Tag: IQOS

Eyes on the Ball

Photo: PMI
Even as cigarette dollar sales increase during the Covid-19 pandemic, IQOS expansion remains Altria’s primary focus.
By Timothy S. Donahue
Covid-19 has slowed the traditional decline of U.S. cigarette sales. With less opportunity to spend on travel and entertainment, consumers have had more money to purchase tobacco products, according to Billy Gifford, CEO of Altria Group. Since the start of pandemic lockdowns in mid-March, traditional cigarette sales have increased over the same period last year, breaking a longstanding trend.
During Altria’s second-quarter earnings call, Gifford said that the cigarette category has proved resilient during the pandemic. Based on year-to-date industry volume performance, the largest U.S. cigarette manufacturer has adjusted its estimated 2020 volume decline rate to a range of 2 percent to 3.5 percent, down from its previous estimate of 4 percent to 6 percent. The company also increased its annual dividend by 2.4 percent, saying it had more clarity on the pandemic’s effects on consumer demand. It is the company’s 51st consecutive annual dividend increase.
“Remember, last year, the cigarette category peaked its decline at 6 percent, then it receded to 5.5 percent in the third, and then down to 4.5 percent in the fourth,” Gifford said. “So a little bit tougher comparisons were also included in that forecast. But it’s a fluid environment and it’s something that we’ll continue to monitor.” Altria’s forecast was lower than its prior outlook, which was withdrawn due to the uncertainties around the pandemic’s economic impact.

Advertisement
Cigarette sales have seen a series of ebbs and flows through the first half of 2020. When some U.S. state governors began issuing stay-at-home orders in mid-March, combustible cigarette sales volume rose 1.1 percent for the week that ended March 22, according to Nielsen. Those sales were likely generated by consumer stockpiling, according to Gifford. For the four-week period that ended May 16, Nielsen reported only a 0.2 percent decline in sales volume for traditional cigarettes. Comparatively, sales volumes in 2019 fell 8.8 percent over the previous year (2018) in the four weeks to March 23, according to Nielsen data.
Bonnie Herzog
Bonnie Herzog, managing director at Goldman Sachs, stated in an email that the cigarette category is now holding steady. All channel cigarette dollar sales growth was up 3.1 percent for the two weeks ending on July 25. “Higher pricing more than offset a deceleration in cigarette volume, which was down 2 percent during the same time,” she said.
The pandemic is not the only factor driving increases in cigarette sales. Gifford says restrictions on e-cigarette flavors and the Sept. 9 deadline for premarket tobacco product applications (PMTA) to the U.S. Food and Drug Administration (FDA) have come together to create a perfect storm that is driving vapers back to combustible cigarettes.
Gifford told listeners that Marlboro’s second-quarter retail share for the overall cigarette category was 42.8 percent, down six-tenths versus the year-ago period. In April, Altria reported that older smokers who had switched to e-cigarettes were turning back to traditional cigarettes because of negative news coverage and regulatory crackdowns on vaping.
“As you’ll recall, earlier this year we noted an increase in the number of adult smokers aged 50-plus who moved from the e-vapor category back into cigarettes benefiting volumes from Marlboro and the cigarette category,” he said. “This demographic has a greater tendency to purchase discount brands than younger adult smokers, which increased the discount segment share at the start of the year. We believe the effect of this dynamic will have a lingering impact on Marlboro’s year-over-year retail share comparisons through 2020 … when you think about that, it’s a bit early on to tease out the exact impact from both of those, but that’s something that we’ll continue to monitor as we move forward.”

Altria’s headquarters in Richmond, Virginia, USA
Photo: Altria Group
Looking toward the second half of 2020, Altria has high hopes for its IQOS heat-not-burn device. On July 7, the FDA issued exposure modification orders to IQOS. Gifford said he was pleased with the FDA authorization to market IQOS as a modified-risk tobacco product (MRTP) with a reduced-exposure claim. The FDA’s decision includes the device’s holder and charger as well as Marlboro HeatSticks, Marlboro Smooth Menthol HeatSticks and Marlboro Fresh Menthol HeatSticks.
IQOS is the first next-generation product to receive an MRTP. In a statement, the agency concluded that the available scientific evidence demonstrates that IQOS is expected to benefit the health of the population as a whole, taking into account both users of tobacco products and persons who do not currently use tobacco products.
According to the FDA website, a reduced-risk claim authorization would generally allow a company to say a product is less harmful than combustible cigarettes. However, according to the FDA, the current reduced-exposure claim authorization allows the manufacturer to only state that IQOS heats rather than burns tobacco and significantly reduces the production of harmful and potentially harmful chemicals. The decision follows a review of the extensive scientific evidence package Philip Morris International (PMI) submitted to the FDA in December 2016 to support its MRTP applications.
IQOS is produced by PMI and marketed in the U.S. by Philip Morris USA (PM USA), a subsidiary of Altria Group. Gifford said PM USA is making the necessary preparations to communicate the reduced-exposure claim to adult smokers, which includes developing new marketing assets and submitting them to the FDA in advance of being used.
“We’re looking forward to communicating with adult smokers the additional benefits of switching to IQOS. We’re excited to get back on track with our IQOS rollout and our future expansion plans to accelerate adult smoker conversion,” he said. “As many parts of the country began lifting restrictions in June, PM USA reopened the Atlanta and Richmond IQOS boutiques and just last week launched IQOS in its third lead market by opening a boutique in the SouthPark mall in Charlotte.”

