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On the Call: Reynolds American CEO Delen


Like other tobacco companies, Reynolds American Inc., the second-biggest U.S. cigarette maker, has ventured into smokeless tobacco and other nicotine products as tax increases, health concerns, smoking bans and stigma cut into demand for cigarettes.

Most public health experts say there is no safe way to use tobacco and push for people to quit above all else. Others embrace the idea that lower-risk alternatives can improve public health, if they mean fewer people smoke. But selling a reduced-risk product requires a lot of testing to substantiate those claims, as well as regulatory approval to market them as such.

During the third quarter, the company began previously announced test marketing in the Des Moines, Iowa, area of a nicotine gum under the Zonnic brand aimed at helping people stop smoking. In 2009, Reynolds bought Swedish company Niconovum AB, which makes nicotine gum, pouches and spray products. Zonnic is the first of its products to be sold in the U.S.

The company also has begun limited distribution of its first electronic cigarette under the Vuse brand. Rival Lorillard Inc., the nation's third-biggest tobacco company, acquired e-cigarette maker Blu Ecigs in April as part of the industrywide push to diversify beyond the traditional cigarette business.

Electronic cigarettes are battery-powered plastic and metal devices that heat a liquid nicotine solution, creating vapor that users inhale. Some e-cigarettes are made to look like a real cigarette with a tiny light on the tip that glows like the real thing.

E-cigarettes devotees tout them as a way to break addiction to real cigarettes. They insist the devices address both the nicotine addiction and the behavioral aspects of smoking — the holding of the cigarette, the puffing, exhaling something that looks like smoke and the hand motion — without the more than 4,000 chemicals found in cigarettes.

In a conference call with analysts regarding the company's third-quarter earnings, CEO Daniel Delen discussed the prospects of the new product offerings.

QUESTION: "How meaningful will your initiatives in some of the products like Vuse or Zonnic have to be in the medium-term to put the company on a stronger footing in terms of profit or earnings growth? Do you see them as equally important or is there a big push you see coming in one or the other?"

RESPONSE (CEO Delen): "They're strategically important initiatives for our company going forward. I think it's very early days in the marketplace. In fact, they've only been out there for a couple of weeks, so it really is too early to talk about how meaningful their contribution might be to our business. ... Both have substantial potential in the marketplace, but both are still in very limited distribution as we sit here today."


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