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FDA Proposal Puts Spotlight on Big Tobacco and Industry Innovators

NetworkNewsWire Coverage: The black cloud over Big Tobacco has been swirling for decades, but few developments have cast a bigger shadow than the U.S. Food and Drug Administration’s recent proposal to reduce nicotine levels in cigarettes to non-addictive levels. The new plan1, originally unveiled on July 28, is expected to serve as a multi-year roadmap aimed at saving lives and significantly reducing the effects of tobacco-related diseases. The market effects of the nicotine push have proven to be colossal, with shares of two of the largest sellers of cigarettes in the United States suffering their largest single-day plunge since the recession following the announcement. Indeed, the FDA’s sweeping efforts seem to strike a distinctly adversarial tone with the $130 billion U.S. tobacco industry2, presenting an unprecedented opening for companies in position to cash in on the changing market. Lexaria Bioscience Corp. (CSE: LXX) (OTCQB: LXRP) (LXRP Profile), as the only cannabis biotech company that has exposure to nicotine, stands alongside industry mainstays such as Altria Group, Inc. (NYSE: MO), Philip Morris International, Inc. (NYSE: PM) and British American Tobacco p.l.c. (NYSE: BTI), along with upstart 22nd Century Group, Inc. (NYSE: XXII), as the transformation of this global industry accelerates.

The slow death of the once ubiquitous cigarette wasn’t just uncovered with the FDA’s ruling. In fact, Big Tobacco has had its sights set on the development of marketable alternatives to its combustible offerings for years.  A quick visit to Philip Morris’ website demonstrates these efforts, as the tagline “Designing a Smoke-Free Future” is placed front-and-center for all to see. As a reminder, Philip Morris is the global cigarette giant behind Marlboro and six of the world’s top 15 international brands, and its tobacco products are currently sold in over 180 countries outside the U.S.

Though still in their relative infancy, smoke-free cigarette alternatives have already proven to be highly marketable as cigarettes and similar products have faced increasing regulations and slumping sales. Per a report3 from the Centers for Disease Control and Prevention, roughly 9 million adult consumers, or 3.7 percent of American adults, used tobacco-free electronic cigarettes or vapor products on a regular basis in 2014. These products typically serve as a delivery method for nicotine, and the National Institute on Drug Abuse4 reports that they are often used to lower nicotine cravings for those who are trying to quit smoking. However, as the Institute notes, there is currently no conclusive scientific evidence on the effectiveness of e-cigarettes for long-term smoking cessation, and, perhaps more importantly, the safety characteristics of these devices haven’t been thoroughly evaluated in independent scientific studies.

A dearth of safe alternatives and an increasingly regulated tobacco industry combine to create a large and rapidly expanding market for smoking cessation solutions. According to a 2016 report5 by Grand View Research, Inc., the global smoking cessation and nicotine de-addiction market is expected to reach over $21.8 billion by 2024. As Grand View reports, “The launch of… improved and innovative nicotine replacement therapy products is to serve as a high impact rendering driver for the growth of the smoking cessation and nicotine de-addiction market.” Staring at a fertile market that’s concentrated on driving innovation, Lexaria Bioscience Corp. (LXRP), with its patented lipid-delivery technology, could prove to be a long-term player offering vast positive community health benefits and considerable upside, particularly for early investors.

Lexaria Bioscience’s intellectual property portfolio features a collection of advancements focused on improving the delivery and absorption of targeted molecules – such as nicotine – to the human body. Notably, the company maintains a patented method by which it is able to infuse a cocktail of molecules that are otherwise difficult for the body to absorb within other ingredients at a molecular level. As Lexaria’s website outlines, the company’s platform allows for the infusion of beneficial hemp oil ingredients into easily-absorbed lipids, greatly increasing the efficiency of absorption. Currently implemented in the production of two distinct consumer product brands including ViPova™ and Lexaria Energy, this technology has proven to be a potential game changer in the cannabinoid-based pharmaceuticals market, an industry that’s on course to grow to $50 billion by 2029, per data aggregated by Statista6.

An equally promising application of this technology relates to the delivery of nicotine, which is also referenced in Lexaria’s lipid-based delivery patent. The company’s proprietary platform allows for the infusion of nicotine molecules within a wide range of edible food ingredients or typical capsule formats, effectively opening the door for the creation of a new product category targeting the high-demand smoking cessation market. Edible or encapsulated forms of nicotine delivery have traditionally failed due to challenges that Lexaria’s new technology may overcome. As the company notes, most of the adverse health outcomes associated with nicotine consumption are due to problematic delivery methods, such as cigarettes and other combustible products. As such, the development of nicotine-infused edible products that remove those dangerous side effects could greatly improve upon the safety profile of most currently-marketed options.

