Tobacco control activists and academics are gathering in Cape Town for the World Conference on Tobacco or Health 2018 (#WCTOH2018). High on the agenda is the role of the tobacco industry and how to fight it (e.g. see this session:”Breaking Big Tobacco’s Grip“).
In a guest posting below, David Sweanor provides an alternative perspective they are unlikely to hear discussed much at their conference.
A failure of understanding and curiosity
It has been concerning to me to see so much said about tobacco company motivations, and about Philip Morris in particular, with so much apparent misunderstanding of the dynamics in play.
Much of the tobacco control community sees itself as in a battle against Big Tobacco, but oddly has very little apparent interest in seeking to understand the industry.
The result is a struggle against a caricature of an enemy rather than the rational pursuit of a goal. Yet understanding the industry is not hard, in part because it reveals through many public sources (US Securities and Exchange Commission filings, analyst presentations, reports to shareholders, etc.) what it is doing. Plus, the companies operate in a legal and economic environment with clearly defined rules.
Disruption of the cigarette market – good or bad?
So, what do we make of PMI saying it wants to transition out of cigarettes to vastly lower risk products? To begin with, the company’s CEO is an engineer with a longstanding interest in technology. He has evidently believed for a long time that a transition away from combustibles is possible and sees it as a personal legacy issue. In such a centralized company, that’s important.
But the current environment also makes a transition, or at least a reasonable effort to achieve it, a valid idea. It can be explained by a standard business SWOT analysis. The cigarette business evolved, with much unwitting assistance from its opponents (see Big Tobacco’s Little Helpers), into an extremely lucrative nicotine maintenance cartel. There was consolidation into a small number of large companies combined with measures that greatly limited any competition from alternative products. This happened even as it became clear that cigarettes were an unnecessarily deadly delivery system, that smokers would move to alternatives (e.g. see: Ramstrom, Borland and Wickmans: Patterns of Smoking and Snus Use in Sweden: Implications for Public Health) and that viable alternatives existed.
The basic difference between combustion and non-combustion, between smoke and smokeless, did not deter the US Surgeon General of the time, 2003, stating in testimony to Congress:
- No matter what you may hear today or read in press reports later, I cannot conclude that the use of any tobacco product is a safer alternative to smoking. This message is especially important to communicate to young people, who may perceive smokeless tobacco as a safe form of tobacco use.
- Smokeless tobacco is not a safe alternative to cigarettes.
Now that statement just looks like an outrageous abuse of the authority vested in the Office of the Surgeon General.
In most cases, these alternatives were simply banned by the supposed enemies of Big Tobacco or put at huge regulatory disadvantages by the same entities. Or, notionally reputable health bodies convinced smokers that non-banned alternatives, like moist snuff in the US, were not less hazardous (see: Kozlowski & Sweanor: Young or adult users of multiple tobacco/nicotine products urgently need to be informed of meaningful differences in product risks and Withholding differential risk information on legal consumer nicotine/tobacco products: The public health ethics of health information quarantines.).
Through the actions of tobacco control and regulators, Big Tobacco was thus protected from disruptive technology busting up the cigarette business, and from the litigation and regulatory threats that would flow from the presence of far less hazardous alternative products. That protection also gave them enormous power to increase prices. It has been a very lucrative market for a very long time.
The rise of e-cigarettes and the response to innovation
Then along came e-cigs. Initial efforts by the usual suspects to ban these products or put them at an NRT-like marketplace disadvantage failed in many markets, and they proved to be acceptable to a significant number of people who smoked. Adding to the problems for the cigarette industry, rather than handing a legal defence to tobacco companies, reputable health bodies such as the Royal College of Physicians concluded that such products were likely to be massively less hazardous than cigarettes.
So, what is an intelligent tobacco company to do? They had a pronounced threat from both a commercial sense (getting blown away by new technology like happened to Kodak and so many other formerly powerful companies) and a legal sense (cigarettes are ever harder to defend in product liability cases, and product regulation that devastates the cigarette market becomes ever more likely – much like the threat to auto manufacturers as risk reduction technology came into that field).