Advertisement
Over the next 18 months, PM USA plans to launch IQOS in four new markets with large adult smoker populations and expand the availability of IQOS devices through retail partnerships, explained Gifford. PM USA also plans to expand its HeatStick distribution to the surrounding geographies in all seven IQOS markets. He said the commercialization approach for IQOS is designed to maximize the organic growth potential of the device by focusing first on the densely populated metro areas and then expanding outward as the user base grows.
“In Charlotte, PM USA launched a more disruptive retail fixture that communicates the benefits of real tobacco, no ash and less odor and expects to begin HeatStick distribution to retail stores in the next few weeks. By the end of August, we expect HeatSticks to be in a total of 700 retail stores across the three lead markets,” he said. “PM USA will continue to leverage its IQOS retail ecosystem, including IQOS mobile, pop-up and kiosk retail formats, which allows for more strategic and agile marketing plans. We’re making several digital enhancements to the IQOS website too.”
The IQOS website now includes virtual tutorials, and a new expert video chat functionality will be available this fall, according to Gifford. These digital enhancements and “the ability to have devices delivered to smokers in lead markets with the proper age verification” will provide smokers with a variety of options to “learn about and access IQOS,” said Gifford, adding that PM USA expects to use its “first-mover advantage” to expand IQOS responsibly.
“Our commercialization strategy is based on the learnings from our IQOS lead markets and PMI’s international results paired with our desire to continue avoiding use by unintended audiences. We believe that a sustained focus on the consumer journey from awareness to conversion is the key to achieving our vision,” Gifford said. “Word of mouth among IQOS users and their fellow adult smokers has been a critical factor to the global success of IQOS.”

Advertisement
Timothy Donahue is the assistant editor of Tobacco Reporter. Since joining our team in January 2013, he has become not only an expert on the traditional tobacco business but also a well-respected voice in the rapidly developing vapor industry. Tim spends much of his time on the road, attending conferences and interviewing industry representatives. His networking skills, work ethic and quick mind are valuable assets to our diverse audience.

September 1, 2020
Australia Rejects Tobacco Heating Products

Photo: Tobacco Reporter archive
The Therapeutic Goods Administration (TGA) in Australia rejected an application from Philip Morris (PM) that would have allowed the sale of heated-tobacco products.

This follows the Australian government’s ban on the import of nicotine-based e-cigarettes. Health Minister Greg Hunt planned to implement the ban beginning July 1 of this year, but the ban has now been pushed back to the beginning of 2021 to allow those who have been using e-cigarettes with nicotine to quit smoking combustibles to get prescriptions and end their addiction.

The ban would make the import of vaporizer nicotine and e-cigarettes allowable only with a doctor’s prescription.

There were 82 submissions in the TGA decision that supported heated-tobacco products, and the U.S. Food and Drug Administration concluded that PM’s tobacco-heating product “is expected to benefit the health of the population as a whole.” The TGA received submissions from the Lung Foundation, Cancer Council Australia, Australian Council on Health and Smoking, and the National Heart Foundation, though, that stated their concerns regarding public health risks of heated-tobacco products. The TGA ultimately decided there were “significant safety concerns with heated-tobacco products,” according to news.com.au.

“Study after study shows that scientifically substantiated smoke-free products that do not generate smoke, while not risk-free, are a much better alternative for adult smokers who would otherwise continue to smoke cigarettes,” said Tammy Chan, Philip Morris managing director. “It’s time Australian authorities recognize that many adult smokers will continue to smoke cigarettes—the most harmful way of consuming nicotine—unless the government rethinks its tobacco control policy. Smoke-free products can play a role in reducing smoking rates.”

According to Chan, Australia’s stance on smoke-free products is at odds with other countries; heated-tobacco products are available in 50 other countries.
August 24, 2020
Malawi Takes Heart From IQOS Approval

Photo: Taco Tuinstra
Tobacco growers in Malawi are hoping that recent marketing orders by the U.S. Food and Drug Administration (FDA) for Philip Morris International’s (PMI) IQOS tobacco-heating device will translate into greater demand for their leaf, according to an article in The Nyasa Times.

One of the world’s leading producers of burley tobacco, Malawi has seen demand for its primary export drop in recent years due to growing health awareness and anti-smoking measures worldwide.

