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Regulation: when less is more

Counterfactual

www.clivebates.com
@clive_bates
WHO – 1 billion deaths
I smoked for 45 years and tried every NRT
product available, none of them worked. I
continued to smoke even though my health was
getting worse, resulting in COPD and using
oxygen daily.
September 2011 I discovered e-cigarettes and
they worked. It was like someone handed me a
miracle. In less than a week I stopped using
regular cigarettes. I haven’t had a tobacco
cigarette since.

Unsolicited comment left on www.clivebates.com
From WHO Tobacco Atlas 2006 edition
The Endgame?
Billion adults > 15 years

Projected global adult population growth
9.0
8.0

Adult
population

7.0
6.0

5.0
4.0
3.0
2.0
1.0

0.0
2010

2015

2020

2025

2030

2035

Smokers: WHO Tobacco Atlas 2006. Population: UN

2040

2045

2050
The Endgame?
Billion adults > 15 years

Projected global adult population growth
9.0
8.0

Adult
population

7.0
6.0

5.0
4.0
3.0

Smoker
population at
constant
prevalence

2.0
1.0

0.0
2010

2015

2020

2025

2030

2035

Smokers: WHO Tobacco Atlas 2006. Population: UN

2040

2045

2050
The endgame?
Billion adults > 15 years

Scenarios for future smoker population
2.5
Constant
prevalence
(28%)

2.0

1.5

1.0

0.5

0.0
2010

2015

2020

2025

2030

Scenario – 15% global prevalence by 2050

2035

2040

2045

2050
The endgame?
Billion adults > 15 years

Scenarios for future smoker population
2.5
Constant
prevalence
(28%)

2.0

1.5
Global smoking
prevalence
declines to 15%
1.0

0.5

0.0
2010

2015

2020

2025

2030

Scenario – 15% global prevalence by 2050

2035

2040

2045

2050
If all goes well
Billion adults > 15 years

Scenarios for future smoker population
2.5
Constant
prevalence
(28%)

2.0

Contested by tobacco control

1.5

Global smoking
prevalence
declines to 15%
1.0

HARM

0.5

0.0
2010

2015

2020

2025

2030

2035

2040

2045

2050
The endgame – a nicotine product contest?
Billion adults > 15 years

Scenarios for future nicotine markets
2.5
Constant
prevalence
(28%)

2.0

Contested by tobacco control

1.5

Global nicotine
prevalence
declines to 15%
1.0

Contested by nicotine products
0.5

0.0
2010

2015

2020

2025

2030

2035

2040

2045

2050
How far could low-risk nicotine products go?
Billion adults > 15 years

Scenarios for future nicotine markets
2.5
Constant
prevalence
(28%)

2.0

Contested by tobacco control

1.5

Global nicotine
prevalence
declines to 15%
1.0

Contested by low risk nicotine products

Global smoking
prevalence
declines to 5%

0.5

Cigarettes and other combustible tobacco
0.0
2010

2015

2020

2025

2030

2035

2040

2045

2050
How far could low-risk nicotine products go?
Billion adults > 15 years

Scenarios for future nicotine markets
2.5

2.0

1.5

1.0

This boundary matters most for public health

0.5

0.0
2010

2015

2020

2025

2030

2035

2040

2045

2050
The endgame: analyst view

Consumption of e-cigs may overtake traditional
cigarettes in the next decade … and they’ll only
evolve and improve as time goes forward.
Bonnie Herzog, Wells Fargo Securities, 2013
The endgame: analyst view

Consumption of e-cigs may overtake traditional
cigarettes in the next decade … and they’ll only
evolve and improve as time goes forward.
Bonnie Herzog, Wells Fargo Securities, 2013
50:50 by 2030
Billion adults > 15 years

”Modified Herzog scenario" for future nicotine markets
2.5
Constant
prevalence
(28%)

2.0

1.5
Global nicotine
prevalence
declines to 15%
1.0

"E-cigarettes overtake
cigarettes by 2030"

0.5

0.0
2010

Global smoking
prevalence
declines to 5%

2015

2020

2025

2030

2035

2040

2045

2050
Who is this?

Mitch Zeller
(now) Director of the Center for Tobacco Products
FDA
Harm reduction equation

