Photographer: Akio Kon/Bloomberg

Fight for New Cigarette Substitute Heats Up Japan: QuickTake Q&A

Big tobacco has a new hope: the fast-growing trade in heat-not-burn products. Faced with long-term declines in smoking and stricter policies on tobacco use and sales across the globe, companies have been counting on e-cigarettes to keep business up. Some consumers, however, say vaporized nicotine doesn’t deliver the satisfaction or flavor they crave. Heat-not-burn devices are designed to do just that, and like e-cigarettes, without producing the smoke and tar commonly associated with the hazards of conventional cigarettes. Japan has become a testing ground for the devices, with products from three of the biggest global tobacco companies expected to be widely available in Tokyo by July 2017.

1. How do heat-not-burn products differ from e-cigarettes?

While consumers often use the terms interchangeably, in the industry, there’s a clear distinction: heat-not-burn products contain tobacco, e-cigarettes don’t. Most heat-not-burn products work by heating a special tobacco-containing stick that releases nicotine for the user to draw out. Typically, the sticks are heated to less than 350 degrees Celsius (662 degrees Fahrenheit), whereas combustion for a smoking cigarette occurs at over 600 degrees Celsius. Electronic cigarettes work by heating and vaporizing nicotine-laced liquid. Heat-not-burn devices are said to approximate the taste and nicotine intake of traditional cigarettes better than e-cigarettes.

2. What heat-not-burn products are out there?

The best-known version is Philip Morris’s IQOS, a stubby pen-like device, that is now sold in more than 25 countries and has been offered nationwide in Japan since April 2016. British American Tobacco followed with the launch of its product, glo, resembling a large cartridge, in Japan last December. Japan Tobacco started selling Ploom Tech, a pen-like device that works by vaporizing liquid that passes through tobacco capsules, last year in a test market as well. It’s considered a hybrid product because it technically doesn’t heat the tobacco, just the vapor. Ploom Tech hit production snags early on, but the company now plans to try to expand sales in Japan.

3. Why Japan?

Liquids that contain nicotine are highly regulated in Japan, so heat-not-burn doesn’t face competition from e-cigarettes. Japanese consumers are also relatively quick to try and adopt new products. And government regulations are less demanding than in many countries with a comparable market. Tobacco companies have also claimed that Japanese smokers are more likely to switch to a product that doesn’t release smoke due to the strong local sense of consideration for other people. The segment is growing rapidly in the country, with Japan Tobacco predicting the market will triple in 2017. Philip Morris says IQOS comprised 7.1 percent of Japan’s tobacco market by the first quarter of 2017, after a year of nationwide availability.

4. What’s at stake for the tobacco companies?

It’s complicated. This is the tobacco industry’s first significant growth opportunity in decades for developed markets, and so the fight for even a tiny slice of market share is intense, especially amid falling smoking rates. The heat-not-burn market will grow faster than that for traditional e-cigarettes globally in the next two years, according to Euromonitor International. Philip Morris said last year that next-generation cigarette products may boost profit by as much as $1.2 billion by 2020. Companies are spending handsomely to out-innovate each other. Philip Morris has funneled more than $3 billion into the development of new products, including heat-not-burn gadgets. They might even be more profitable, depending how governments regulate and tax them. Still, the development and promotion of heat-not-burn devices could detract from the traditional-cigarette business -- a huge moneymaker.

5. How safe are heat-not-burn products?

So far, the devices are too new and the research is too preliminary to form solid conclusions about long-term health effects. A study published in May concluded that heat-not-burn devices released harmful chemicals, although mostly in lower concentrations than cigarettes. A 2016 scientific paper examining 22 studies concluded that exclusive use of vaporized nicotine products, including heat-not-burn devices, produces only 5 percent of the mortality risks associated with smoking. The effects on humans of nicotine without smoke are not well-studied, although trials have shown neither an association between nicotine gum and cancer nor adverse effects from the use of nicotine patches. Philip Morris, which has applied for approval to sell IQOS in the U.S. with its partner Altria Group, has asked the U.S. Food and Drug Administration to designate it a "modified-risk" tobacco product. That would allow the company to market IQOS as a device that reduces the risk of tobacco-related disease. If approved it would be the first product to receive the designation. There’s no deadline for the decision, and Philip Morris has said it expects the FDA review of its clinical test data may take one year.

The Reference Shelf

— With assistance by Sam Chambers, and Jennifer Kaplan

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