Altria Group’s greenhouse gas emissions reduction targets have been approved for the first time by the Science Based Targets initiative (SBTi). The Scope 1 and 2 target covering greenhouse gas emissions from Altria’s operations is consistent with reductions required to keep warming to 1.5 degrees Celsius, a goal that the latest climate science says is needed to prevent the most damaging effects of climate change. The Scope 3 target meets the criteria for ambitious value chain goals and current best practice.
“We believe it’s important to continually work to address important social and environmental challenges,” said Jennifer Hunter, senior vice president, corporate citizenship at Altria. “This is why we’ve set a higher bar and reset our long-term goals, including achieving 100 percent renewable electricity by 2030, 100 percent water neutrality annually, and aligning our business with the most ambitious greenhouse gas emissions reduction targets designated by the SBTi.”
In addition to SBTi approval, for the third year in a row Altria has been named to CDP’s Water A-List, among only 2 percent of disclosing global companies in 2019, and is recognized on CDP’s 2019 Climate Change survey as a global leader for engagement with suppliers on climate change.
More than 900 companies have committed to the SBTi, and just over 400 have SBTi-approved targets. SBTi is a collaboration between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF).
The SBTi defines and promotes best practice in science-based target setting and independently assesses companies’ targets.
Altria’s recently released 2019 Corporate Responsibility Progress Report details the company’s continued progress on these environmental goals and on Altria’s four responsibility priorities: reducing the harm of tobacco products, including preventing underage tobacco use; marketing responsibly; managing our supply chain responsibly; and developing our employees and culture.
The U.S. Food and Drug Administration (FDA) on July 7 issued exposure modification orders to Philip Morris Products’ (PMP) IQOS heat-not-burn device system (holder and charger) and three Marlboro Heatstick variants.
The FDA previously authorized the marketing of IQOS without modified risk information in April 2019 via the premarket tobacco application pathway.
In its most recent ruling. the FDA determined that IQOS does not currently meet the standard for marketing with reduced-risk claims but can be marketed with a reduced-exposure claim.
Specifically, the FDA is allowing the company to claim:
The IQOS system heats tobacco but does not burn it.
This significantly reduces the production of harmful and potentially harmful chemicals.
Scientific studies have shown that switching completely from conventional cigarettes to the IQOS system significantly reduces your body’s exposure to harmful or potentially harmful chemicals.
“Through the modified risk tobacco product application process, the FDA aims to ensure that information directed at consumers about reduced risk or reduced exposure from using a tobacco product is supported by scientific evidence and understandable,” said Mitch Zeller, director of the FDA’s Center for Tobacco Products.
“Data submitted by the company shows that marketing these particular products with the authorized information could help addicted adult smokers transition away from combusted cigarettes and reduce their exposure to harmful chemicals, but only if they completely switch.”
In its announcement, the FDA stressed that is marketing authorization doesn’t mean the reviewed products are safe or “FDA approved.”
The FDA’s marketing order requires PMP to conduct post-market surveillance and studies to determine the impact of these orders on consumer perception, behavior and health, and to enable the FDA to review the accuracy of the determinations upon which the orders were based.
These post-market requirements include a rigorous toxicity study using computer models to help predict potential adverse effects in users. The orders also require the company to monitor youth awareness and use of the products to help ensure that the marketing of the MRTPs does not have unintended consequences for youth use.
“The FDA’s decision is a historic public health milestone,” said Andre Calantzopoulos, CEO of Philip Morris International. “Many of the tens of millions of American men and women who smoke today will quit—but many won’t. Today’s decision makes it possible to inform these adults that switching completely to IQOS is a better choice than continuing to smoke. FDA determined that scientific studies show that switching completely from conventional cigarettes to IQOS reduces exposure to harmful or potentially harmful chemicals.”
“The FDA’s decision provides an important example of how governments and public health organizations can regulate smoke-free alternatives to differentiate them from cigarettes in order to promote the public health.”
“We’re delighted that the FDA authorized IQOS to be marketed as a modified-risk tobacco product,” said Billy Gifford, CEO of Philip Morris USA’s parent company, Altria Group, which will be marketing the product in the U.S. “This authorization gives PM USA an opportunity to communicate additional benefits of switching to IQOS and this decision is an important step for adult smokers.”
