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 Shares in New York-based 22nd Century Group have soared 80 percent
to a three-year high since late last month, when the U.S. Food and
Drug Administration proposed cutting the nicotine levels in
cigarettes so they aren't so addictive.
Investors' hopes are pinned on 22nd Century's technology becoming
widespread, although none of the big tobacco makers has bought it
yet.
The plant biotechnology company says it has more than 200 patents
that give it the ability to increase or decrease the level of
nicotine in tobacco plants, as well as the level of cannabinoids in
cannabis plants.
"We genetically modify the tobacco. We've been working on this for
20 years," Henry Sicignano, chief executive of 22nd Century, told
Reuters.
Sicignano, who helped to develop Natural American Spirit cigarettes
before the brand was bought by RJ Reynolds in 2002, said the aim was
to reduce the harm caused by smoking. By making cigarettes less
addictive, people would smoke when they want to rather than when
they need to, and would probably smoke less.
That is the logic behind the FDA announcement suggesting regulating
nicotine and encouraging smokers to switch to alternatives seen as
less harmful, such as e-cigarettes.
Sicignano said 22nd Century can make cigarettes with 95 to 97
percent less nicotine than conventional cigarettes, which have about
10 mg of nicotine each. It is the only company with tobacco that can
be below the threshold of what health regulators say they believe to
be non-addictive, he added.
A top-10 shareholder of 22nd Century said major cigarette firms
would have to turn to it if the FDA's proposal becomes reality. "If
Big Tobacco doesn't want their market to go to zero overnight,
they're going to have to work with someone who has a low-nicotine
tobacco leaf," he said.
While the long-term market for low-nicotine cigarettes is highly
uncertain, given that they are designed to be easier to quit, he
said it would take years for all smokers to quit. "For a tiny
company there's a huge opportunity."
22nd Century has roughly 80 employees and annual revenue of about
$16 million, a portion of which is from regulators such as the FDA
using its tobacco to run clinical trials. So far it has got orders
for over 24 million cigarettes for this purpose, with at least 25
such trials underway.
It sells some low-nicotine cigarettes in Spain and does contract
manufacturing of regular cigarettes "to keep the lights on".
British American Tobacco, the world's biggest international tobacco
company, has been assessing the opportunity for tobacco with altered
levels of nicotine. It has a four-year research agreement with 22nd
Century worth up to $14 million that gives it the right to enter
into an exclusive worldwide licensing agreement with the company.
Sicignano said he expected BAT to enter into a commercial agreement,
and noted that any such deal would not prevent 22nd Century from
selling its own products - finished cigarettes or tobacco leaves -
to rivals such as Altria, Japan Tobacco International or Imperial
Brands.
A BAT spokeswoman said the agreement was part of its research and
development program on nicotine levels. She declined to comment on
whether BAT planned to exercise its licensing right.
Like many start-ups, until the deals are signed, 22nd Century is
struggling to make money.
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"We're not a profitable company. It's certainly important for us to
be able to achieve regulatory acceptance either here or in the EU or
perhaps in Asia," Sicignano said. "We're working on all these
fronts, so that we can bring these important products to market and
be a profitable company."
LIKELY TO FACE RESISTANCE
With retail sales of tobacco nearing $119 billion, the United States
is the fourth-biggest market behind China, Indonesia and Russia.
Because of relatively light federal taxes, it is the most
profitable.
As such, tobacco companies are expected to fight any requirement to
limit nicotine in all cigarettes vigorously.
Clive Bates, a former head of UK charity Action on Smoking and
Health (ASH) who is now an advocate of e-cigarettes, is skeptical
the FDA's proposal will come to pass as it would make conventional
cigarettes commercially unviable.
"There will be a massive amount of resistance," he said, from
tobacco farmers to manufacturers to retailers. "It's very difficult
to put in a rule through a technocratic rule-making process that
does something as big as that. Nobody has ever done anything
remotely the size of that."
In the 1980s, Philip Morris and other companies tested ultra low-tar
cigarettes, but they were not commercially successful.
22nd Century says its cigarettes are as satisfactory as traditional
smokes, but there is still scepticism about how the low nicotine
cigarettes would fare outside academic studies.
"My suspicion is that people would very quickly stop using any
product that is denicotinised in that way," said Euromonitor analyst
Shane MacGuill, adding that smokers may instead seek out smuggled
cigarettes or those sold illicitly on the internet, or switch to
vaping.
"Fundamentally smokers are nicotine-seekers and I think they'll
disperse their consumption into other categories very quickly if
they're not getting nicotine from cigarettes."
Indeed, Bates said forcing reduced nicotine levels would be like
forcing distillers and brewers to make all their products without
alcohol.
"There might be a residual market for it but you don't see a lot of
people sitting around in bars swilling alcohol-free whisky," Bates
said. "It would become a niche, probably for people who weren't that
dependent in the first place."
As a comparison, beer with no or very low alcohol is only a tiny
fraction of the market. However, it is growing faster than the
category as a whole as brewers try to capitalize on consumers'
greater health consciousness.
Sicignano agreed that his product may have long-term appeal to a
niche, and that over time, the market will shrink if the FDA's
proposal gains traction.
"I don't think there will be as many two-pack-a-day smokers out
there. People will smoke less, and quit attempts will increase," he
said.
(Reporting by Martinne Geller; editing by David Stamp)
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