUUL and Imperial’s myblu,” said MacGuill.

“The wider availability of nicotine salts (whether in pod systems or bottled e-liquid) could also win over some existing vape-sceptics. Heated tobacco products such as PMI’s Teeps and BAT’s revamped Revo which require ignition have a potentially useful role to play in attracting more traditional cigarette smokers, if a sufficient risk reduction can be achieved,” he concluded.

In North America—presuming ongoing legalization—cannabis vaporization will have an increasingly strong influence on the vaping category in terms of competition and also shaping the types of devices that are launched, MacGuill said.

Industry experts might agree there’s much riding on the FDA’s final determination of iQOS. MacGuilll is sure that the FDA still has some due diligence to do.

“One would like to the think that the MRTP process is focused on the scientific evidence surrounding all vaping products, and I believe this is broadly the case,” said MacGuill. “However, of course, scientific evidence is not being interpreted and judged in a vacuum and it may be that some actors within the process want to be surer than sure before moving forward.”