The alignment of profit-seeking and public health
The opportunity was to seek to turn this disruption to an advantage while pursuing the CEO’s personal commitment to product transformation. This meant developing reduced risk products that can be mass manufactured, garner profit margins similar to cigarettes, and grab market share from competitors. In Japan, we see this unfolding brilliantly. As shown in slide 37 of its recent CAGNY presentation, from 2015 to 2017 PMI saw its new heat sticks (iQOS) grow from 0.4% of the combined cigarette/heat market to 14.1%, and it is now focussing half its marketing budget on reduced risk products:
Its total market share reflects the loss of a disproportionate share of its cigarette sales but still resulted in an astounding increase in national market share from 25.0% to 32.8%. In an industry where a fraction of a percent of market share is a very big deal, this is an extraordinary example of an opportunity seized.
By pushing forward with new products, as seen in Japan, the company has the chance to win market share and appreciably increase profits (Goldman Sachs, in a March 5, 2018 report, estimates that PMI doubled its profits in Japan as iQOS grabbed so much market share). The threat becomes an opportunity to deliver on the CEO’s legacy project.
Tobacco control providing legal indemnity for Big Tobacco
But there were also the legal threats caused by the availability of lower risk alternatives to cigarettes, and tobacco companies have long been dominated by lawyers who have a long history of deep pockets (see ‘cartel’, above) and finding creative ways to see off threats. How do they avoid the huge risk of attacks on cigarettes by litigation lawyers, health advocates and regulators who now see cigarettes as unreasonably hazardous?
Imagine the blow-back if a cigarette company developed, but did not try to bring to market, low-risk alternatives to cigarettes. Or worked to ban such disruptive and pro-health technology developed by others. On any rational analysis, that is a non-option. If you can’t kill it or successfully ignore it, what should a rational company do?
A simple and necessary first step: Endorse the new products!
That immediately turns many of the biggest potential enemies of cigarettes into the position of protecting cigarettes (because, as Steven Pinker points out about many environmental groups in his new book Enlightenment Now, they are fighting for ideological rather than pragmatic reasons). The enemies of the cartel become its protectors. Many of those who would have jumped all over a tobacco company for suppressing reduced risk technology will also jump all over them for promoting it, likely because their goal is simply the jumping.
Importantly for a company with a long history of legal threats, this endorsement of alternatives to cigarettes, provided it looks genuine, gives protection from litigation. A company still selling lethal cigarettes needs to look very reasonable before any potential judiciary body if they are challenged about doing so, and they seem to have done that in a resounding way.
Rational corporate strategy meets irrational opposition
They identified that reduced risk products might finally be acknowledged as such and allowed into some markets. They then spent billions of dollars hiring legions of scientists, buying up relevant IP, and building state-of-the-art research facilities to develop lower risk products. They spent hundreds of millions more building and converting factories to produce these products. They introduced such products into markets where it was possible and, in Japan for instance, triggered an apparently sustainable decline in cigarette sales that is unprecedented. They appeared before government bodies pleading for the chance to introduce these products into additional markets, backed by millions of pages of documentation. They even took the risk of trying to get such products to smokers in countries where there were laws that made it so difficult that they risked, and got hit with, prohibitory actions by such governments.
They did all this while being attacked by highly regarded health bodies that tried (often successfully) to ban the products. Then, despite the attacks by anti-smoking groups, they put a billion dollars into an arm’s length foundation dedicated to facilitating people getting off cigarettes. Making that money available to fund their enemies to do exactly what such groups claimed to be their mission. All of that starts to look convincingly reasonable on their part.
Wars and war aims
If this was really a war, and one with clear goals such as preventing the predicted billion cigarette-caused deaths this century, such intelligence would be informing options for rational strategies by the forces of public health (see: Who or what is the World Health Organisation at war with?. We would also be seeking ever more information on how best to achieve our ends. But if this is mainly about simply jumping on the caricature we have created, information is hardly necessary. Our aim should be to understand, in detail, their incentives (see: Pariahs, Predators or Players: the tobacco industry and the end of smoking) and then try to co-opt and manipulate their incentive structure to bring about the most rapid possible decline in smoking related-disease. That would mean developing a risk-based regulatory, communications and fiscal system that made it attractive for consumers to switch to low-risk products, and profitable for companies to encourage switching and to develop products that make it attractive.
