Although large numbers of young people – and even Nick Clegg – are turning to e-cigarettes, the jury is still out on their health benefits. Can two Liverpool entrepreneurs help put this rapidly growing industry on track?

Two weeks ago, Nick Clegg came out. “I’m off the fags and on the vapes,” the deputy prime minister triumphantly announced. “I’ve got some hilariously termed multi-voltage thing. I haven’t smoked a cigarette in weeks.” Recommending the blueberry favoured “vape”, Clegg said he liked not being banished to the garden for his nicotine hit but admitted he had no real idea what he was smoking. “I’m not 100% sure what the effect on my health is of these new battery-powered things,” he said.

Though politicians of all stripes like to be seen buying British – or at least European, in the case of the famously continental, half-Dutch Liberal Democrat leader – there was an extremely good chance that the clear nicotine-laced liquid Clegg has swapped for his Marlboro Lights came from a factory in China. That’s where, in 2003, chain-smoking pharmacist Hon Lik invented the battery-powered cartridges that produce the inhalable vapour you now see fogging up every street in Britain. The Chinese have had a monopoly on e-cig manufacture ever since.

This Sino-domination is expected to come to an end in May next year when a new European Union law comes into force, pooping the Chinese party by regulating e-cigarettes for the first time. Soon e-cigarette manufacturers will not only have to make their products in line with the new directive’s rules on safety, quality and packaging, but they will also have to register all of their ingredients, emissions and toxicological data with the authorities in each EU country. All of which is going to make life difficult for the Chinese and their often opaque supply chain – and potentially turn an inauspicious factory on an industrial estate near Liverpool John Lennon Airport into the headquarters of a billion-pound business.

Reached via a potholed road in the suburb of Speke, past the Shop Direct warehouse where they shoot domestic scenes for the Littlewoods catalogue, and opposite a shabby wholesalers selling equipment for beauty salons, is a hulking grey building signposted the “nicotine megafactory”. Originally built by the international pharmaceutical giant GlaxoSmithKline for the manufacture of asthma inhalers, since February the site has been home to Nerudia, which aims to fill millions of lungs with a quite different substance.

Facebook Twitter Pinterest A vaper exhaling. Nerudia hopes to establish once and for all the health benefits of e-cigarettes over conventional ones. Photograph: Rex Features

Inside, technicians in hairnets and boiler suits work in super-sterile clean rooms filling vials with liquid nicotine – once the factory is working to full capacity, each “filling suite” will be able to churn out 400,000 bottles a month. All in, the site boasts 400 sq m of labs dedicated to nicotine analysis, and a bright hothouse filled with tobacco plants where Nerudia’s scientists have been experimenting with new ways of extracting nicotine from the leaves.

When the bureaucrats in Brussels started tinkering with the EU Tobacco Products Directive, two lads from the north-west of England spotted an opportunity. Nerudia’s co-founders David Newns and Chris Lord had met on a flying course in 2005. They immediately hit it off, and started to run businesses together. In April 2008, the pair decided to go on a Chinese jaunt to look for new business opportunities. They wound up at a trade show in Shenzhen, a major city in the southern Guangdon province, where, beside an enormous display of sex toys, the entrepreneurs first happened upon an electric cigarette.

Lord, a 20-a-day smoker from near Burnley, was intrigued. So was Newns, despite never having inhaled a cigarette in his life. “We saw this e-cigarette and thought, gosh, if this really does what it says on the tin, how amazing would that be, globally?” says Newns, a bright-eyed 30-year-old, in Nerudia’s boardroom, in front of a sign that reads: “Remember: confidentiality is our top product.”

Facebook Twitter Pinterest Chris Lord and David Newns, founders of Nerudia. Photograph: Christopher Thomond for the Guardian

The pair bought a few samples to put in their suitcases and headed back to Accrington, Lancashire, where they were running a company adapting vehicles for the disabled. Back in his kitchen, Lord set about dismantling the e-cigs to try to work out how they were made, while using the devices to kick his own smoking habit. “The first thing we thought is: if we are going to sell these products we need to know what’s in them. We can’t sleep at night unless we do,” says Newns. “We realised we can never make sure it’s 100% safe unless we make it ourselves … Right from the start we realised that the e-liquid, the liquid that’s going into people’s lungs, we have to make that in the UK.”

An aeronautical engineer by training, Lord, now 44, spent hours and hours in his makeshift lab experimenting, before the pair moved into the University of Manchester’s bioscience incubator, where they were introduced to the venture capitalists who invested an initial £1m in the firm, then called CN Creative.

It was quite an undertaking, Lord remembers, sucking hard on a slim kazoo-like e-cig in the Nerudia boardroom. “E-cigarettes are multi-discipline,” he says. “You’ve got chemistry, you’ve got fluid dynamics, you’ve got air dynamics, you’ve got electronics, which is fundamental – does the thing charge safely and discharge safely? Now, I’m not trained in chemistry. I’m trained in common sense and looking things up when you don’t know. So I asked a lot of people and Google is amazing.”

While Lord experimented, wheeler-dealers around the UK started importing more and more stock from China as the appetite for smoking substitutes rocketed. Others had a short-term plan to make a quick buck, but Lord and Newns were playing a longer game. By January 2009, they had come up “ECOpure”, an e-liquid they were determined to get approved by the Healthcare Products Regulatory Agency (MHRA) as the key ingredient of the world’s first medicinal e-cigarette. It was, they realised, a game-changing prospect: what a coup, for their product to be able to make certain health claims on their labels, while cigarettes are forced to carry scary health warnings.