Though promising, Lexaria’s patented molecular delivery technology remains in its early stages. The company is currently investigating the best methods of maximizing on the platform’s market potential. As part of these efforts, Lexaria is also examining the feasibility of in-vitro and in vivo laboratory tests of its technology in order to generate real data regarding the bioavailability of nicotine with and without its protective technology. Combined with potential market indications in the delivery of non-steroidal anti-inflammatories (NSAIDs) and vitamins, markets valued at $5.4 billion and $68 billion respectively, Lexaria’s lipid-delivery technology makes the company an intriguing option for investors with a finger on the pulse of the evolving tobacco industry.

While Lexaria focuses on the development of new delivery technologies for nicotine, much of Big Tobacco has already turned its attention toward the development of reduced-risk alternatives to combustible products. On its website, Altria Group, Inc. (MO), parent company of Philip Morris USA and cigar-maker John Middleton Co., among others, notes that its goals are to develop lower-risk tobacco products for adult consumers, support programs that help reduce underage tobacco use and provide access to expert quitting information for those who have decided to quit. For Altria and many other tobacco industry leaders, much of the focus remains on electronic cigarettes and e-vapor products.

This interest in the electronic cigarette market has seen a lot of early success, though, as noted in an April 2016 report7 from the Royal College of Physicians, “[I]t is not possible to estimate the long-term health risk associated with e-cigarettes precisely.” In 2015, sales of e-cigarettes totaled $2.88 billion, according to Statistic Brain8, up from just $20 million in 2008.

A former operating company of Altria Group, Philip Morris International, Inc. (PM) was spun off in 2008 in an effort to better pursue sales growth in emerging markets. Philip Morris’ most extensive project in the cigarette-alternative space is iQOS (I-Quit-Ordinary-Smoking), which it originally announced in 2014 and currently markets under the Marlboro and Parliament brands. Rather than burning tobacco, the iQOS employs heat to generate a tobacco-based aerosol containing nicotine. As of the end of 2016, Philip Morris’ iQOS was available in over 20 countries, with the company teaming with Altria Group to bring the product to the U.S. in the coming months. Although iQOS and similar heat-not-burn tobacco products present some benefits over cigarettes, such as leaving less smell and odor on clothing, independent research is not currently available to support claims of lowered risk or health benefits, according to the World Health Organization.

British American Tobacco p.l.c. (BTI) categorizes its efforts outside of the traditional tobacco space as “Next Generation Products,” a classification that includes an assortment of alternative tobacco and nicotine products aimed at reducing the risks associated with smoking conventional cigarettes. Per its website, British American Tobacco, over the past five years, has invested more than $1 billion in building its Next Generation Products business. In 2013, it became the first international tobacco company to launch an e-cigarette product in the UK. Since launching its Vype product line, British American Tobacco has introduced products such as the Vype ePen, eTank and eBox, as well as iFuse and glo, two tobacco heating products similar to those offered by Philip Morris.

As with many of its competitors, 22nd Century Group, Inc. (XXII) is focused on reducing the harm caused by smoking, as is communicated through a tagline on its website. Unlike many of its competitors, however, 22nd Century’s products are taking direct aim at the FDA’s latest proposal. As noted in a recent Bloomberg article9, this relatively obscure biotechnology company in western New York grows tobacco plants with just three percent of the nicotine found in typical tobacco plants. Using these plants, the company creates Very Low Nicotine cigarettes that are expected to go through the FDA-approval process as a prescription smoking cessation aid. This innovative approach which, like that of Lexaria Bioscience Corp., goes against the grain in an industry filled to the brim with e-cigarettes and vaping products, has already started to pay off for 22nd Century investors. While Big Tobacco stocks plunged following the FDA’s nicotine announcement, 22nd Century’s shares were up 70 percent for the week ended August 4, including a 25 percent increase on Friday that marked its biggest one-day spike since March 2015.

Where there’s smoke, there’s fire, and Big Tobacco’s industry-wide commitment to developing pioneering devices in the face of increasingly stringent FDA regulations is impossible to overlook. Still, electronic cigarette alternatives and heat-not-burn tobacco products could be half measures in a market that’s primed for a major overhaul. Look for true innovators like Lexaria Bioscience Corp., with its patented lipid-based delivery technology, to develop a foothold as the next iteration of the global $600 billion tobacco industry begins to take shape.

NNW Editorial Sources:
1) FDA http://nnw.fm/2SUkk
2) Bloomberg http://nnw.fm/qQZ00
3) CDC http://nnw.fm/7mXiJ
4) NIDA http://nnw.fm/bM5vN
5) Grandview Research http://nnw.fm/Ytnr1
6) Statista http://nnw.fm/D7L1i
7) Royal College of Physicians http://nnw.fm/kfD16
8) Statistic Brain http://nnw.fm/j4JD4
9) Bloomberg http://nnw.fm/bvH0s

For more information on Lexaria Bioscience please visit: Lexaria Bioscience Corp. (CSE: LXX) (OTCQB: LXRP)

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