Where others might see mere industry skullduggery in anything a tobacco company does, I see an intelligent and reasonably transparent strategy. But I also think it is a bit like the cartel they have long enjoyed – something that does not speak so much to the brilliance of their strategic thinking as the absence of it among their sworn enemies.
David
David T. Sweanor J.D.
Chair of the Advisory Board, Centre for Health Law, Policy & Ethics, University of Ottawa
Adjunct Professor, Faculty of Law, University of Ottawa
Legal Counsel, Non-Smokers’ Rights Association, 1983-2005
Disclosure
David’s public health work is done pro bono. He is financially independent of any corporate interests and any funders promoting an abstinence-only agenda. David also funds tobacco control work from his own resources, usually anonymously, as one of his many philanthropic interests and received Ottawa’s Outstanding Individual Philanthropist award in 2016.
A decent backgrounder for tobacco controllers who are clueless about commerce. I was optimistic for a while. But it still came back to the inevitable implication (in the penultimate paragraph) that tobacco controllers’ goal is health and welfare. If this is the premise, whatever follows is likely to be wrong.
I said it was merely a decent backgrounder in part because it glossed over one critical fact about the goals of merchants and conveniently ignored another. The former is that they are trying to take customers away from their competitors. The latter is that they are trying to create new customers. That is, of course, one of the breathless complaints of TC. But in this case it is a valid point — low-risk tobacco products will increase the total number of consumers (ceteris paribus).
It is a mistake to think that those pulling the strings in TC care more about health, let alone welfare, than they do about this simple headcount. Moreover, some of them are just in it for the money, the tribalism, and the excuse to abuse people.
There is nothing wrong with writing a backgrounder on the basics of how commerce works. But if the goal is to pry loose some support for TC stupidity that they get from people who are actually decent but factually misguided, it is necessary to explicitly note this. It is like trying to convince an otherwise decent person to stop supporting the NRA — you have to tell them that the leadership is actually motivated by promoting sales and white supremacy, not what they claim. The analogy is apt: In both cases, a powerful special interest with extremist goals maintains its power by tricking a much larger number of useful idiots to support it for reasons that are, at best, minor sidelines to its real goals. You can’t respond to that by pretending that the fake reasons are the real goals.
(Minor point re the introduction: “activists AND academics”??! Academics in this area ARE activists.)
A history lesson about the US experience with THR is in order.
After the Tobacco Control Act was negotiated and agreed to in 2003/04 (by Philip Morris’ Mark Berlind, RWJF funded CTFK’s Matt Myers & GSK lobbyist Mitch Zeller) and introduced in Congress (by Waxman, Kennedy), Swedish Match and UST joined forces with THR advocates (including me) to urge Congress to amend/oppose the Tobacco Control Act from 2004-2007.
We did so because the TCA legislation banned sales of new smokeless products after the predicate date and required a costly PMTA, banned truthful health claims that smokeless is less harmful than cigarettes and required a costly MRTP, and required even larger false and misleading warnings on all smokeless products and ads claiming (i.e. not a safe alternative, may cause mouth cancer, may cause gum disease and tooth loss, and a new one claiming smokeless tobacco is addictive).
PM wanted those anti THR provisions in the TCA because its market research found that many white rural male cigarette smokers had been switching to UST’s Skoal and Copenhagen. J&J & GSK wanted those anti THR provisions in the TCA to protect their NRT products from market competition by very similar smokeless tobacco products (as GSK had petitioned FDA to ban Star’s Ariva and Stonewall several years earlier). Meanwhile, CTFK, ACS, AHA, ALA and other clueless tobacco controllers wanted those anti THR provisions in the TCA because they believed that bans and restrictions on any tobacco products (especially future tobacco products) was a win against Big Tobacco, which is why they endorsed the clauses in the TCA (that PM insisted upon) that prohibited the FDA from banning cigarette sales (even to 18 year old high school students).
So PM, Big Pharma and tobacco controllers conspired to lobby for the TCA from 2004-2009, even though all of them knew (as I repeatedly informed them, Congress and the news media) the TCA protected cigarettes from future market competition by low risk smokeless tobacco products.
In 2007, UST’s Murray Kessler decided to sell UST to Altria, so he cut a deal with Waxman to amend the TCA (to allow limited free sampling of smokeless tobacco at adult only locations) in exchange for UST’s endorsement of the TCA (which Swedish Match also agreed to at the time).