In a note to investors, Morgan Stanley described the FDA’s order as a positive development because it provides greater flexibility for IQOS to be marketed as relatively less harmful than cigarettes.
“The inability to make relative lower harm claims is a constraint to broader IQOS adoption in the U.S.,” wrote Morgan Stanley analyst Pamela Kaufman.
“Over time, PM can continue to submit additional information towards a full MRTP approval. The modified exposure designation combined with pending PMTA approval for IQOS 3 should accelerate MO’s [Altria’s] U.S. expansion strategy for IQOS. The FDA’s recognition of IQOS’s benefits relative to cigarettes may also enhance IQOS’ perception with international health agencies, helping its growth prospects,” Kaufman said.
Anti-smoking activists were less enthusiastic. In a joint statement, the Campaign for Tobacco-Free Kids, the American Cancer Society Cancer Action Network, the American Heart Association, the American Lung Association and the Truth Initiative, said the FDA marketing order would put consumers at risk.
“With today’s action, the FDA has created a real danger that kids and adults will falsely believe IQOS has been proven to present a lower health risk and that kids will be exposed to marketing that portrays IQOS, a highly addictive tobacco product, as an appealing, cool alternative to cigarettes, in much the same way as e-cigarettes,” the anti-tobacco groups wrote in their statement.
Brian Quigley has joined Respira Technologies as chief operating officer.
Quigley spent 16 years at Altria Group where he was CEO of the smokeless tobacco business from 2012 to 2018.
“We are thrilled to have Brian join the Respira team as we prepare to enter the commercial phase of our company’s growth,” said Mario Danek, Respira’s Founder and CEO. “Brian’s vocal leadership for responsible industry practices and harm reduction combined with his impressive track record of driving business performance in FDA-regulated businesses make him the perfect leader for the next phase of growth for our unique product platforms.”
Respira has developed two proprietary drug delivery platforms designed for safe aerosol-based delivery of drugs to patients and end users, without the creation of harmful byproducts and compounds. According to Respira, the platforms have applications in nicotine-replacement therapies, reduced-harm tobacco products and pharmaceutical drug delivery.
“I am excited to be joining Respira Technologies at this critical moment in the company’s journey,” said Quigley. “I look forward to working with our team, investors and partners as we prepare to commercialize our proprietary drug delivery platforms.”
The U.S. Food and Drug Administration (FDA) has accepted and filed for substantive review premarket tobacco product applications for 35 On! products manufactured by Helix Innovations, an Altria joint venture.
To support these applications, Altria submitted more than 66,000 pages of documentation, including six primary studies.
“We believe the scientific evidence in these applications demonstrates that the marketing of On! is appropriate for the protection of public health,” said Paige Magness, senior vice president of regulatory affairs for Altria Client Services. “On! nicotine pouches are a key part of our vision to responsibly lead the transition of adult smokers to a noncombustible future.”
On! nicotine pouches are tobacco-leaf-free and are available in seven flavors and five nicotine levels. In the fast-growing nicotine pouch category, On! currently offers the broadest portfolio of choices for adult tobacco consumers seeking alternatives to traditional tobacco products, according to Altria.
On! was distributed in more than 28,000 stores at the end of the first quarter, including the top five U.S. convenience store chains by volume. According to IRI, total oral tobacco derived nicotine category sales in 2019 grew approximately 275 percent compared to 2018.
Altria Group has filed suit against competitor R.J. Reynolds Vapor Co. for patent infringement on e-cigarettes and associated products.
Earlier, Reynolds filed its own patent-infringement suit against Altria and Philip Morris International over their IQOS heat-not-burn cigarette, a competitor of Reynolds’ Eclipse.
Filed in the U.S. District Court for the Middle District of North Carolina, USA, Altria’s suit claims that Reynolds Vapor, owned by Reynolds American Inc. (RAI), violated nine patents held by Altria Client Services in producing its Vuse Vapor e-cigarette line. Altria contends that Reynolds’ Vuse brand of e-cigarettes uses heating technology, mouthpieces, batteries and liquid-filled pods covered by Altria’s patents for its Juul e-vapor products.
“Reynolds Vapor has infringed on Altria’s intellectual property, and we are seeking financial damages for each of these violations,” Altria Client Services spokesman George Parman said Thursday, according to the story.