Harm reduction = Reduced risk x Number who switch

Product toxicity &
other risks

Product attractiveness

Consumer preference
Harm reduction equation

Harm reduction = Reduced risk x Number who switch

Product toxicity &
other risks

Product attractiveness

Consumer preference
Harm reduction categories – risk estimates

Crude estimate of risk – Cigs = 100

120

100
80
60
40
20
0
Cigarettes

Heat not burn

Smokeless

E-cigs

NRT
Focus on the right relative risk
More regulation
Lower risk
regulated e-cig

0

10

0
e-cigarettes

“unregulated” e-cig

10
0

100
cigarette
Harm reduction equation

Harm reduction = Reduced risk x Number who switch

Product toxicity &
other risks

Product attractiveness

Consumer preference
Analysts
We remain very bullish on the vast potential of e-cigs given the
rapid pace of innovation. [We believe] that the benefits of e-cigs
are becoming increasingly apparent to consumers, helping to
drive trial and repeat purchases aided by stepped-up advertising
and a lot of internet “buzz”
Wells Fargo
Regulation comes at a price

Fewer, duller
innovations

Less
personalisation

Slower
innovation
pace

Trusted brands
& firms
destroyed

Greatly
reduced variety
& niche
products

Increased cost

Boring
branding &
marketing

Oligopoly &
reduced
competition

Reduced
appeal

Black market,
DIY
Harm reduction equation

Harm reduction = Reduced risk x Number who switch

Trade offs
Conclusion 1. The perfectly risk free product that no-one
wants scores badly in the harm reduction equation

Conclusion 2. A diverse range of products with substantially
reduced risk lets each smoker decide which product is best
Triple negative

Tough on harm reduction
Specialised medicines language
Consistent drug dosing

Adverse drug reactions

Safety

Quality

Treats or prevents disease

Efficacy
Getting tough on harm reduction?
Counter-productive

Harm reducing

Safety

Safest possible

Safe enough

Quality

Control processes (eg. GMP)

Proportionate standards

Efficacy

Regulator decides

Consumer decides

Labelling

Warns of danger

Encourages switching

Marketing

Like medicines

Like consumer products

Bans on use

Fear of ‘renormalisation’

Normalise harm reduction

Retail

Pharmacies / as tobacco

General sales

Age restrictions

Adults

Makes little real difference

Taxation

Like tobacco

Fiscal incentive to switch
What do analysts think…?
We believe many current suppliers would struggle to meet
medical standards, and for the UK they may have to by 2016. Big
players with deeper pockets would survive and prices could rise
– a hugely preferable outcome for Tobacco.
BNP Paribas
Tougher regulation, as well as providing a relative advantage to
their e-cigarette divisions, would result in higher prices for ecigarettes – which could also benefit tobacco companies by
limiting their attraction for smokers and slowing the decline in
tobacco sales.
Fitch
What do analysts think…?
We believe many current suppliers would struggle to meet
medical standards, and for the UK they may have to by 2016. Big
players with deeper pockets would survive and prices could rise
– a hugely preferable outcome for Tobacco.
BNP Paribas
Tougher regulation, as well as providing a relative advantage to
their e-cigarette divisions, would result in higher prices for ecigarettes – which could also benefit tobacco companies by
limiting their attraction for smokers and slowing the decline in
tobacco sales.
Fitch
European Parliament – amendment 170
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•

Requires medicines regulation if claim made
Requires Article 17 notification regime otherwise
Emphasises general safety requirement
Applies Article 16 – cross border distance sales
Applies advertising directive 2003/33/EC and audiovisual services 2010/13/EU
Information leaflet
Warning “this product is intended for use by existing smokers. It contains
nicotine which is a highly addictive substance”
Warning size - 30% or 40% (Council =30%) and specification from Article 10
30mg/ml threshold – “are not placed on the market” (?medicine)
Age restriction (no less than 18)
Restriction on additives – application of Article 6.4 (vitamins etc)
No tobacco branding
Allows flavourings
Requires sales allowed ‘outside pharmacies’
Review
Purpose built regulation for e-cigs / NCPs
1.

Accountabilities – responsible person

2.

Disclosure and notification regime

3.

Labeling and consumer information

4.

Safety assessment and product file

5.

Contaminants / purity

6.

Prohibited ingredients

7.

Specific standards for vaping devices CEN/ISO

8.

Updating: review & technical committee

9.