Ever since the TCA was introduced in 2004, Reynolds aggressively lobbied to prevent enactment of the bill (in part because it banned new smokeless products, banned truthful claims, and mandated more and larger false warnings), as Reynolds had recently bought Grizzly snuff from Conwood and was developing Camel Snus.
Reynolds (and I) continued to oppose the TCA until the TCA was enacted in 2009 because it banned future THR products and restricted marketing for all THR products. I even urged Reynolds to run full page newspaper ads truthfully claiming that Camel Snus and Grizzly were far less harmful alternatives to cigarettes before the TCA banned them from doing so.
Meanwhile, Philip Morris/Altria aggressively lobbied (and gave huge campaign contributions to) Congress to enact the TCA until it was signed by Obama in 2009 (fulfilling their crony capitalist legislative deal with Myers, Zeller, Waxman and Kennedy in 2004 that was falsely touted (by CTFK, Zeller, ACS, AHA, ALA, AAP, AMA and many others who Big Pharma and DHHS funding recipients) as historic legislation that would “protect another generation of kids from Big Tobacco”.
CTFK’s Myers, Waxman’s staffer Josh Sharfstein, and Kennedy’s staffer who was close to Greg Connolly) vehemently opposed all public health amendments to the TCA (as their legislative deal also included opposing all amendments to the TCA), including all THR amendments that Sweanor and I proposed.
CTFK also loyally honored its deal with PM by vehemently opposing the 2007 amendments I convinced Sen Mike Enzi to sponsor (including one that required color graphic warnings to cover 50% of all cigarette packages, which was approved by the Senate HELP Cmte despite opposition by CTFK). At the time, CTFK publicly attacked Enzi as protecting Big Tobacco and falsely claimed his amendment was a “Poison Pill” and a “Trojan Horse” designed to kill the TCA and protect Big Tobacco. After the TCA passed, FDA screwed up by imposing unconstitutional color graphic warnings (and by ignoring my request for truthful and informative warnings) that also mandated phone numbers on all cigarette packs (that hawked NRT to everyone who called the number), but that’s another long story of incompetence and arrogance by FDA and tobacco controllers.
Altria didn’t begin to publicly endorse THR until after the TCA (which protected Altria’s Marlboro cigarette monopoly from market competition by low risk smokefree tobacco products and by other cigarette companies) was enacted in 2009 (as it too honored its legislative deal with Myers, Zeller, Waxman, Kennedy, etc.).
By buying UST in 2007, PM ensured that UST (and SM) stopped lobbying against the TCA and stop talking about THR (until 2009)
After FDA’s 2009 e-cig ban (as an unapproved drug device, which was imposed by former Waxman staffer and anti THR activist Josh Sharfstein after being urged to do so by NJ Sen Lautenberg, the largest Big Pharma funding recipient in the history of Congress, by Big Pharma funded partners CTFK, ACS, AHA, ALA, AAP, and by Legacy) was struck down in federal court in 2011, FDA responded by stating its intent to propose yet another e-cigarette sales ban called the Deeming Rule.
Although I repeatedly urged all tobacco companies to oppose the Deeming Rule (from 2011-2014) when I was also convincing the tobacco companies to develop and begin marketing e-cigarettes), Altria, Reynolds and Lorillard all endorsed the Deeming Rule (because they knew, after I told them, that the Deeming Rule would:
– protect their cigarette sales from market competition by vapor products,
– ban sales of all vapor products (and all other new low risk alternatives),
– ban truthful health claims about e-cigs until the sales ban took effect, and
– allow only e-cigarettes that are made/owned by tobacco companies to apply for PMTA and MRTP approval from FDA due to their $100M+ costs (at the time I argued that it would cost $10M to submit a PMTA or a MRTP, which resulted in many tobacco controllers, vapor company execs, and the news media claiming my estimate was grossly exaggerated).