Altria seeks unspecified monetary compensation but asks for “treble damages” for “defendant’s willful infringement” of the patents, as well as awards of compensation, supplemental damages after discovery cutoff and attorneys’ fees and expenses.
Altria Client Services submitted premarket tobacco product applications to the U.S. Food and Drug Administration (FDA) for 35 On! products on behalf of Helix Innovations LLC, an Altria joint venture responsible for manufacturing and selling On! nicotine pouches globally.
On! products are offered in seven flavors and five nicotine levels for adult tobacco consumers seeking alternatives to traditional tobacco products.
“On! nicotine pouches are a key part of our vision to responsibly lead the transition of adult smokers to a noncombustible future,” said Paige Magness, senior vice president of regulatory affairs for Altria Client Services. “We believe the supporting science is strong and are committed to working with the agency on these important product submissions.”
The U.S. International Trade Commission (ITC) will investigate Altria and Philip Morris after a complaint was filed by R.J. Reynolds. The ITC will look into certain tobacco heating elements and components.
The ITC has not made a decision on the case but has said it will make its “final determination … at the earliest practicable time.”
Altria Group announced strong performance from its core tobacco segments in the first quarter of 2020, even as it withdrew its full year 2020 adjusted diluted EPS guidance and 2020–2022 adjusted diluted EPS growth objective due to Covid-19 uncertainty.
The company’s net revenue was up by 13 percent in the first quarter of 2020 over the same period last year.
“The first quarter brought out the best in Altria’s employees as we navigated the dynamic tobacco environment and the unprecedented effects of the Covid-19 pandemic,” said Billy Gifford, Altria’s CEO. “We’ve approached these challenges together by focusing on the health and welfare of our employees, maintaining business continuity and supporting our communities.”
“We had an excellent start to the year, growing our first quarter adjusted diluted EPS by 18.5 percent, driven by the strength of our smokeable and oral tobacco products segments. Due to the uncertainties related to the impact of the Covid-19 pandemic on our diverse business model and economic recovery scenarios, we’re withdrawing our full-year 2020 adjusted diluted EPS guidance and, as a result, we’re also withdrawing our compounded annual adjusted diluted EPS growth objective. We’re continuing to assess the Covid-19 situation and intend to reestablish guidance at the appropriate time.”
“Our dividend is important to our investors and it remains a top priority for us. Our objective continues to be a dividend payout ratio target of approximately 80 percent of adjusted diluted EPS. For 2020, we expect to recommend a quarterly dividend rate to our board that reflects, among other things, our strong cash generation and the strength of our balance sheet.”
Altria is determined to lead the shift toward less-harmful products.
Timothy S. Donahue
The tobacco industry is changing rapidly. Next-generation tobacco products are quickly gaining share. Altria, the largest tobacco company in the U.S., and its subsidiaries have been steadily building a portfolio of noncombustible, nicotine-containing products with the potential for reduced harm. Marty Barrington, Altria’s chairman, CEO and president, says, “It’s a portfolio approach, and ‘portfolio’ is an important word.”
During Altria’s 2017 investor day, held in Richmond, Virginia, USA, in early November, Barrington told attendees that while Altria has led the U.S. tobacco industry on the combustible side of the business for decades, it has simultaneously been preparing to win in the “emerging opportunity to provide adult tobacco consumers with noncombustible, nicotine-containing products” that are authorized by the U.S. Food and Drug Administration (FDA).
“We strongly believe that businesses that are great over the long term—like ours—both maximize today’s business while preparing for tomorrow’s,” said Barrington. “And Altria has been doing just that.”
Not all consumers want the same experience, so it’s important to provide them with product choices, said Barrington. At the same time, he cautioned that too many initiatives can dilute focus. Through its subsidiaries Nu Mark and United States Smokeless Tobacco Co. (USSTC), Altria is concentrating on the three platforms that it believes presently hold the most promise for U.S. adult tobacco consumers: smokeless tobacco and oral nicotine-containing products, e-cigarettes/vapor products and heat-not-burn tobacco products.
Currently, the most profitable noncombustible tobacco product in the world is smokeless tobacco. An estimated 6 million U.S. adults use smokeless tobacco, and many of them are former cigarette smokers, according to research from the U.S. Centers for Disease Control and Prevention. This platform also includes other oral tobacco and nicotine products, including snus as well as nicotine discs and chews.
U.S. Smokeless Tobacco Co.’s manufacturing facility in Tennessee.
Brian Quigley, president of USSTC, said his company plans to file a modified-risk tobacco product application (MRTP) with the FDA for its Copenhagen snuff in the first quarter of 2018. “We believe USSTC is uniquely positioned to achieve this claim because we have been conducting the most comprehensive assessment of the health effects of smokeless tobacco in almost 30 years,” said Quigley.
The Skoal brand also plays a targeted role in USSTC’s harm-reduction strategy, according to Quigley. While growing profitability on Skoal overall, the company is investing to grow Skoal flavor blends and snus. “These products appeal to adult smokers who are interested in smokeless alternatives but are looking for familiar flavors and manageable forms to help them transition,” says Quigley. “Skoal snus is specifically positioned for adult smokers who are interested in oral alternatives to cigarettes, but who want a spit-free option.”
USSTC is also testing Verve, which is designed to provide adult smokers with the ability to use tobacco discreetly, according to Quigley. “We’ve developed four forms of Verve: discs, chews, chewable dissolvables and melts—all in four different flavors. In 2018, we plan to expand the sale of Verve discs at retail in other geographies and through e-commerce,” he says. “We also plan to file our first Verve premarket tobacco [product] application [PMTA] in 2018.”
Embracing vapor
There are an estimated 27 million vapers worldwide, including 10 million Americans, according to Barrington. That makes the U.S. the largest vapor market in the world. Many of these vapers are former cigarette smokers. Nu Mark’s MarkTen e-cigarette, which is available in about 65,000 retail locations and does a substantial online business, has a U.S. share of 13.5 percent in mainstream channels, according to Barrington. “In major chain accounts where it’s been selling for the full third quarter, it’s even higher, at 27 percent,” he said.
Jody Begley, president and general manager of Nu Mark, said 20 million U.S. adult smokers who have tried vapor products went back to smoking cigarettes. “With improved products and accurate relative risk information, we believe we can accelerate adult smoker conversion to e-vapor,” says Begley. “I fully expect Nu Mark to achieve our long-term goal, which is to lead the U.S. e-vapor category through a portfolio of superior reduced-risk products that adult smokers and vapers choose over cigarettes and that generate cigarette-like margins at scale.”
Adult smokers and vapers are looking for a range of different formats, flavors, nicotine levels and vapor volumes in their search for products that will help them quit smoking cigarettes. In response, Nu Mark has developed a portfolio of products that addresses a broad spectrum of adult consumer preferences, which will be required to lead the U.S. vapor market, according to Begley. Nu Mark plans to file PMTAs for its MarkTen products, including MarkTen Bold, in 2018, with MRTPs to follow.
Philip Morris USA’s cigarette factory in Richmond, Virginia, USA
Through a joint development agreement with Philip Morris International (PMI), Nu Mark has exclusive rights to commercialize its Mesh technology, which it put on the U.S. market before the FDA’s Aug. 8, 2016, deeming deadline. The product consists of a closed tank of e-liquid that is heated through a mesh-like metal plate, rather than the traditional wick and coil method. “We’ve received positive results from our initial consumer research, and as a result, we plan to further test this product—called Apex in the U.S.—as a line extension under the MarkTen brand,” says Begley.
Nu Mark has also been working to build strategic partnerships to expand its access to additional products and supply chain capabilities. Two examples of these efforts include a closed-tank product designed specifically for current open-system adult vapers, called Vim by MarkTen, and a small pod-based product, called MarkTen Elite. Begley said both these products were on the market by the FDA’s deadline.
Nu Mark also announced its recent acquisition of an additional pod-based product, called Cync, from Vape Forward. Cync is a small vapor device that uses prefilled pods, similar to the Juul.
Begley acknowledged that the open-system segment is likely to face some regulatory hurdles. “That said, open systems represent a large e-vapor segment and an excellent learning opportunity,” he said.
Recently, the company made a minority investment in Avail Vapor, one of the largest vape store chains in the U.S., with more than 100 company-owned stores.
Richmond-based Avail sells more than 100 premium Avail-branded e-liquids and a wide range of predominantly open-system devices. The company manufactures its own e-liquids in a state-of-the-art ISO-certified clean room and has a full-service analytical science laboratory to support regulatory compliance.
According to Begley, the investment is already paying off. “We’ve gained a better understanding of the vape store channel and adult open-system vapers, and [we] have access to extensive data around adult vaper purchasing patterns,” he says. “Through their retail stores, we’ve also learned a great deal about educating adult tobacco consumers about new products—insights Altria’s companies can apply to other areas of their reduced-risk portfolios going forward.”
Heated expectations
Altria’s heat-not-burn products have found success in numerous countries but are not yet authorized for sale in the U.S. market. The company hopes to change that, as it holds the exclusive right to commercialize PMI’s iQOS heat-not-burn platform and Heatsticks (tobacco sticks used in the device) in the United States once authorized by the FDA. IQOS will be marketed by Altria’s Philip Morris USA (PM USA) subsidiary, according to Sarah Knakmuhs, vice president of PM USA’s Heated Tobacco Products group.
“For those U.S. adult smokers seeking an alternative to conventional cigarettes, iQOS will offer a great sensory experience with similar nicotine satisfaction in a familiar format, using real tobacco, but with no ash and less lingering odor,” said Knakmuhs. “And at the same time, PMI’s extensive regulatory filings for iQOS present a compelling case for the product’s harm reduction potential. For example, the research demonstrates that iQOS reduces levels of 18 harmful and potentially harmful constituents identified by the FDA by over 90 percent, and [it] reduces levels of 15 known carcinogens by more than 95 percent versus conventional cigarettes.”
IQOS
The FDA is currently reviewing both a PMTA and an MRTP application for the iQOS device and three variants of Marlboro Heatsticks, one non-menthol and two menthol. If authorized, PM USA will be able to sell iQOS in the U.S. without a modified-risk claim. PMI submitted the PMTA in March 2017, and the FDA accepted it for scientific review in August. The Tobacco Control Act guides the FDA to act on PMTA applications within 180 days of receipt, so a marketing order could be granted as early as February 2018, though the FDA controls that timing.
The MRTP application was submitted in December 2016, and the FDA accepted it for scientific review in May 2017. If authorized, PM USA would be allowed to explain to consumers that iQOS use presents less of a health risk than combustible cigarette smoking. The FDA will hold a Tobacco Products Scientific Advisory Committee meeting on the MRTP application in January 2018.
Moving forward, Altria expects to remain the undisputed leader in the U.S. tobacco industry, with the best products, brands, manufacturing and sales capability, and the strongest financial performance, according to Barrington. He says that decades of thought leadership and compelling advocacy to promote harm reduction has created both the enabling legislation and regulatory policy that now accepts harm reduction and innovation as the way forward for adult tobacco consumers.
“So, with all that, it should be apparent that we applaud the policy change toward innovation and harm reduction that the FDA announced in July. In fact, we believe the FDA has articulated a compelling vision for the future of innovative products,” says Barrington. “We welcome that future and embrace the challenge. And because we have been preparing for it for years, we are ready to compete, to win and to sustain the leadership that we cherish, but have never once taken for granted.”
Altria Group has acquired the privately held Sherman Group Holdings and its subsidiaries (Nat Sherman). Nat Sherman sells super-premium cigarettes and premium cigars, and joins Philip Morris USA and John Middleton Co. as part of Altria’s smokeable products segment. Terms of the transaction were not disclosed.
“Nat Sherman has a terrific brand portfolio which complements Altria’s existing smokeable product segment,” said Marty Barrington, Altria’s chairman, CEO and president. “Nat Sherman will benefit from the retail distribution, brand management, and adult tobacco consumer engagement expertise of Altria’s companies.”
“We welcome Nat Sherman and its talented employees to the Altria family of companies and look forward to swiftly executing our plans,” Barrington added.
Nat Sherman was founded in 1930 as a family-owned and operated business. Nat Sherman cigarettes are manufactured in Greensboro, North Carolina and are currently in limited distribution throughout the U.S. The company also operates a flagship store in New York City.
“We are excited to have our family’s business join the Altria family of companies,” said Nat Sherman’s executive vice president, Bill Sherman. “We believe Altria will be a great steward of the Sherman company and its brands.”
