S korea’s state health insurer sues tobacco firms for damages

The lawsuit is the first by a state organisation against tobacco firms among 37 countries and territories in the Western Pacific, according to the World Health Organization.

Only four tobacco lawsuits have ever been heard in South Korea, all by individuals or families, so there is no precedent of a successful action against a tobacco company.

Even if the insurer prevails, Morningstar analyst Philip Gorham said the damages being sought are so small the companies should be able to easily cover it through their cash flow.

The broader issue is, do other governments try to do the same thing, and I don t see why not. It s a legitimate thing to go after to solve a legitimate problem, Mr Gorham said.

We believe the NHIS, as it takes responsibility for the health of the public and oversees the insurance budget, has a natural duty to bring this tobacco lawsuit, NHIS lawyer An Sun young told reporters.

The damages were calculated based on data on payments by state insurers for patients with three cancer types associated with smoking, the NHIS added. The insurer has previously said it spends more than US$1.6 billion (S$2 billion) each year on treating smoking linked diseases.

BAT said it would be inappropriate to comment given that the case is ongoing. KT&G said it would base its response to the lawsuit on previous legal processes. Philip Morris did not respond to requests for comment.

Philip Morris, maker of Marlboro cigarettes, earlier this month said it would shut a cigarette factory in Australia and shift production to South Korea.

Philip Morris and BAT combined account for about a third of South Korea s US$9.3 billion tobacco market, which is the 10th largest in the world, according to Morningstar. KT&G accounts for the remaining just over 60 per cent while Japan Tobacco International (JTI), an affiliate of Japan Tobacco Inc, has the smallest market share at 6.4 per cent. JTI was not named in the lawsuit.

The NHIS lawsuit comes after South Korea s Supreme Court ruled last week in favour of KT&G on a separate case brought by individuals, which found no causal link between lung cancer and smoking. REUTERS

Marlboro man dons lab coat to find next big tobacco hit — bloomberg

And they haven t yet given tobacco stocks a jolt. After rising nearly fourfold between 2002 and 2012, the MSCI World Tobacco index has risen about 0.6 percent over past 12 months, compared with a 16 percent gain for the MSCI World Index. BAT fell 0.2 percent to 3,205 pence at the close in London, while PMI was down 1.3 percent at $84.80 at 11 47 a.m. in New York.

While e cigarettes have taken the market by storm global sales will approach $2 billion this year and top $10 billion by 2017, according to Wells Fargo & Co. their unregulated status has allowed entrepreneurs to buy them cheaply from China and resell them to create a Wild West environment, according to Exane BNP Paribas analyst James Bushnell.

Vype, Voke

E cigarettes are the biggest potential threat and opportunity the industry has had for a long time, he says. The only thing that s fundamentally changed in cigarettes since the 1960s is that they put a filter in.

While both companies are also investing in e cigarettes BAT has introduced its own e cigarette brand, called Vype, and PMI has two other technologies in earlier stages of development they want to move beyond that technology with their devices.

BAT s other product, dubbed Voke and presented to investors in early September, promises to deliver cold aerosolized nicotine via a patented breath operated valve nearly as fast as the six to 12 seconds it takes for a conventional cigarette.

The device comes in two parts, housed in a case that looks like a cigarette pack. Users dip a cigarette shaped stick into an aerosol canister to load it up with nicotine and they are ready to puff. Its creator is Alex Hearn, an asthmatic Oxford graduate and former smoker who first started work on it in 2001 and has gone through over 800 prototypes. Voke is currently awaiting a license from U.K. health regulators and would go on sale in Britain next year, pending approval.

New Regulations

In the U.K. unlike the U.S. devices like Voke will be regulated as medicines from 2016, which will require manufacturers to present data on the quality of their products, how they deliver nicotine to the body and how they compare with nicotine replacement products like patches and gums. The European Parliament yesterday rejected a similar proposal, opting instead to apply rules on general product safety.

Faulty e cigarettes have been known to explode, causing second degree face burns, U.K. health regulators said in June, and policy makers from Washington to Brussels are now trying to assess and standardize their safety. The clampdown will force many e cigarette companies out of business as they lack the resources to abide by the new rules, leaving the market to the big tobacco companies, according to Iwona Mamczur, an analyst at research company Mintel.

Reduced Risk

Decades of domination has left them with deep pockets to finance research. PMI last year alone spent $250 million on developing reduced risk products, and will shell out as much as $810 million to build one or two factories to produce them. The company currently has three systems in development, the first of which could debut as early as 2016, depending on the completion of clinical trials.

Investors don t want a repeat of famous flops like Premier, a heated tobacco cigarette unveiled in 1988. Its maker, now called Reynolds American Inc. (RAI), dropped it within a year amid widespread complaints about its taste and aroma. PMI s Heatbar product, based on a similar method, was scrapped about five years ago as consumers found it too bulky.

Tobacco makers have learned those lessons, says Berenberg Bank analyst Erik Bloomquist. While it s too early to say which next generation device will win, he says, I don t think the incumbents will be unseated.

To contact the reporter on this story Gabi Thesing in Frankfurt at gthesing

To contact the editor responsible for this story Celeste Perri at cperri