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Nicotine Surges as Smoking Sags

NetworkNewsWire Editorial Coverage: Seems like yesterday people were smoking cigarettes everywhere; many people still have memories of Grandpa puffing on his Camels. It wasn’t until 1993 that smoking was banned in hospitals and on airplanes in 1998. Despite these and many other restrictions, the global market for nicotine-based products remains incredibly robust. Total global retail sales associated with the nicotine ecosystem during 2020 reached approximately $853 billion with around 5.2 trillion retail cigarette sticks sold. Nicotine isn’t just big business, it’s huge business, and companies are constantly looking for ways to keep and grow market share.

The majors are evermore turning to innovation and alternative delivery methods to achieve their objectives. An example of that is the breakthrough technology of Lexaria Bioscience Corp. (NASDAQ: LEXX) (Profile) and its patented DehydraTECH(TM) delivery platform. Suitable for use across a wide range of product formats such as pharmaceuticals, nutraceuticals and over-the-counter products, Lexaria’s DehydraTECH also increases the delivery characteristics of orally administered nicotine.

Multiple companies have already licensed DehydraTECH technology and are paying royalties to Lexaria for its use. Lexaria has licensed DehydraTECH to the Altria Group (NYSE: MO), the largest tobacco company in the country, which is currently evaluating the tech for possible use in noncombusted oral nicotine products. In addition, British American Tobacco Industries p.l.c. ADR (NYSE: BTI) has conducted some early evaluation of Lexaria’s tech, and the market is waiting to hear if either company might implement it. Meanwhile, Philip Morris International (NYSE: PM) is aggressively pursuing tobacco-free nicotine products as GlaxoSmithKline PLC (NYSE: GSK) tries to wean folks from nicotine with smoking cessation products. The trend is clear: smoking is out, and new tech is in.

  • Philip Morris is investing $16 billion to acquire a leading smokeless oral nicotine company.
  • 1.1 billion people smoked cigarettes regularly worldwide in 2019, with ~71% wanting to quit.
  • Lexaria Bioscience has developed and patented DehydraTECH, a technology for enhancing delivery of oral nicotine.
  • Lexaria is a technology provider to Altria for which Altria is evaluating DehydraTECH for smokeless oral nicotine formulations.
  • Some countries are proposing national cigarette bans.

Looking for Tobacco Alternatives

When the world started enacting laws banning smoking, it didn’t take long for the momentum to build, with countries worldwide forbidding smoking in many public areas with a huge array of punishments. In Bhutan, the sale or smuggling of cigarettes into the small south-central Asian country is punishable by jail time with no chance for bail. In a move to make smoking as unglamorous as possible, Australia passed a law in 2012 restricting cigarette packages to only a plain brown color with no labels or branding as “light” or “mild.”

Still, the fact remains that an estimated 1.1 billion people smoked cigarettes in 2019. According to stats from the World Health Organization, a stunning 780 million people said they want to quit. As a result, people look to a multitude of options, such as nicotine pouches, boosting the market from $2.33 billion in 2020 with an eye-popping 30.7% annual growth rate to $21.84 billion by the end of 2027, according to MarketResearch.com.

This is an opportunity that lands right in the wheelhouse of Lexaria Bioscience Corp. (NASDAQ: LEXX). The company has been developing its DehydraTECH technology since 2014, regularly strengthening and broadening the technology to an unprecedented degree. The company now stands as a global leader in enhancing the speed and efficiency of orally delivered lipophilic (fat-soluble) drugs and active pharmaceutical ingredients (“APIs”). The company has protected its intellectual property with a robust patent portfolio that currently consists of 25 patents granted in more than 40 countries, as well as another 50 patents pending worldwide.

The number of potential applications for DehydraTECH is mind boggling. The technology has been proven to increase bioabsorption of cannabinoids and nicotine by five to ten times. In some instances, bioavailability for cannabinoids has increased up to 27 times relative to standard industry formulations. Bioavailability is healthcare nomenclature for how much of the active ingredient in a product reaches its target. Improving bioavailability can be the difference between a blockbuster product and an also-ran. Among other things, Lexaria is beginning the path of registering DehydraTECH-CBD with the FDA for the purpose of treating  hypertension, an estimated $30 billion per year market in 2022.

Lexaria is also leveraging research demonstrating early-stage effectiveness in improving delivery through human skin for the potential development of topically administered products, including patches, creams and lotions.

Major’s Attention

With demand swelling for nicotine alternatives, Lexaria is understandably aggressively proving the superiority of utilizing DehydraTECH in product manufacturing. That means research and studies — and the tech hasn’t disappointed. An oral nicotine absorption study completed late in 2021 revealed that Lexaria’s nicotine delivered via an oral pouch product required between two to four minutes to deliver nicotine levels in blood plasma compared to concentration-matched controls that took 45 minutes. Peak levels of DehydraTECH nicotine, which were similar at both 8 and 30 minutes, were approximately 10 times higher than the peak level of the controls (at ~45 minutes). In short, the pharmacokinetic (“PK”) data, or data mapping the complete process of drug delivery through exiting the body showed DehydraTECH to be markedly superior throughout the two-hour duration of effect.