Marketing (like alcohol?) – mostly member state

10. Retail sales age restriction – member states
11. … public vaping?
Harm reduction equation with population effects

Harm reduction = Reduced risk x Number who switch
- Extra smokers + Extra quitters

Gateway to smoking
Dual use
Reduced quitting
Normalising smoking

Gateway exits
Complete cessation
Extra quitting
Normalising non-smoking
Conclusion
• Be positive about the (vast) potential
• Put the (minor) risks in perspective
• Regulate as though the 1 billion matter most
Thank you…
Counterfactual

www.clivebates.com
@clive_bates

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E-Cigarette Summit Speaker: Clive Bates

  • 1. Regulation: when less is more Counterfactual www.clivebates.com @clive_bates
  • 2. WHO – 1 billion deaths
  • 3.
  • 4. I smoked for 45 years and tried every NRT product available, none of them worked. I continued to smoke even though my health was getting worse, resulting in COPD and using oxygen daily. September 2011 I discovered e-cigarettes and they worked. It was like someone handed me a miracle. In less than a week I stopped using regular cigarettes. I haven’t had a tobacco cigarette since. Unsolicited comment left on www.clivebates.com
  • 5. From WHO Tobacco Atlas 2006 edition
  • 6. The Endgame? Billion adults > 15 years Projected global adult population growth 9.0 8.0 Adult population 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2010 2015 2020 2025 2030 2035 Smokers: WHO Tobacco Atlas 2006. Population: UN 2040 2045 2050
  • 7. The Endgame? Billion adults > 15 years Projected global adult population growth 9.0 8.0 Adult population 7.0 6.0 5.0 4.0 3.0 Smoker population at constant prevalence 2.0 1.0 0.0 2010 2015 2020 2025 2030 2035 Smokers: WHO Tobacco Atlas 2006. Population: UN 2040 2045 2050
  • 8. The endgame? Billion adults > 15 years Scenarios for future smoker population 2.5 Constant prevalence (28%) 2.0 1.5 1.0 0.5 0.0 2010 2015 2020 2025 2030 Scenario – 15% global prevalence by 2050 2035 2040 2045 2050
  • 9. The endgame? Billion adults > 15 years Scenarios for future smoker population 2.5 Constant prevalence (28%) 2.0 1.5 Global smoking prevalence declines to 15% 1.0 0.5 0.0 2010 2015 2020 2025 2030 Scenario – 15% global prevalence by 2050 2035 2040 2045 2050
  • 10. If all goes well Billion adults > 15 years Scenarios for future smoker population 2.5 Constant prevalence (28%) 2.0 Contested by tobacco control 1.5 Global smoking prevalence declines to 15% 1.0 HARM 0.5 0.0 2010 2015 2020 2025 2030 2035 2040 2045 2050
  • 11. The endgame – a nicotine product contest? Billion adults > 15 years Scenarios for future nicotine markets 2.5 Constant prevalence (28%) 2.0 Contested by tobacco control 1.5 Global nicotine prevalence declines to 15% 1.0 Contested by nicotine products 0.5 0.0 2010 2015 2020 2025 2030 2035 2040 2045 2050
  • 12. How far could low-risk nicotine products go? Billion adults > 15 years Scenarios for future nicotine markets 2.5 Constant prevalence (28%) 2.0 Contested by tobacco control 1.5 Global nicotine prevalence declines to 15% 1.0 Contested by low risk nicotine products Global smoking prevalence declines to 5% 0.5 Cigarettes and other combustible tobacco 0.0 2010 2015 2020 2025 2030 2035 2040 2045 2050
  • 13. How far could low-risk nicotine products go? Billion adults > 15 years Scenarios for future nicotine markets 2.5 2.0 1.5 1.0 This boundary matters most for public health 0.5 0.0 2010 2015 2020 2025 2030 2035 2040 2045 2050
  • 14. The endgame: analyst view Consumption of e-cigs may overtake traditional cigarettes in the next decade … and they’ll only evolve and improve as time goes forward. Bonnie Herzog, Wells Fargo Securities, 2013
  • 15. The endgame: analyst view Consumption of e-cigs may overtake traditional cigarettes in the next decade … and they’ll only evolve and improve as time goes forward. Bonnie Herzog, Wells Fargo Securities, 2013
  • 16. 50:50 by 2030 Billion adults > 15 years ”Modified Herzog scenario" for future nicotine markets 2.5 Constant prevalence (28%) 2.0 1.5 Global nicotine prevalence declines to 15% 1.0 "E-cigarettes overtake cigarettes by 2030" 0.5 0.0 2010 Global smoking prevalence declines to 5% 2015 2020 2025 2030 2035 2040 2045 2050
  • 17. Who is this? Mitch Zeller (now) Director of the Center for Tobacco Products FDA
  • 18. Harm reduction equation Harm reduction = Reduced risk x Number who switch Product toxicity & other risks Product attractiveness Consumer preference
  • 19. Harm reduction equation Harm reduction = Reduced risk x Number who switch Product toxicity & other risks Product attractiveness Consumer preference
  • 20. Harm reduction categories – risk estimates Crude estimate of risk – Cigs = 100 120 100 80 60 40 20 0 Cigarettes Heat not burn Smokeless E-cigs NRT