It was a long and arduous process, but by 2012, British American Tobacco – caught on the backfoot along with most of the tobacco multi-nationals having made the mistake of writing off e-cigs as a passing fad – were so convinced that ECOpure was indeed going to get the all-important licence that it bought the firm for a figure Lord will say only was “between £30m and 50m”. The licence is still pending, but it should be granted in months, not years, according to Newn. Public Health England expected it to have been granted last year.

Around 1.5 million Britons are now thought to be regular vapers – many trying to kick their cigarette habit and others just looking for a way to get around the smoking ban, which was introduced in 2007. As well as Nick Clegg, other high-profile fans include Lily Allen, Jack Nicholson and Simon Cowell. June Brown, who plays Dot Cotton on EastEnders, was an early adopter, being photographed puffing away on a £40 device way back in 2009. So ubiquitous have the devices become that, in March, the Office for National Statistics added e-cigarettes to the basket of goods they use to measure the UK’s inflation rate.

By 2013, the sector was thought to be worth £193m in the UK and in 2014 £2bn on a global basis. But recently growth plateaued, amid conflicting health advice and disputes over whether the sweet-flavoured products were being surreptitiously targeted at children. The World Health Organisation is pushing for a global ban on indoor vaping, saying “evidence suggests that exhaled e-cigarette aerosol increases the background air level of some toxicants, nicotine and particles”.

Facebook Twitter Pinterest Plants inside the tobacco cultivation lab, where samples are grown to allow researchers to find new ways of extracting nicotine from their leaves. Photograph: Christopher Thomond for the Guardian

The Nerudia founders see their mission as an altruistic, as well as lucrative, one: to help cut smoking deaths. They like to talk up their products as smoking cessation aids for cigarette addicts, yet increasing evidence suggests that vaping is attractive to teenagers whose fingers have not yet yellowed from a lifetime of cigarette clutching. On Tuesday, scientists in Liverpool called for urgent controls on the promotion and sale of e-cigarettes to children after finding high rates of usage among secondary school pupils in the region.

In a survey of more than 16,000 teenagers in north-west England, the researchers found that one in five students aged 14 to 17 had bought or tried e-cigarettes. Many of those who dabbled with vaping were already regular smokers. Nearly one in 20 of the teenagers who bought or tried e-cigarettes had never smoked conventional cigarettes before, suggesting that vaping may have become a new activity to experiment with.

However, ASH, the well-respected anti-smoking pressure group in the UK, considers e-cigs a helpful aid to smoking cessation. “There is little real world evidence of harm from e-cigarettes to date, especially in comparison to smoking,” according to an ASH factsheet. “Smoking tobacco is a major risk to health and half of all long-term users will be killed by their addiction. Every year 100,000 smokers will die from smoking-related diseases. This is because users inhale hundreds of toxic chemicals contained in the smoke.

“By contrast, electronic cigarettes are designed only to deliver nicotine. Although currently there is a lack of any firm evidence to establish their absolute safety, such products should be considered many times safer than smoking.”

The problem, as ASH notes, is that “current, unlicensed, products on the market vary widely in their levels of quality and effectiveness”. When tested by the MHRA, some products contained levels of nicotine that did not match the amount stated on their label.

All of this should change with the new EU directive, which will require European e-cigarette manufacturers and vendors to become far more transparent about what they are selling.

Facebook Twitter Pinterest Inside Nerudia’s analytical lab. The firm hopes to set the highest-possible industry standards. Photograph: Christopher Thomond for the Guardian

It is against this backdrop that Lord and Newns have spotted an opportunity. They have attracted £11m investment based on the gamble that the new EU regulations, plus the medicinal licences, are going to lead to another boom in the e-cig industry. As the firm’s website puts it: “We are committed to being at the forefront of the truth agenda within the e-cigarette industry helping to set the standard throughout Europe for quality products and new levels of care with e-cigarettes.”

Essentially, this means building what Newns calls “a centre of excellence” for e-cigarettes, insisting that Nerudia will soon be considered the world’s leading authority on nicotine: “What we would like to do is provide that leadership from a science perspective. What we hope to become is a service provider to help everybody in the industry, large and small, meet a set of standards which the regulators can go, yeah, we’re really comfortable with that, we can appreciate the potential health benefits of e-cigarettes over traditional smoking. That’s our real goal here.”

He adds: “We will be setting the bar of quality really high. The whole idea of producing everything to pharmaceutical standard is that there are no questions unanswered.”

Nerudia will be manufacturing e-liquids under white labels to sell to big brand products, and will offer advice and analysis to those in the market. Having been through the rigmarole of applying for a medicinal licence, they have a consultancy arm that will hold the hands of others going through the same process. And they can test products in what they claim is the UK’s only dedicated testing lab for e-cigarettes, using special machines that simulate human inhalation and exhalation, measuring how much nicotine is delivered per puff.

By the end of the year, Nerudia aims to employ 150 people and soon expects to be turning huge profits. “We have always been clear that we see this as a billion-pound business,” says Newns, who admits that some in London are sceptical of their ability to build such a firm in the north-west.

But he and Lord are adamant there is no better place to set up a pharmaceutical business.

Other pharma firms, including AstraZeneca and Eli Lilly, are also based in Speke, providing an ample workforce from which to poach. And with George Osborne banging on constantly about his vision for a northern powerhouse to rebalance the UK’s Londoncentric economy, “the government is finally recognising the opportunity in the north-west,” says Newns. “In London, where we spent time during the sale to British American Tobacco, they all think we’re stupid. We are out to prove them wrong.”