Dosing is slated to begin this summer for Lexaria’s latest human study, a PK randomized, double-blinded, cross-over study comparing Lexaria’s DehydraTECH-nicotine pouch performance to that of existing leading brands currently sold in the United States, such as ON! and Zyn. The nicotine pouch market is on fire, and if Lexaria’s DehydraTECH performs as expected, the stock could catch fire too.

This study is particularly important because ON! is a product manufactured by Helix Innovations LLC, an Altria joint venture, and Zyn is a product of Swedish Match, which is subject to a takeover bid. It is a safe assumption that major competitors will be looking at the outcome of this type of a trial as a means to differentiate their products with faster onset, higher-peak level and longer duration of nicotine delivery than anything else on the market. To that point, it is worth noting that in April Lexaria entered into new agreements with Altria Client Services LLC, noting that they will be compensated to provide certain DehydraTECH power-based nicotine formulations to be evaluated by Altria over the next 12 months.

M&A Activity Bodes Well for Lexaria

As mentioned, Swedish Match is the owner of the popular Zyn brand of tobacco-free nicotine pouches. Shares of the Stockholm-based company rocketed ahead about 25% earlier this month to an all-time high after Philip Morris, the international maker of Marlboro cigarettes, disclosed being in negotiations to buy Swedish Match, a move to increase its exposure in the fast-growing market for alternatives to cigarettes. It was later reported that Philip Morris was bidding $16 billion to buy Swedish Match, a monumental development.

Media outlets ran wild with the takeover news, making references to a battle underway between Philip Morris and Altria, two of the world’s biggest names in tobacco. Ironically, Philip Morris was actually a spin-off of Altria in 2008: each of them continuing to sell the Marlboro brand but with Altria limited to the US market, and Philip Morris basically to the rest of the world.

Altria’s stock dropped more than 10% from its all-time high on the news, as analysts and investors alike interpreted a Swedish Match buyout as positive for Philip Morris to capture market share immediately in the U.S. next-generation-products market. This makes the relationship between Altria and NASDAQ-listed Lexaria, a company with a $12 million market cap, all the more interesting for new product creation.

Benefiting from Smoking Bans

Every country isn’t going to follow Bhutan and lock people up without bail for lighting up, but there certainly will never be a “going back” to the way things were. Moreover, outright bans are becoming more popular than one might realize.

On April 28, 2022, the FDA made it clear that it plans to outlaw sales of menthol-flavored cigarettes in the U.S., which means that the 18.5 million Americans that smoke menthols are going to have to find something different to curb their nicotine craving. It was the latest move by countries to “help” people kick the habit. In December, New Zealand passed legislation that will make it illegal for people born after 2008 to buy cigarettes ever. Similar laws are being imposed in the States by local jurisdictions. For instance, Brookline, Massachusetts, last year made it illegal for anyone born after January 1, 2000, to purchase tobacco and vape products. For companies such as Lexaria, these bans are beneficial because DehydraTECH only works on noncombustible forms of nicotine.

Reading the Smoke Signals

For cigarette manufacturers, the smoke signals are spelling out the smothering of the combustible cigarette market. Granted, it will not be an overnight extinguishing, but most companies’ valuations are tethered to future sales, which means companies have to remain nimble now to cement their future.

Altria Group (NYSE: MO) has publicly stated its mission, which is to responsibly lead the transition of adult smokers to a smoke-free future. The company offers a portfolio of smoke-free platforms, including e-vapor, heated tobacco products, smokeless tobacco and its popular On! nicotine pouches. On! is a premium portfolio of product offerings across a variety of flavors and nicotine strengths widely distributed in more than 100,000 stores that cover 80% of total U.S. oral tobacco volume.

British American Tobacco Industries p.l.c. ADR (NYSE: BTI) is growing a range of reduced-risk products that includes vapor, tobacco heating products, and modern and traditional oral products, which include oral tobacco and nicotine products. Last July, new research provided the first real-world evidence that people switching from cigarettes to exclusive use of glo, BAT’s flagship Tobacco Heating Product, can significantly reduce their exposure to certain toxicants and indicators of potential harm related to several smoking-related diseases compared with continuing to smoke.

Philip Morris International (NYSE: PM) is exploring catapulting itself into the U.S. market for next-generation products through the acquisition of Swedish Match, the company that controls nearly one-half of the world’s tobacco-free nicotine market. If PM goes through with the deal, it automatically bolsters its footprint in the U.S. where it currently generates about 5.5 percent of its total revenue.

GlaxoSmithKline PLC (NYSE: GSK) is active in the nicotine replacement therapy (“NRT”) market. The company sells well-known brands such as Nicoderm CQ and Nicorette lozenges and gums and provides educational information so people better understand how NRT works. In the United Kingdom, Canada, Nordics and France, Glaxo offers its Nicotell mint nicotine lozenge.

Grandpa’s Camels are fading as a world without conventional cigarettes emerges. A cigarette-less world may not be here tomorrow, but it is not infinitely out on the horizon either. Those looking to capitalize on the future are exploring opportunities ahead of the trend.

For more information about Lexaria Bioscience Corp., please visit Lexaria Bioscience Corp.

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