  • 21. Focus on the right relative risk More regulation Lower risk regulated e-cig 0 10 0 e-cigarettes “unregulated” e-cig 10 0 100 cigarette
  • 22. Harm reduction equation Harm reduction = Reduced risk x Number who switch Product toxicity & other risks Product attractiveness Consumer preference
  • 23. Analysts We remain very bullish on the vast potential of e-cigs given the rapid pace of innovation. [We believe] that the benefits of e-cigs are becoming increasingly apparent to consumers, helping to drive trial and repeat purchases aided by stepped-up advertising and a lot of internet “buzz” Wells Fargo
  • 24. Regulation comes at a price Fewer, duller innovations Less personalisation Slower innovation pace Trusted brands & firms destroyed Greatly reduced variety & niche products Increased cost Boring branding & marketing Oligopoly & reduced competition Reduced appeal Black market, DIY
  • 25. Harm reduction equation Harm reduction = Reduced risk x Number who switch Trade offs Conclusion 1. The perfectly risk free product that no-one wants scores badly in the harm reduction equation Conclusion 2. A diverse range of products with substantially reduced risk lets each smoker decide which product is best
  • 26.
  • 27. Triple negative Tough on harm reduction
  • 28. Specialised medicines language Consistent drug dosing Adverse drug reactions Safety Quality Treats or prevents disease Efficacy
  • 29. Getting tough on harm reduction? Counter-productive Harm reducing Safety Safest possible Safe enough Quality Control processes (eg. GMP) Proportionate standards Efficacy Regulator decides Consumer decides Labelling Warns of danger Encourages switching Marketing Like medicines Like consumer products Bans on use Fear of ‘renormalisation’ Normalise harm reduction Retail Pharmacies / as tobacco General sales Age restrictions Adults Makes little real difference Taxation Like tobacco Fiscal incentive to switch
  • 30. What do analysts think…? We believe many current suppliers would struggle to meet medical standards, and for the UK they may have to by 2016. Big players with deeper pockets would survive and prices could rise – a hugely preferable outcome for Tobacco. BNP Paribas Tougher regulation, as well as providing a relative advantage to their e-cigarette divisions, would result in higher prices for ecigarettes – which could also benefit tobacco companies by limiting their attraction for smokers and slowing the decline in tobacco sales. Fitch
  • 31. What do analysts think…? We believe many current suppliers would struggle to meet medical standards, and for the UK they may have to by 2016. Big players with deeper pockets would survive and prices could rise – a hugely preferable outcome for Tobacco. BNP Paribas Tougher regulation, as well as providing a relative advantage to their e-cigarette divisions, would result in higher prices for ecigarettes – which could also benefit tobacco companies by limiting their attraction for smokers and slowing the decline in tobacco sales. Fitch
  • 32. European Parliament – amendment 170 • • • • • • • • • • • • • • • Requires medicines regulation if claim made Requires Article 17 notification regime otherwise Emphasises general safety requirement Applies Article 16 – cross border distance sales Applies advertising directive 2003/33/EC and audiovisual services 2010/13/EU Information leaflet Warning “this product is intended for use by existing smokers. It contains nicotine which is a highly addictive substance” Warning size - 30% or 40% (Council =30%) and specification from Article 10 30mg/ml threshold – “are not placed on the market” (?medicine) Age restriction (no less than 18) Restriction on additives – application of Article 6.4 (vitamins etc) No tobacco branding Allows flavourings Requires sales allowed ‘outside pharmacies’ Review
  • 33.
  • 34.
  • 35. Purpose built regulation for e-cigs / NCPs 1. Accountabilities – responsible person 2. Disclosure and notification regime 3. Labeling and consumer information 4. Safety assessment and product file 5. Contaminants / purity 6. Prohibited ingredients 7. Specific standards for vaping devices CEN/ISO 8. Updating: review & technical committee 9. Marketing (like alcohol?) – mostly member state 10. Retail sales age restriction – member states 11. … public vaping?
  • 36. Harm reduction equation with population effects Harm reduction = Reduced risk x Number who switch - Extra smokers + Extra quitters Gateway to smoking Dual use Reduced quitting Normalising smoking Gateway exits Complete cessation Extra quitting Normalising non-smoking
  • 37. Conclusion • Be positive about the (vast) potential • Put the (minor) risks in perspective • Regulate as though the 1 billion matter most