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Innovation is such an important driving force shaping the growth and future evolution of the tobacco industry that the industry, regulators and academics should all work together as stakeholders in third-party studies. That way, dynamic research can be combined with data sharing to develop next-generation products (NGPs) that better balance innovation with risk to consumer health.
That is the view of Douglas Ming Deng (pictured), who will be among the featured speakers at the Novel Nicotine Expo in Geneva, Switzerland, this week on 8th and 9th May.
Deng is calling for a “regulatory sandbox approach”, which he believes enables tobacco industry innovators to trial new products, services and business models in a real-world environment.
“Multiple stakeholders can collaborate through dynamic research, assessment and real-time data sharing,” he told TobaccoIntelligence. “That way we can ensure that future products can safeguard consumer health while promoting the sustainable development of the tobacco industry.”
The direct relationship between R&D and increased sales of NGPs
Deng, who is a professor and head of NGP Industry Studies at Yunnan University in China, has been doing empirical tobacco-related research since 1998 – the milestone year when the Tobacco Master Settlement Agreement (MSA) restructured the industry by diverting investment away from advertising spending to developing NGPs. His most recent research encompasses the evolutionary study of the transition from combustible cigarettes to NGPs, as well as the innovation of NGPs through consumer-centric research and development (R&D).
In his talk titled “The evolution of the tobacco industry through R&D”, he will share his empirical evidence on the direct relationship between R&D and increased sales of NGPs. This is based on the examination of the annual reports of ten transnational tobacco manufacturers over the years, as well as data from the World Intellectual Property Organization.
“This evidence-based research proves that investment in R&D alone isn’t enough to guarantee higher sales revenue,” Deng said. “It has to be accompanied by other key factors, which include high-class human capital – elite, well-trained employees – well-filed patents and intangible assets, such as brand value.”
To illustrate what he meant by brand value, he cited the example of Philip Morris International (PMI)’s acquisition of Veev e-cigarettes and Zyn flavoured oral nicotine pouches. He said these were examples of investment in “intangible assets” which have boosted brand value and had a positive impact on product sales and stock price.
One of his case studies is PMI’s path of innovation from the introduction of Iqos 2.2 through to version 3 and Iluma as well as its relationship with product sales. He will be presenting data on this as part of his talk.
“What happened throughout the development of these three generations of PMI products is that the company’s R&D input has been increasing steadily and having a positive impact on PMI’s sales and stock price,” he said.
It is the main driving force of product evolution, but R&D alone is not enough
Deng emphasises that R&D alone isn’t enough because, he says, there is “a spatial correlation between academic research and patent layout as well as product sales”.
“R&D is the primary force driving the evolution of the tobacco and nicotine industry, but R&D alone doesn’t work,” he said.
“It is most effective when the other variables come into play – which include high-class human capital, patents and intangible assets. In our research, we added stock market performance to the sales of NGPs, and we proved that investment in R&D – along with the other variables – boosted stock performance as well as product sales.”
Deng called for more third-party academic studies into harm reduction and for the involvement of “all stakeholders” – academics and regulators, as well as the industry.
“Nicotine products – including combustibles and NGPs – need to deliver sensory satisfaction alongside harm reduction,” he said. “This aspect needs to be included in third-party research – measurable harm reduction is only valued if given by an independent third party.”
- Douglas Ming Deng, professor and head of NGP Industry Studies at Yunnan University, will be presenting his research on the evolution of the tobacco industry through R&D at the Novel Nicotine Expo in Geneva, Switzerland, on 8th and 9th May.
– TobaccoIntelligence staff
