Wells Fargo 2013

E-cigarettes and public health

Counterfactual

www.clivebates.com@clive_bates

Five talking points

1. The value proposition

Legal recreational drug

Nicotine rewards and reinforcement

• Nicotine induces pleasure and reduces stress and anxiety. Smokers use it to modulate levels of arousal and to control mood.

• Smoking improves concentration, reaction time, and performance of certain tasks.

• Relief from withdrawal symptoms is probably the primary reason for this enhanced performance and heightened mood.

• In addition, conditioning has an important role in the development of tobacco addiction.

Source: Neal Benowitz, N Engl J Med. 2010 June 17; 362(24): 2295–2303.

Nicotine rewards and reinforcement

• Nicotine induces pleasure and reduces stress and anxiety. Smokers use it to modulate levels of arousal and to control mood.

• Smoking improves concentration, reaction time, and performance of certain tasks.

• Relief from withdrawal symptoms is probably the primary reason for this enhanced performance and heightened mood.

• In addition, conditioning has an important role in the development of tobacco addiction.

Source: Neal Benowitz, N Engl J Med. 2010 June 17; 362(24): 2295–2303.

Value proposition: a smokers’ cost-benefit analysis

1. Keep smokingBenefit: nicotine effects, ritual, brand-related

Cost: illness, money, social disapproval, addiction

2. Quit smokingBenefit: avoid smoking harm

Cost: withdrawal symptoms, sustained willpower, lost smoking benefits

3. Switch to e-cigs

Benefit: most smoking benefits*, no/minor smoking harms, personalisation, buzz, cash saving

Cost… addiction?

* Full benefits – subject to continued innovation

“Quit or die”

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 emphysema 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

Why now? … battery development

Source: ICCNExergy

Five talking points

1. The value proposition

2. The prize

WHO – 1 billion deaths

From WHO Tobacco Atlas 2006 edition

The Endgame?

Smokers: WHO Tobacco Atlas 2006. Population: UN

0.0

1,000,000.0

2,000,000.0

3,000,000.0

4,000,000.0

5,000,000.0

6,000,000.0

7,000,000.0

8,000,000.0

9,000,000.0Projected global adult population growth

Adult popu-lation

Smoker pop-ulation at constant prevalence

0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0Scenarios for future smoker population

Constant pre-valence (28%)

Global smoking prevalence de-clines to 15%

The endgame?

Scenario – 15% global prevalence by 2050

If all goes well

0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0Scenarios for future smoker population

Constant preval-ence (28%)

Global smoking prevalence de-clines to 15%

Contested by tobacco control

HARM

The endgame – a nicotine product contest?

0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0Scenarios for future nicotine markets

Constant preval-ence (28%)

Global nicotine prevalence de-clines to 15%

Contested by nicotine products

Contested by tobacco control

How far could low-risk nicotine products go?

0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0Scenarios for future nicotine markets

Constant pre-valence (28%)

Global nicotine prevalence de-clines to 15%

Contested by low risk nicotine products

Contested by tobacco control

Global smoking prevalence de-clines to 5%Cigarettes and other combustible tobacco

How far could low-risk nicotine products go?

0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0Scenarios for future nicotine markets

This boundary matters most for public health

How far could low-risk nicotine products go?

0.0

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0‘Modified Herzog scenario’ for future nicotine markets

Constant pre-valence (28%)

Global nicotine prevalence de-clines to 15%

Global smoking prevalence de-clines to 5%

Disclaimer: this is a Counterfactual scenario not a Wells Fargo Securities or Bonnie Herzog scenario

Five talking points

1. The value proposition

2. The prize

3. Harm reduction equation

A regulator’s instinct

Mitch Zeller(now) Director of the Center for Tobacco ProductsFDA

Strategies should be pursued that encourage the use of the cleanest and safest form of nicotine delivery

Source: Zeller M. Reflections on the endgame for tobacco: Tob Control. 2013 May; 22(Suppl 1): i40–i41.

Harm reduction equation

Harm reduction = Reduced risk x Number who switch

Product toxicity & other risks

Product appeal

Consumer preference

Harm reduction categories – risk estimates

Cigarettes Smokeless E-cigs NRT0

20

40

60

80

100

120

Crud

e es

timat

e of

risk

– C

igs

= 10

0

0

More regulationLower risk

regulated e-cig “unregulated” e-cig

10 100

cigarettee-cigarettes

0 100

Focus on the right relative risk - illustration

Five talking points

1. The value proposition

2. The prize

3. Harm reduction equation

4. Much safer, many dead

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”

Bonnie Herzog, Wells Fargo Securities

Regulation – the dead hand

Reduced appeal

Increased cost

Greatly reduced variety & niche

products

Slower innovation pace

Fewer, duller innovations

Boring branding & marketing

Less personalisation

Trusted brands & firms

destroyed

Black market, DIY response

Harm reduction equation

Harm reduction = Reduced risk x Number who switch

Trade offs

Conclusion 1. The perfectly risk free product that no-one wants is useless for public health

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

Much safer, many dead: regulatory triple negative

Tough on harm reduction

Tough on e-cigarettes

Easy on harm

Five talking points

1. The value proposition

2. The prize

3. Harm reduction equation

4. Much safer, many dead

5. The desperate search …for a problem

FDA Pre-Market Tobacco Application

FDA seeks evidence on population effects:

• +/- quitters– The increased or decreased likelihood that existing users of tobacco

products will stop using such products; and

• +/- starters– The increased or decreased likelihood that those who do not use

tobacco products will start using such products.

Harm reduction equation with population effects

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

Gateway exitsComplete cessation

Extra quittingNormalising non-smoking

Gateway to smokingDual use

Reduced quittingNormalising smoking

Gateway effects

Smoking followed e-cig use

E-cig use caused the smoking

Smoker does not revert to e-cigs or quit later

… and e-cigs not displacing smoking elsewhere

For there to be net harm caused by e-cigs…

CDC announcement 6 September 2013

“E-cigarette use more than doubles among U.S. middle and high school students from 2011-2012”CDC Press release

"The increased use of e-cigarettes by teens is deeply troubling. Nicotine is a highly addictive drug. Many teens who start with e-cigarettes may be condemned to struggling with a lifelong addiction to nicotine and conventional cigarettes.”Tom Frieden, CDC Director

“These data show a dramatic rise in usage of e-cigarettes by youth, and this is cause for great concern as we don’t yet understand the long-term effects of these novel tobacco products.”Mitch Zeller, Director of FDA Center for Tobacco Products

CDC Press release 5 September 2013

Probing the CDC survey

• High school use doubled? – Ever use from 4.7 to 10.0%– Current use (last 30 days) from 1.5% to 2.8%

• High school cigarette smoking?– Decreased from15.8% to 14.0%

• E-cigs use in adults?– About doubled

• What would have happened had there been no e-cigs? – Can’t say, but…– 80.5% of e-cig current-users are current smokers– Zero evidence for a ‘gateway’ effect– Zero evidence of ‘marketing to youth’– Data consistent with experimentation and e-cigs displacing smoking

Five talking points

1. The value proposition

2. The prize

3. Harm reduction equation

4. Much safer, many dead

5. The desperate search …for a problem

Conclusion

• Be positive about the (vast) potential at individual and population level

• Put the (minor and mostly implausible) risks in perspective

• Regulate as though the 1 billion matter most

Thank you…

Counterfactual

www.clivebates.com@clive_bates