British American to test tobacco/e-cigarette hybrid

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By Martinne Geller

LONDON, Nov 18 (Reuters) - British American Tobacco plans to test a hybrid product that combines tobacco and e-cigarette technology next week in a European market, a senior executive said on Wednesday.

The product, called iFuse, will use elements of the company's Kent brand, and be sold in a market where Kent cigarettes are popular. Executives declined to say precisely which market that will be.

The test is the latest in a line of cigarette alternatives sold by big tobacco firms like BAT, Philip Morris International (LSE: 0M8V.L - news) , Imperial Tobacco (LSE: IMT.L - news) and Japan Tobacco (Other OTC: JAPAF - news) , who are jostling for position in an emerging category and trying to offset the decline of the tobacco market.

Excluding China and the United States, the market for so-called "next generation products" is worth 2.8 billion pounds ($4.3 billion), BAT said.

It (Other OTC: ITGL - news) is expected to grow to 8.4 billion pounds by 2020, but would still be a fraction of the global cigarette market, worth more than 450 billion pounds.

Like an e-cigarette, the iFuse heats nicotine-laced liquid into an inhalable vapour, but the vapour passes through a bit of tobacco near the tip that imparts flavour, said Kingsley Wheaton, BAT's managing director of next generation products.

Philip Morris also has a tobacco-based vapour product that uses what it calls Marlboro Heatsticks.

The companies say the products are les dangerous than conventional cigarettes because they avoid the burning that causes the release of deadly chemicals.

Relative to BAT's other tobacco-only vapour product, the iFuse is "simpler to use, more compact, more convenient, neater, cleaner and probably attracts a lower excise position," Wheaton said. Excise tax is often calculated using the amount of tobacco.

BAT's other cigarette alternatives include the Vype e-cigarette and the Voke nicotine inhaler, which is licensed as a stop-smoking product.

In the traditional cigarette business, BAT and its peers are challenging a new law being imposed by the UK government that would require "plain packaging" for all tobacco products. The measure is meant to reduce the lure of smoking, particularly among youngsters, by removing bright colours and logos.

The companies claim the law infringes on their intellectual property. BAT expects a six-day hearing with the UK High Court to start on 10 December. ($1 = 0.6577 pounds) (Reporting by Martinne Geller in London; Editing by Louise Heavens and Keith Weir)