Seeking Synergies

Photo: Feelm

Tobacco companies are applying the expertise gained with reduced-risk products to new business areas.

By Stefanie Rossel

In their journey of transforming their businesses away from combustible cigarettes toward reduced-risk alternatives, tobacco companies have invested billions of dollars into innovation and scientific research over the past two decades. In return, they have obtained a wealth of expertise in adjacent areas—the potential of which they have just started to explore. Today, their goal is no longer limited to merely lowering harm but also to advancing health.

The list of recent initiatives and moves illustrating this shift is impressive. In September 2021, BAT announced the construction of an innovation hub in Trieste, Italy. In addition to hosting a new manufacturing site for the company’s reduced-risk products (RRPs), the facility will house an innovation lab and center of excellence for digital transformation and marketing as well as a digital boutique. On an area of 20,000 square meters, BAT plans to develop multiple production lines for European and global export of its RRPs.

According to BAT Chief Marketing Officer Kingsley Wheaton, the innovation hub, which involves an investment of up to €500 million ($549 million) over the next five years, will play a key role in the company’s transformation toward reducing the health impact of its business. Trieste was chosen as the location for the hub as it is already a globally recognized center of excellence in research and science, BAT said.

Philip Morris International is demonstrating commitment to transformation with a change of location: In November 2021, the company announced it would relocate its headquarters to Stamford, Connecticut, USA, this summer. The new facility is intended to become a center of state-of-the-art innovation and serve PMI’s smoke-free ambitions, which now also include areas such as inhaled therapeutics. Occupying a 6,642-square-meter campus, the Stamford headquarters will house the PMI Americas region and other corporate functions. PMI’s operations center will remain in Lausanne, Switzerland.

The transition of nicotine companies to adjacent business areas is evident in China as well. SmooreTech, the world’s largest vaping device maker in terms of revenue, recently established a fundamental research institute with three centers and hired a chief scientific officer with a deep background in respiratory medicine. Among other activities, the institute will perform physical and toxicology testing, data analysis and develop standards for vaping devices as they seem set to explore related areas in respiratory medicine. In 2020, SmooreTech became the first company in the Chinese vaping sector to get approval for conducting a national research program on vaping harm reduction, which it will conduct jointly with Tongji University.

From Cigarettes to Pharma

Tobacco companies have been aware of the medicinal potential of the tobacco plant for some time now (see “The Virtuous Weed”). In 2008, PMI acquired a stake in Medicago, a Canadian biopharmaceutical company. BAT purchased U.S.-based Kentucky BioProcessing (KBP) in 2014. Medicago and KBP have both been working on tobacco plant-based vaccines. In January, Health Canada approved Medicago’s Covifenz vaccination against Covid-19—the world’s first vaccine approved for human use that utilizes a plant-based protein technology. BAT has been performing clinical trials on its Covid-19 vaccine candidate. In January this year, BAT launched KBio, a new company that will leverage the existing and extensive plant-based technology capabilities of BAT and KBP and focus on delivering treatments for rare and infectious diseases.

These developments are part of the tobacco industry’s desire to move “beyond nicotine.” PMI plans to generate at least $1 billion in revenues from such new business by 2025. Last summer, it acquired the Danish oral drug delivery specialist Fertin Pharma for $820 million and the U.K.-based asthma inhaler manufacturer Vectura for $1.2 billion. In August, the tobacco company took over U.S. respiratory drug company OtiTopic for an undisclosed sum.

Fertin Pharma concentrates on research, creation and manufacturing of gums, pouches and liquefiable tablets as well as various solid oral systems to deliver active ingredients, such as nicotine. The takeover has given PMI access to Fertin Pharma’s technologies, expertise and talent, which includes almost 200 research and development specialists.

While the Danish company can help PMI increase its footprint in the modern oral category, Fertin Pharma’s oral drug delivery platforms also complement PMI’s experience with inhalation technologies and could be used to develop scientifically proven self-care wellness products, such as over-the-counter solutions and supplements for better living.

Commenting on the Fertin Pharma deal, PMI CEO Jacek Olczak said that his company’s future was “centered on health, science, technology and sustainable business practices to deliver innovative products and solutions that aim to improve people’s lives and create a net positive impact on society.”

“PMI’s future is centered on health, science, technology, and sustainable business practices to deliver innovative products and solutions that aim to improve people’s lives and create a net positive impact on society.”

Jacek Olczak, CEO, PMI

Critical Role

Vectura specializes in inhaled drug delivery solutions. At the time of the acquisition, the company had 13 inhaled and 11 noninhaled products in its portfolio. The new subsidiary will provide PMI with another 200 scientists who are knowledgeable about formulation, inhalation, devices, clinical manufacturing and regulatory issues. The company will also provide access to new technology and pharmaceutical development capabilities.

PMI aims to develop a fully owned pipeline of inhaled therapeutics and respiratory drug delivery systems. Vectura, says PMI, will play a critical role in PMI’s beyond nicotine strategy, which the acquisition, together with the Fermin Pharma deal, is expected to accelerate.

OtiTopic, PMI’s third recent acquisition in the pharmaceutical field, has developed an inhalable acetylsalicylic acid treatment for acute myocardial infarction that is currently undergoing clinical trials. The product comprises a novel, proprietary aspirin formulation that, delivered via a dry powder inhaler, enters the bloodstream faster than oral tablets. If approved by the U.S. Food and Drug Administration, the treatment can address the needs of more than 83 million people at risk for myocardial infarction in the U.S. alone, according to PMI.

According to PMI Chief Life Sciences Officer Jorge Insuasty, PMI’s beyond nicotine initiatives will initially focus on respiratory delivery and botanical products addressing areas such as energy, sleep, calm and focus. While currently less developed than established tools, such as pills and syrups, respiratory delivery has advantages over traditional medication delivery methods, Insuasty explained in a recent edition of PMI’s Scientific Update. Medicines delivered via the respiratory tract allow a rapid onset of the drug effect and potentially reduce side effects due to the lower dose that might be needed compared to taking a pill, for example. The same holds true for botanicals, an area in which PMI has gained considerable expertise during its work with plant substrates and aerosolization.

PMI healthcare ambitions are supported by its venture capital unit, PMI Equity Partners. The $150 million Swiss-based fund invests in companies that are involved in respiratory delivery, botanical sciences, health monitoring technologies, computational research methodologies and other innovations that have the potential to benefit health.

Focus on Recreational Products

BAT, meanwhile, has singled out personalized well-being as a starting point for developing opportunities beyond nicotine. In its annual report, the company said it was taking a “disciplined approach” to its beyond nicotine strategy as it expects continuous growth in the emerging market for well-being and “active” products, particularly for CBD. Fortune Business Insights estimates that the global CBD market, which stood at $3.68 billion in 2021, will increase to $55.79 billion in 2028, reflecting a compound annual growth rate of 47.49 percent.

BAT says its strength is its superior understanding of consumers. By combining contextual information with biometric data sets, the company believes it can build a comprehensive model of moods, behaviors and rituals. In January 2021, BAT launched its first vapor CBD product, Vuse CBD Zone, in Manchester, U.K.

The diversification drive is backed by BAT’s March 2021 £126 million ($165 million) acquisition of a 19.9 percent stake in the Canadian cannabis producer Organigram. Organigram grows cannabis and manufactures cannabis-derived products. The investment will provide BAT with access to research and development technologies, product innovation and cannabis expertise. The two companies will establish a center of excellence at Organigram’s New Brunswick site to develop next-generation cannabis products with an initial focus on CBD.

Like PMI, BAT is supported by a corporate venture capital arm in its transformation effort. Established in 2020, Btomorrow Ventures seeks to invest in health and wellness, functional products, science, sustainability and technology sectors.

The nicotine industry’s transformation has just begun. Slowly but surely, several of the companies that most people still identify as creators of health problems are becoming developers of health solutions. They will have to overcome many hurdles on their journey, including public skepticism and resistance from groups such as the World Health Organization, which recently indicated it would reject Medicago’s Covid-19 vaccine because of the biopharmaceutical firm’s link to PMI. If the nicotine companies succeed in their transformation, however, it would arguably represent one of the most remarkable metamorphoses in corporate history.