Nicotine Pouch Manufacturing

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Could China threaten the stronghold of Sweden in nicotine pouch manufacturing?

Nicotine pouch is undoubtedly the fastest growing nicotine product category in the world. Both the major tobacco companies and entrepreneurs are rushing to take their share in the category. However, the explosive growth is not without controversy: tobacco control advocates are progressively shifting their focus from cigarettes and vapes to nicotine pouches and the regulatory scrutiny is mounting up as the nascent category is still mostly unregulated.

To better understand these developments, we discussed the nicotine pouch category and the role of China as an emerging manufacturing base for the category with Dr. Shaohui Lin, Executive Director and CEO of Beijing Sciecure Pharmaceutical, China’s leading nicotine pouch manufacturer.  

TI: Thank you for the opportunity to discuss the exciting developments surrounding nicotine pouches, Dr. Lin. Before we move on to the specific questions, we would appreciate if you could introduce yourself and Sciecure Pharma.

Dr. Lin: I am Shaohui Lin, the Executive Director and CEO of Beijing Sciecure Pharmaceutical. Sciecure was established in 2002 and is located in Beijing, China. We have been in the pharmaceutical business for more than 20 years and in the nicotine field for more than 8 years. We have a synthetic nicotine license from the Chinese authority which allows us to manufacture synthetic nicotine and nicotine granules. We started manufacturing nicotine pouches in 2020 and, to our best knowledge we are now the largest manufacturer in China. Our facility is USD FDA-approved, Chinese FDA-approved, and UK MHRA-certified. We unequivocally follow the highest pharmaceutical-grade manufacturing standards.

TI: How did Sciecure’s journey with pouch manufacturing begin? How big are the operations today?

Dr. Lin: Well, we started the nicotine pouch business a little bit by coincidence. Initially, we applied to the Chinese authority for a synthetic nicotine license to manufacture nicotine replacement therapies such as patches, gums, etc. Then, in parallel to the growing demand for tobacco-free nicotine, we experienced a booming demand for synthetic nicotine products beginning in 2019. Meanwhile, we noticed the progression of oral nicotine products from chewing tobacco to snus to today’s white nicotine pouches. Our focus has always been on how to make oral nicotine products completely tobacco-free and better for consumers. We currently have an installed capacity of 5 million cans per month. However, we are expanding our facility and adding new machinery on an almost daily basis to cope with the fast-growing demand. At the end of our ongoing manufacturing investment cycle, by June 2024, we will reach a capacity of 13 million cans per month.

TI: Sweden is well-established as a pouch manufacturing hub with tens of suppliers. Do you think Chinese manufacturers in general, and, specifically, Sciecure can challenge the stronghold of Sweden?

Dr. Lin: This is a very good question. We are currently working very closely with the Swedish pouch manufacturers. As Sciecure, we approach the category from a completely different angle. It is true that Sweden is already well-established as a pouch manufacturing hub. However, we believe there are a lot of challenges and gaps in the category that can be addressed by Sciecure. We have a pharmaceutical background and 8 years of experience in synthetic nicotine production. We understand the science behind nicotine and our SOPs and QC systems are established to meet the highest international standards like USA FDA and UK MHRA.

Although we don’t purely compete on price, we have to admit that our operational cost base is significantly lower than Sweden without any sacrifice in quality standards. Honestly speaking, we believe that our quality control system is more advanced and stricter than most of the Swedish manufacturers. Our GMP workshop, designed for pharmaceutical products, is more developed than those for food or tobacco products.

On the other hand, we have an extensive amount of experience in recipe development and variant formulation for dry pouches, moist pouches, patches, capsules, and energy pouches. This experience empowers us to innovate quickly. We produce synthetic nicotine internally and have an in-house machinery development team. Thereby, we are able to scale up quicker than our European counterparts. For instance, machinery development and installation could take up to a year in Europe whereas we get there in just a few months.     

TI: 90% of the world’s vapes are manufactured in Shenzhen, China. Do you see the possibility of a similar hub forming for nicotine pouches?

Dr. Lin: Nicotine pouches are a little bit different from vapes. First of all, nicotine pouches more closely resemble pharmaceutical products rather than consumer electronics. Shenzhen has the history of electronics manufacturing and the supply chain integration needed to become the vape production hub. Secondly, I honestly believe that nicotine pouches are more difficult to manufacture than vapes. Sciecure is the only manufacturer, among the few in China, that succeeded in building the know-how and capabilities to meaningfully compete with the Swedish counterparts. At this stage, I don’t expect Shenzhen to have a role in pouch manufacturing or a separate hub similar to Shenzhen forming for pouch manufacturing.

TI: How does Sciecure Pharma differentiate itself from the other Chinese manufacturers?

Dr. Lin: Our two key differentiators are experience and commitment to excellence. We faced stiff competition for synthetic nicotine supply, and we have prevailed by achieving the lion’s share of the market. Over the past 4 years, we have built an in-depth understanding of the science, a strong business network and a truly unique international term. We have a 4 year head start versus any newcomer and we are extending our lead by the day.        

TI: What is your customer profile today?

