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The smoke clouds have lifted for tobacco companies

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By ROBERT TRIGAUX

© St. Petersburg Times, published February 18, 2001


The biggest jury award in U.S. history -- more than $145-billion -- was handed to Florida smokers last summer in a lawsuit against major cigarettemakers.

Was this the chink in the armor of the once invincible tobacco business? The same insanely profitable industry that for decades won most if not all individual lawsuits brought by cancer-ridden smokers?

Briefly last July, tobacco had the financial wind knocked out of it.

But now the notion of a sorely wounded tobacco business has gone up in smoke. Political winds in Washington and financial attitudes on Wall Street have shifted dramatically.

Tobacco, America's biggest love-hate product, is the comeback kid. Consider what's changed:

Gone is an accusatory Clinton administration demanding vast sums in court from the tobacco industry to help pay the country's huge cigarette-related health bills. Gone is the Food & Drug Administration's effort to try and regulate the industry.

Arrived is the new Bush administration and a desire to leave control of U.S. businesses to market competition. The tobacco industry, like Microsoft Corp. in its long antitrust battle with the feds, is counting on President Bush to turn down the federal heat and let tobacco get back to its lucrative business.

As a younger, budding Texas politician, Bush was known to enjoy a tobacco chaw in his mouth and carry a spit cup. And former Wisconsin Gov. Tommy Thompson, Bush's pick to head the Department of Health and Human Services, has well documented ties with tobacco interests.

As governor, Thompson went scuba diving in Australia with lobbyists for tobacco industry giant Philip Morris Cos. A 1998 University of California analysis of tobacco political contributions shows the tobacco industry exercised unusual clout in Wisconsin during Thompson's administration.

Gone is broad investor worry that tobacco stocks are losers. Even July's whopping $145-billion jury award in Miami is under appeal and likely to sit in various courts for years to come.

Arrived is a Wall Street far more bullish on stocks such as tobacco that still sell well in a slowing economy. After last spring's massive technology slump, companies such as tobacco giant Philip Morris look pretty darn good.

And why not? The stock of Philip Morris has risen from the ashes of litigation fears to become one of the best performers in the Dow Jones Industrial Average. From a 52-week low of under $19 a share, the company's stock now basks near its annual high. At the close of Friday's market, company shares were up slightly at $46.60.

"The outlook (for tobacco) does look more favorable this year, following the Bush victory and the fact the Engle case (Florida's $145-billion jury award) is currently on the back burner," says Stephanie Underhill, tobacco analyst at Bear Stearns International.

* * *

Tobacco's rebound after the biggest punitive damage award in the nation's history wasn't supposed to happen.

A Miami jury's order to defendants Philip Morris, RJ Reynolds (RJR), BAT's Brown & Williamson unit and cigarettemakers to pay $145-billion theoretically would have bankrupted the tobacco industry many times over.

By demanding such huge damages, the jury award delivered a clear message: As consumers, we're tired of tobacco's lying and conniving ways. Pay these Floridians for the harm brought by smoking.

In the lawsuit, tobacco's argument that smokers should have known the risks did little to convince the Florida jury.

The case was brought by three Floridians in what would become a class action representing an estimated 500,000 sick Floridians. The three plaintiffs were Mary Farnan of Inglis, Frank Amodeo of Orlando and Angie Della Vecchia of New Port Richey, who died at 53, halfway through the two-year trial.

With the award under appeal, the tobacco industry hopes the class-action status will be denied or decertified. That would mean each individual plaintiff would have to bring his own court case. That would serve tobacco's proven ability to crush individual plaintiffs with the industry's vast resources of money and -- a key for sick smokers -- time.

The tobacco industry already is making payments on an earlier and separate $246-billion settlement reached in 1998 with a majority of U.S. states.

* * *

Lately, the industry is watching new fronts open in the tobacco wars.

In a Maryland suburb of Washington, D.C., a state judge recently halted enforcement of what may be the most restrictive anti-smoking statute in the nation. The village of Friendship Heights recently banned smoking in all public places, including sidewalks and streets. The case remains in court.

In Florida, the Vector Group of Miami (which owns the Liggett cigarette business) is introducing a cigarette made from genetically modified tobacco that is low in nicotine. The company wants to win FDA approval to sell the cigarette as a tool to quit smoking.

If the FDA nixes that idea, Vector has a Plan B. Hype the new cigarette's lack of addictive power.

A cigarette without smoker craving? That could make for a tricky sales pitch.

Tobacco's biggest challenge may be overseas, where the industry long assumed it could sell plenty of cigarettes in countries with rising economies and leisure time.

Well, globalization has its hazards. Other countries are starting to fuss about smoking.

Two former Soviet republics recently sued the U.S. tobacco industry for the cost of smoking-related illnesses. The case was filed in Florida Circuit Court in Miami-Dade County, the same court that produced the record $145-billion award for Florida smokers.

In Spain, cancer patients seeking funding for rehabilitation centers last month filed the first two of a series of 14 planned class-action suits against tobacco companies that include Philip Morris and RJR.

And in Switzerland, Philip Morris and other tobacco companies were criticized for undermining Swiss health measures such as establishing smoke-free areas in restaurants and offices and enacting cigarette advertising bans.

How is the tobacco industry dealing with all these assaults?

Quite nimbly, it seems. Friendlier faces in the White House and Wall Street have energized an industry once under far more considerable fire.

A new book on tobacco suggests the industry is winning the latest battles.

"Rather than representing an end to the cigarette business, the recent legal wranglings, settlements, and jury verdicts signal a new and even promising era for cigarettes and the industry that creates them," writes Wall Street Journal reporter Tara Parker-Pope, author of Cigarettes: Anatomy of an Industry, From Seed to Smoke.

"For years, health crusaders focused much of their energy on uncovering wrongdoing by the industry," she writes. "Now that they've succeeded, the (multi-state) settlement with tobacco has taken much of the steam out of the anti-tobacco movement."

Smoking kills about 430,000 Americans a year. It is the leading preventable cause of death in the United States.

About 3,000 young people start smoking regularly in this country each day, and about one-third of them eventually will die prematurely from tobacco-related disease, government health and anti-smoking groups say.

That's a lot of carnage. The tobacco wars are not going away any time soon.

- Contact Robert Trigaux at trigaux@sptimes.com or (727) 893-8405.

Tobacco by the numbers

* $883.2-million: How much states will spend this year on programs to cut tobacco use.

* $6-billion: Sum tobacco companies will spend this year on advertising.

* 1,000: Number of cigarettes produced this year per every man, woman and child.

* 139: Cigarette packs per capita annually sold in Greece, heaviest-smoking country in world. U.S. ranks 11th (95 packs).

* 430,000: Annual deaths caused by tobacco use in this country.

* 47-million: How many U.S. adults smoke cigarettes.

* 70: Percentage of U.S. adult smokers who want to quit.

* 2.5: Percentage of U.S. adult smokers able to quit permanently each year.

* 6,000: Number per day of U.S. youths under 18 who try first cigarette.

* 31.5: Percentage of adult smokers in Nevada, highest in country.

* 13.9: Percentage of adult smokers in Utah, lowest in country.

- Sources: Centers for Disease Control and Prevention, U.S. Department of Health and Human Services, tobacco industry.

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