As I write this, large tobacco companies are now aggressively lobbying Congressional Republican leaders to include the Cole-Bishop amendment in the 2018 Federal Spending Bill (that Congress must pass in two weeks to prevent a government shutdown) that would require FDA to:
– impose TCA authorized tobacco product standards for vapor products “to include but not limited to characterizing flavors and batteries” by 3/2021 (17 months before the Deeming Rule’s 8/8/2022 ban),
– impose two TCA authorized, but irrelevant, tobacco product vapor package warning labels “Keep out of the reach of children” and “Underage sale prohibited” by 3/2019,
– impose a TCA authorized tobacco product label listing the nicotine content on vapor products by 3/2019,
– change the predicate date from 2/15/2007 to 8/8/2016 for ALL newly Deemed tobacco products (including cigars, hookah, pipe tobacco and vapor products), and
– make it virtually impossible for THR and vapor advocates to convince Congress or FDA to rescind/repeal/replace the Deeming Rule (at least for vapor products) with reasonable and responsible vapor product standards (e.g. Duncan Hunter’s bill, HR 2194) that would allow most of the several thousand vapor manufactures in the US to remain in business.
So while tobacco controllers claim a desire to destroy tobacco companies, they and their financial partners at Big Pharma cut a deal with PM, and jointly lobbied US Congress to enact a law (the TCA) that protected the cigarette cartel from market competition by smokefree alternatives made by smaller competitors.
Then the tobacco controllers lobbied FDA to unlawfully ban e-cigs in 2009 (which also protected the cigarette cartel from THR market competition) and to impose the Deeming Rule (that also protected the cigarette cartel from THR market competition). They now want Gottlieb to change the 2022 vapor ban date back to 8/8/2018 (just 5 months from now), which further protects cigarette markets.
Meanwhile, although PMI, Altria and BAT/Reynolds claim a desire to market low risk smokefree alternatives to smokers, they also embraced, endorsed and are lobbying to protect FDA’s cigarette protecting Deeming Rule (especially its vapor product ban) from efforts by THR advocates, vapers and vapor trade groups to allow many/most vapor products to remain on the market in the future.
Meanwhile, FDA has doubled down in defense of its cigarette protecting anti competition Deeming Rule (after Gottlieb extended its vapor sales ban until 2022), and is pushing forward with its absurd proposal to ban cigarette sales
(by falsely claiming its a tobacco product standard to make cigarettes non-addictive).
Since Big Pharma partnered tobacco controllers, Big Tobacco companies, FDA and WHO have been lobbying (and continue to lobby) to achieve very similar goals (i.e. protect Big Pharma’s NRT and Big Tobacco’s cigarettes from legal market competition (by smokeless tobacco and vapor products), it appears that black markets may be the only remaining option for many/most THR products and for many/most cigarette smokers.
The primary impact of FDA’s 8/8/2016 sales ban for new vapor products (and other Deemed tobacco products) has been to create a thriving black market for thousands of new vapor products (that are now being sold at thousands of vape shops and online in the US).
While THR advocates, nearly all vapor companies and vapers want FDA to allow the legal sale of those FDA banned vapor products, Big Tobacco, Big Pharma, tobacco controllers want FDA to begin enforcing its ban on new vapor products.
And while Scott Gottlieb has claimed to support the continuum of risk, it appears that FDA will (sometime this year or next) begin to enforce the 8/8/2016 ban on new vapor product sales. When/if that happens, thousands of vapor companies in the US will either go out of business, or go totally black market.
Hopefully, the US black market for vapor products will continue to thrive (so vapers can continue accessing them, and so millions of more smokers can switch to vaping in the future).
Seems like there is a lot of blame to go around for the many crony capitalist anti-THR laws that now exist, including tobacco controllers, large tobacco companies and public health officials.
The real problem is nicotine addiction which is a physiological servitude inflicted with just experimenting with 10 cigarettes during infancy. My generation has been victimized with this experimentation in the five years between 9 and 14 years of age. The tobacco industry knew very well that among those generations of experimenters, at age 20, 88% would be daily smokers. The drama was that the only source of nicotine to help relieve the addiction discomfort was the very toxic soup that tobacco smoke is. We can now have access to clean nicotine that is very efficient in releiving addiction discomfort. That is information tobacco users should be receiving nowadays instead of being considered as willpower handicapped, which is what is implicitly stated in the publicity about nicotine skin patches, nicotine chewing gum or nicotine candies or nicotine sprays and other clean sources of this brain drug
I currently live in Finland and here the government is issuing a no smoking in the balcony policy to some parts of the country. In my opinion this is a great way to minimize some of the harmful affects of smoking.