Reynolds’ pursuit of a company that promotes smoking cessation raises marketing question

Trying to buy a company that specializes in products that help people quit smoking may seem like a radical change for Reynolds American Inc.

But analysts said yesterday that it all depends on how Reynolds would potentially use and market cigarette-replacement products in gum, pouch and spray form made by that company, Niconovum AB.

Media reports have said that Reynolds is close to buying Niconovum, of Helsingborg, Sweden, for $44.5 million. The reports are based on comments by David Sweanor, a law professor at the University of Ottawa and a tobacco analyst. Sweanor could not be reached for comment.

Reynolds said it is against its policy to comment on speculation. Niconovum officials could not be reached for comment.

“I see the deal as a real possibility,” said Stephen Pope, the chief global-market strategist with Cantor Fitzgerald Europe.

Pope said that it makes sense as part of tobacco manufacturers’ increased reliance on smokeless products as cheap cigarette demand declines. Government figures show that fewer than 44 million Americans smoke, down from a peak of 53.5 million in 1983.

Niconovum was formed in 2000 by Karl Olov Fagerström, who is considered a leading expert on smoking cessation and nicotine dependence. It is managed by many of the individuals who were pivotal in the development of Nicorette, a nicotine-replacement gum.

Although some analysts view Niconovum’s products as primarily smoking cessation, the company says on its Web site that it “believes that there is a market for a range of nicotine-replacement therapy products that will deliver nicotine more quickly and effectively than those currently available, thereby giving the consumer a perceived better control of cravings.”

The evolution of some health-advocacy groups from anti-smoking to anti-tobacco is ratcheting up the moralistic aspect of buying and consuming a legal product.

Bill Godshall, the executive director of SmokeFree Pennsylvania, said he believes that smokers and public health could benefit if Reynolds buys Niconovum or its patents.

“Its smoke-free nicotine products are 99.9 percent less hazardous alternatives to cigarettes, pose no risks to nonusers, and appear to be more smoker friendly than similar products marketed as smoking cessation aids,” Godshall said.

“A key decision for Reynolds would be whether to market them as tobacco products, nicotine drug devices, or perhaps a combination of both,” he said. “The FDA has vastly different and incompatible laws and regulations for marketing tobacco products and smoking-cessation nicotine.”

In June, Congress granted the Food and Drug Administration the power to regulate tobacco products. That includes removing ingredients considered hazardous, restricting the marketing and distribution of cigarettes and smokeless tobacco, and focusing on limiting the impact of advertising on youth.

Susan Ivey, the chairwoman, chief executive and president of Reynolds, wants to make Reynolds into what she calls “a total tobacco company.” The biggest step that Reynolds has taken in that direction was buying Conwood, a smokeless-tobacco company, for $3.5 billion in April 2006.

Reynolds also has gone national with Camel Snus, a spitless tobacco product, and introduced orbs, sticks and filmlike strips for the tongue in test markets.

Colleen Paulson, an analyst with The Motley Fool, a financial-services company, said that buying Niconovum would be “really small potatoes” for Reynolds.

“But just think of the positive spin that Reynolds could give this acquisition, playing up the company’s commitment to consumer health,” Paulson said. “Combine this little addition with the ‘all-natural’ cigarettes that Reynolds produces through the Santa Fe Natural Tobacco Co., and the company could start to market itself as the tobacco industry ‘wellness’ leader.”

Dr. John Spangler, a professor of family and community medicine at Wake Forest University School of Medicine whose work includes studying tobacco use, said he would take a wait-and-see approach to how Reynolds would market the Niconovum products.

Spangler recently started a study of college freshmen at 10 unidentified North Carolina colleges aimed at strategies to encourage reduced use or even quitting smokeless-tobacco products.

“If they are marketed simply as means of getting nicotine in places where you cannot smoke — as opposed to using them to quit — I think most health scientists would have a problem with that,” he said.

“I keep saying this, but I cannot emphasize it enough. Will ‘safer’ products actually increase tobacco use — smoked and smokeless — because users will become addicted to nicotine and like the taste of tobacco?”


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