Nicotine Branded Made-in-Switzerland Gets E-Cig Boost

Nicotine is so toxic that it’s been used as a pesticide, and less than a teaspoon can kill a person. With the advent of electronic cigarettes, that potency is creating an opportunity for pharmaceutical companies that can assure the purity and quality of the drug.

“Nicotine is an extremely difficult-to-handle, hazardous product,” said Torsten Siemann, managing director of Germany’s Contraf-Nicotex-Tobacco GmbH, which sells the drug in a partnership with Switzerland’s Siegfried Holding AG. (SFZN) “Our offering is like a brand,” he said. “It’s clear that this is high-quality nicotine, made in Switzerland.”

Global sales of e-cigarettes will top $5 billion this year, Euromonitor International Ltd. estimates, shaking up the $600 billion tobacco market and luring companies such as Siegfried and family-owned CNT. Siegfried, with a market valuation of 602 million francs ($685 million), produces more than half the world’s pure nicotine, used in products such as patches, gums and lozenges designed to help smokers quit.

E-cigarettes deliver nicotine while leaving out the usual cocktail of toxins such as tar, arsenic and formaldehyde. Instead of burning tobacco, they use a battery to heat a liquid mix of nicotine and other flavors, producing a vapor that users inhale in a white cloud that looks like a puff of smoke.

Photographer: Timothy Fadek/Bloomberg

Ilona Orshansky, owner of Brooklyn Vaper, uses a vaporizer, also known as an e-cigarette, in her shop in the Brooklyn borough of New York on Feb. 8, 2014. Close

Ilona Orshansky, owner of Brooklyn Vaper, uses a vaporizer, also known as an... Read More

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Photographer: Timothy Fadek/Bloomberg

Ilona Orshansky, owner of Brooklyn Vaper, uses a vaporizer, also known as an e-cigarette, in her shop in the Brooklyn borough of New York on Feb. 8, 2014.

In a market that is still largely unregulated, manufacturers can use cheap nicotine made with few checks or a pharmaceutical-grade formulation sold by the likes of Siegfried, U.S.-based Actavis Plc (ACT)’s Nicobrand unit, China’s Porton Fine Chemicals Ltd. (300363) or India’s BGP Healthcare.

No Liability

“The quality requirements for the ingredients of e-cigs, including the nicotine, have to be defined,” said Jayesh Patel, BGP’s managing director. “There is no liability for bad quality.”

London-based British American Tobacco Plc (BATS), Europe’s largest cigarette maker, says it uses Siegfried’s nicotine for its first e-cigarette, called Vype, introduced last year. Rivals Altria Group Inc. (MO) and Reynolds American Inc. (RAI) declined to identify the suppliers of nicotine for the e-cigarettes they sell, though they said they use only safe, high-quality products.

Quality Concern

“We chose to work with Siegfried because they are able to supply pharmaceutical-grade nicotine, something we feel is very important and one of the key selling points for Vype,” said BAT spokesman Will Hill.

Imperial Tobacco Group Plc (IMT)’s Fontem Ventures e-cigarette unit uses two European suppliers of pharmaceutical-grade nicotine, said spokesman Marc Michelsen, who declined to name the producers.

CNT extracts semi-processed nicotine from tobacco in India, then ships it to Siegfried’s factory in Zofingen, a 45-minute drive west of Zurich. There, workers clad in protective suits refine it into pure nicotine. The drug is stored in metal drums covered by Argon, an inert gas that provides extra insulation. That’s because just a half-gram of nicotine can kill a person, according to Professor Bernd Mayer at Austria’s Graz University.

“The toxicity comes from the quantity, not necessarily from the ingredient itself,” said Ray Story, head of the Tobacco Vapor Electronic Cigarette Association, a trade group. “50 gallons of water could also kill you.”

As demand for e-cigarettes is rising, regulators are preparing to regulate the market. The U.S. Food and Drug Administration is readying new rules for the industry designed to establish clear manufacturing standards and set boundaries for how the products can be marketed.

Smoking Link

A study published yesterday in the journal JAMA Pediatrics also suggests the devices may be a gateway to old-fashioned, cancer-causing smokes for teens. Youths who reported ever using an e-cigarette had six times the odds of smoking a traditional cigarette than those who never tried the device, according to the study.

Siegfried, which also makes drugs to treat heroin-addicts and alcoholics, has been extracting nicotine from tobacco for the pharmaceutical industry for more than 25 years. CNT, owner of a 2.5 percent stake in Siegfried, is responsible for marketing and distribution while Siegfried oversees quality management.

The Swiss company got its first request for e-cigarette nicotine three years ago. After initial hesitation because of fears that the toxic drug could be mishandled, Siegfried entered the market when large tobacco companies began manufacturing the devices.

50,000 Smokes

The flip side of nicotine’s potency is that the market’s earnings potential is limited, according to Siegfried. One kilogram of nicotine can produce the electronic equivalent of more than 50,000 cigarettes.

As a result, Siegfried’s nicotine business generates at most $15 million a year, or about 4 percent of Siegfried’s 2012 revenue of 368 million Swiss francs, estimates Zuercher Kantonalbank analyst Martin Schreiber. The company doesn’t break out how much it earns from nicotine for e-cigarettes.

The entire e-cigarette industry last year used as much as 20 metric tons of nicotine, or about a fifth of global pharmaceutical production, CNT estimates. That could jump by half this year to 30 metric tons -- though Siegfried says it has facilities to produce almost 10 times that amount.

“It’s not a big market, said Marianne Spaene, Siegfried’s business development manager. ‘‘We have capacity to produce the needs for the whole world market here.”

To contact the reporter on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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