Dr. Lin:  Although we are still at an early stage of business development, we are already supplying some global tobacco companies and we are in discussions with others. Obviously, I am not able to disclose their names due to confidentiality agreements. We offer these global tobacco companies agility in scale-up and shortened supply-chain lead time. Moreover, thanks to our lean cost structure, our products are still 30% to 50% cheaper than European-made products with the same high-quality standards. Regional tobacco companies and start-ups are also among our customers. We offer them a turnkey solution of fully customized and market ready products;  so that, they can solely focus on their commercialization efforts.

In terms of geography, the US is our largest market. We have an R&D center in Princeton, New Jersey and we are well-connected with the industry players in the US. Europe is naturally our second largest market; however, we are also working with our partners to develop new markets in the Middle East, Asia and South America.

TI: Some Western consumers are reluctant to put in their mouth, whether to ingest or inhale, a product manufactured outside EU/US. How do you mitigate this concern? 

Dr. Lin: Honestly, I think it’s all about how the pouches are manufactured, rather than where they were made. Vapes, especially the popular disposable versions, are almost exclusively made in China. Consumers go for the best product in the market regardless of the origin of manufacturing. Moreover, it is only fair to assume that any given consumer would prefer a nicotine pouch manufactured in an US FDA-approved, pharmaceutical facility instead of one manufactured by a Swedish mom-and-pop business in a garage-like facility.      

TI: PMTA approval by the US FDA – among other things – depends on the existence of adequate process controls and quality assurance procedures to help ensure products are manufactured consistently and meet product specifications. How do you ensure adherence to these standards?

Dr. Lin: Sciecure is so engaged with the USA FDA processes and requirements that we could have a fully dedicated interview on these topics. But, you are right; the US FDA has very strict quality control requirements and assurance procedures, such as batch-to-batch consistency. These are very difficult to comply with. However, this is our bread & butter. We are one of the few Chinese companies that filed TPMF (Tobacco Products Master Files) for synthetic nicotine in 2022. We helped our largest US customer to successfully file the PMTA for nicotine pouches. We are now working on another nicotine pouch TPMF. Our customers can use our pouch TPMF as a reference in their PMTAs – which helps save a substantial amount of money and time.   

In terms of the manufacturing process and quality control, we are collaborating very closely with our US compliance partner to ensure that our facility not only meets the GMP requirements but also fulfills the Tobacco Product Manufacturing Practice (TPMP) requirements. As you know, TPMP is one of the new requirements from the FDA for tobacco and nicotine manufacturers.

TI: The largest nicotine pouch franchise in the US is ZYN. To move the supply closer to the demand, Swedish Match (now Philip Morris International) invested $115Mn to open a new plant in the USA? Do you have any plans to move production closer to the Western markets?

Dr. Lin: Indeed, we do. We are currently in the exploration phase. Owen Guo, our General Manager for the nicotine pouches business unit, is leading the progress. We are conducting a feasibility analysis to establish a production facility in the EU and US. Our initial analysis reveals that we can balance out the overall cost by reducing the lead time and shipping costs as long as we maintain the core manufacturing in China and move the packaging closer to the markets.

TI: We are talking about a good deal of investment requirement here. Both the scale-up and new facility set-up. How will you plan to finance the growth investment going forward?

Dr. Lin: Our CFO, He Jie, is working on the capital development program. We will re-organize our nicotine pouch operations as a standalone unit called Mag Flare (Macau) Technology, completely separate from our pharma business. We are exploring the idea of bringing in investors from the US and EU. This is not only important from a financial point of view, but it would help cement us as a global player with the infusion of international resources and talent.

TI: Do you have any closing thoughts on the future of the nicotine pouch category and manufacturing?

Dr. Lin: Thank you for the interview. We believe Sciecure will become a key global player in the nicotine industry which is going through a unique transformation. Our ultimate goal is to offer adult nicotine users a pleasurable product with a substantially lower risk profile than traditional tobacco products. We are very proud to be part of this journey as we believe there are a lot of lives that can be saved at the end. This is exactly Sciecure’s vision and, personally, my vision as a chemical Ph.D. graduate.

TI: Thank you for your time, Dr. Lin.We hope to catch up again as Sciecure progresses to realize its vision.

About Sciecure Pharma

Established in 2002, Sciecure Pharma is a pioneer in innovative pharmaceutical and consumer solutions. Serving over 100 brands worldwide, including those of major tobacco companies, Sciecure specializes in the development and manufacturing of nicotine pouch products. With USA FDA, UK MHRA and China FDA approvals alongside the GMP, Kosher and ISO9001 certifications, Sciecure adheres to the highest quality standards. Sciecure’s state-of-the-art manufacturing facility in Beijing, China has a planned production capacity of more than 10 million cans per month. As a turnkey white-label manufacturer, Sciecure strives to deliver the highest quality at a competitive price. Sciecure offers fully-customized, market-ready products in more than 30 flavors with unique designs, logos, and labels. With short development lead times and the agility to quickly scale up from low order quantities, Sciecure offers its partners maximum flexibility and expertise to quickly and efficiently bring smoke-free alternatives to adult smokers.

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