Businessweek Archives

For Reynolds, Where There's Smokeless...


News: Analysis & Commentary: LAWSUITS

FOR REYNOLDS, WHERE THERE'S SMOKELESS...

It's just a "misunderstanding," says R.J. Reynolds Tobacco Co. Manville Corp. won't even discuss the matter. Both companies say they want to settle their dispute--but quietly.

Behind all the smoke is a lawsuit that points to a big problem for tobacco companies: Increasingly, given the prospect of liability litigation, suppliers don't want to do business with them. What's more, Manville's lawsuit seeking to establish that it had no contract with Reynolds, filed Mar. 6 in a Denver federal court, threatens to derail RJR's "smokeless" Eclipse cigarette, a key new product.

Three years ago, according to the suit, Manville's Schuller International Inc. subsidiary agreed that it would supply Reynolds with glass fibers for development of new cigarettes. Reynolds was testing a product that would heat tobacco rather than actually burn it. That cigarette, called Eclipse internally, was seen as a way to defuse health concerns by virtually eliminating secondhand smoke.

Late last year, Manville's board grew nervous about the Reynolds contract, says Ronald L. Motley, an attorney who monitors Manville on behalf of plaintiffs in asbestos-related claims against the company and also represents plaintiffs in tobacco claims. Directors watched as Kimberly-Clark Corp., which supplies paper and reconstituted tobacco to a number of cigarette companies, was named in a suit filed by the State of West Virginia seeking to recover Medicaid money spent on treating smokers. "The Manville board decided they didn't want any part in marketing cigarettes," Motley says.

ALARM BELLS. Manville executives and directors won't comment. But technical experts say Manville has reason to be nervous. Some scientists suspect that its glass fibers, used to insulate Eclipse's core heating element (diagram), may be dangerous if inhaled. In cigarettes such as Eclipse, the risk could be compounded by the presence of other toxins such as tar and carbon monoxide.

Neil F. Johnson, supervisor of the Molecular & Cellular Toxicology Group at the Inhalation Toxicology Research Institute, believes that, at 0.00925 millimeter wide, the fibers found in Eclipse probably are too large to migrate to the lungs, though they could cause throat or skin irritation. A greater threat, he says, is the public perception that fibers are hazardous. "I don't think it's very wise from a toxicological point of view," Johnson says. "And I don't think it's very wise from a marketing point of view."

Reynolds says there's no cause for alarm. Company officials won't discuss the specifics of Eclipse, but "we are not going to ever use in our cigarettes a product that was respirable," says a spokeswoman. If glass fibers were used, she says, the cigarette's heat likely would fuse them together.

But rival Philip Morris Cos. has conceded concerns about using fiberglass in cigarettes. In September, 1994, filing a patent for its own new low-smoke technology, the company admitted that "glass fibers may become dislodged during shipping and migrate through the pack to rest on the mouth end of the [cigarette], giving rise to the potential for the inhalation of glass fibers."

KEY ITEM. Manville's pullout could be a big blow to Reynolds. The tobacco company still is trying to bounce back from Premier, its first attempt to market a smokeless cigarette. The $300 million new product was recalled when smokers balked at its taste. Eclipse and related products are supposed to broaden Reynolds' revenue base away from Winston, Camel, and other traditional brands that are dogged by legal and public-relations challenges. The company says that it still is testing low-smoke cigarettes.

John F. Pauly, a researcher at Roswell Park Cancer Institute who has analyzed Eclipse samples, says glass fiber is a key component. "It could be difficult to find a good insulator that's cheap and poses no health problems," he says. "These are high-tech devices. These are not just tobacco wrapped in paper."

And Manville's suit could be the first of many by suppliers seeking to exit contracts with tobacco companies. Tobacco litigation is heating up across the nation, and for the first time, cigarette makers--and their contractors--look vulnerable. That's why Pfizer Inc., for instance, plans to highlight in its first-quarter earnings statement a policy that prohibits units from doing business with Big Tobacco and its suppliers. Tobacco soon could become a very lonely field.By Maria Mallory in Atlanta


Best LBO Ever
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus