U.S. IQOS Targets ‘Achievable’: Analysts

Philip Morris International’s goals for its heated tobacco products in the United States are realistic according to analysts cited by Reuters.

Today marks the expiration of Altria Group’s exclusive right to distribute PMI’s internationally popular IQOS tobacco-heating device and consumables in the U.S., leaving PMI free to compete in the world’s most lucrative tobacco market with its top noncigarette brand.

The multinational plans to launch IQOS in the U.S. in the second quarter. PMI wants to get a 10 percent share of total U.S. cigarette and heated tobacco volumes within around five years of it launching the latest version of its device, which is not expected until at least 2025.

It will have to develop the category almost from scratch. Unlike in other developed countries, heated tobacco products are virtually nonexistent in the U.S market, where sales of noncombustible nicotine products are dominated by e-cigarettes.

Research by Bernstein analyst Callum Elliott in other markets suggests that high vaping rates need not hurt heated tobacco take-up.  “Maybe the 10 percent … target really could be achievable?” he wrote in a note to investors.

Another factor that should work in PMI’s favor is the fact that the U.S. Food and Drug Administration has authorized PMI to market IQOS as reducing exposure to harmful chemicals versus cigarettes. The FDA has not done the same for vapes.

As a result, IQOS could have lower taxes, which would help to ease its relatively high price tag.

And unlike Altria, PMI need not worry about cannibalizing sales of its traditional tobacco products, as it sells no combustible cigarettes in the U.S.

Sean King, equity analyst at top-20 PMI investor Columbia Threadneedle, believes PMI’s targets are achievable.

With an estimated $20 billion profit pool up for grabs and no cigarette revenues to worry about, PMI can put its firepower behind IQOS success, he said.