BAT’s Consort gets go-ahead for tobacco inhaler

<p>Consort Medical Plc. is cashing-in on the e-cig craze, but with a twist. The firm is the manufacturing partner to British American Tobacco (BAT) in […]</p>

Consort Medical Plc. is cashing-in on the e-cig craze, but with a twist.

The firm is the manufacturing partner to British American Tobacco (BAT) in the production of a new type of nicotine inhaler.

The difference between the Voke Inhaler and the fast-growing market of electronic cigarettes is that Voke was just licensed as a medicinal product in the UK, sending shares of small-cap Consort the better part of 10% higher.

Voke won medicinal product status, meaning it could be prescribed by doctors for patients as an aid for giving up the smoking habit.

It appears the product could be marketed to consumers as early as the first half of next year, providing FTSE 100-listed BAT with a means of combating the relatively sudden emergence of new competitors on its historical tobacco turf in the shape of e-cig makers.

As the second-largest cigarette maker in the world, British American Tobacco already sells a conventional e-cigarette called Vype.

BAT’s involvement in the development of Voke appears to be an attempt to hedge its bets as its core tobacco business declines in Western markets, where many consumers are quitting smoking.

The market for battery-powered e-cigs, which deliver a vapour mixed with nicotine, has expanded rapidly in the past two years with the market now estimated to be worth $3.5 billion.

Even so there is growing disquiet about their potential risks.

The World Health Organization last month called for increased regulation of electronic cigarettes including bans on indoor use, advertising and sales to minors.

Voke could potentially be regulated more like a medicine than as a controlled substance. Since it involves no heat, electronics or battery, it is not classified as an e-cigarette.

The product utilises a breath-activated micro-valve to produce a precise dose of nicotine and has no electronic components nor does it produce heat.

The product has a licence from the UK medicines regulator the Medicines and Healthcare products Regulatory Agency (MHRA) for use to relieve nicotine craving in smokers who wish to quit.

However MHRA would still need to approve a modified licence before BAT’s nicotine substitute unit, Nicoventures could commence full commercialisation, according to a joint statement by the BAT-led group on Friday.  Obtaining this further licensing would take months, the group said.

BAT shares closed on Friday 0.4% higher.


Consort is BAT’s latest gambit for growth

British American Tobacco is a typical Western tobacco play: venerable, established and prone to slow-to-no growth in mature markets whilst beset by regulatory and legacy legal challenges.

Were it not for the sector’s historical ingenuity at survival, these characteristics would seem to present almost insurmountable odds.

The sector’s average prospective rating of 15.2 times according to Thomson Reuters data seems to reflect tobacco companies’ progress in exploiting new markets in developing regions.

The sector has been controversial throughout its existence and has continued as it began, with new fronts for civil and official anti-tobacco activists in new markets and no doubt against new products too.

Like its sector peers, BAT is already beginning to face revenue challenges in its e-cig business.

Lorillard, America’s No. 3 tobacco firm and No. 1 e-cigarette firm, said e-cigarette sales fell 35% to $37m in the quarter to June 30.

Consumer data firm Nielsen said in the 52 weeks ended August 23, revenue from the broad category of e-cigarettes, including ‘vape’ products in the US, grew 19%. But that’s still down from 125.5% growth in 2013, 133% in 2012 and almost 1,103% in 2011, according to Nielsen.

As for Consort, it too faces potential public criticism as its Bespak unit is involved in the production of asthma inhalers.

More widely, it’s questionable how consumers will take to BAT and Consort’s new product, given that it offers a different sensory experience to e-cigarettes.

Unlike an e-cigarette, Voke does not produce vapour.

Either way, traders appear very willing to exploit Consort’s status as a subsidiary of the bulkier and slower-moving BAT, affording Consort, at times, characteristics of a growth stock and at others treating it as proxy of its more stable parent.

Consort stock’s 8.8% gain today to 1030p missed the all-time high marked on 3rd February at 1113p, and today’s rise was in much lower volume than in the spring. The earlier spike came amid news of US Food and Drug Administration approval of Consort’s ‘autoinjector’ product development programme. (It is an alternative to syringes as a drug delivery method.)

Consequently, the stock looks like it should soon trend back to recent support close to 841.95p.


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