In 2019, Malawi realized only about $232 million after selling 160 million kg of all types of tobacco. By comparison, the country earned $361 million from the sale of 192 million kg in 2014.

On July 7, the FDA issued exposure modification orders to PMI, allowing the company tell consumers that IQOS produces fewer harmful and potentially harmful chemicals than combustible cigarettes. Earlier, the agency approved PMI’s premarket tobacco product application, allowing PMI to sell IQOS in the U.S.

The marketing orders are expected to boost demand for IQOS.

Tobacco remains Malawi’s top foreign exchange earner.
August 10, 2020
WHO Remains Skeptical About Heating Products

Photo: Tobacco Reporter archive
The World Health Organization (WHO) has reminded its member states of their tobacco obligations under the Framework Convention of Tobacco Control (FCTC) in relation to heat-not-burn products (HNB).
“Heated tobacco products are tobacco products, meaning that the WHO FCTC fully applies to these products. [Rules] obliges Parties, to prohibit ‘all forms of tobacco advertising, promotion and sponsorship that promote a tobacco product by any means that are false, misleading or deceptive or likely to create an erroneous impression about its characteristics, health effects, hazards or emissions,” the health body wrote in a statement.
The WHO claims that reducing exposure to harmful chemicals in HNB products does not render them harmless, nor does it translate to reduced risk to human health. “Indeed, some toxins are present at higher levels in [HNB] aerosols than in conventional cigarette smoke, and there are some additional toxins present in [HNB] aerosols that are not present in conventional cigarette smoke,” the WHO wrote. The organization also claims that the health implications of exposure to HNB products are unknown.
The WHO statement comes after the U.S. Food and Drug Administration (FDA) authorized Philip Morris International to make a modified exposure claim about its IQOS HNB device in the United States.
The WHO says there is no proof that HNB products are safer than cigarettes. “Given that health may be affected by exposure to additional toxins when using [HNB], claims that [HNB] products reduce exposure to harmful chemicals relative to conventional cigarettes may be misleading.
“Moreover, the relevant orders grant a temporary market authorization within the U.S. and are based on factors specific to the US, which is not a Party to the WHO Framework Convention on Tobacco Control.”
July 28, 2020
FDA Grants IQOS Exposure Claim
Photo: PMI
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.
IQOS is the first tobacco product to receive exposure modification orders and the second to be authorized as a modified risk tobacco product. In October 2019, the FDA authorized Swedish Match U.S. division’s amended MRTP applications for eight varieties of General Snus, giving the company the right to market the product as a less harmful alternative to cigarettes.
July 8, 2020
PMI Countersues RJR For Patent Infringement

Photo: PMI
Philip Morris International (PMI) filed counterclaims against R.J. Reynolds Tobacco Co. (RJR) for patent infringement in the federal court action that RJR commenced against PMI and Altria, PMI’s IQOS distributor in the U.S., on April 9, 2020 in the Eastern District of Virginia.
PMI also filed a partial motion to dismiss RJR’s claims against it. PMI believes that RJR’s infringement action is without merit, and that RJR’s own electronic nicotine delivery system (ENDS) products infringe multiple patents owned by PMI and Altria. PMI is bringing counterclaims to recover “the considerable damages” caused by RJR’s infringements.
“RJR appears to have brought this action in the hopes of stopping [PMI’s] innovative IQOS heated tobacco system, which has a proven track record in switching smokers away from combustible cigarettes, from disrupting its core business in combustible cigarettes and overtaking its secondary line of e-vapor products,” the filing states.
“Having failed to develop a competing offering in the heated tobacco space, RJR apparently now seeks to block that space in its entirety by bringing this meritless litigation. But in its haste to do so, RJR has overlooked the fact that its own line of e-vapor products (which are far less effective in switching smokers away from combustible cigarettes than IQOS) infringe multiple patents owned by [PMI].”
The counterclaim alleges that RJR was concerned by the commercial threat posed by IQOS, and RJR is now attempting to stop IQOS with this case. “But in its haste to stop IQOS, RJR committed two fatal errors. First, it asserted meritless patent claims,” the filing states. “Second, it overlooked the fact that its own e-vapor products infringe multiple patents owned by [PMI] and co-defendants Altria Client Services and Philip Morris USA, Inc. [PMI] thus responds to RJR’s Complaint and brings counterclaims to recover the considerable damages flowing from RJR’s infringement.”
June 30, 2020
Shunbao Technology Banned From Selling IQOS ‘Knockoff’ in U.K.

Photo: PMI
A London judge has prohibited Shenzhen Shunbao Technology from marketing an alleged “knockoff” of Philip Morris Product’s (PMP) IQOS tobacco heating device in the U.K. because of European design protections.
High Court Judge Anthony Mann granted PMP’s request for default judgment in the case since Shunbao Technology had not participated in the proceedings.
He also granted PMP’s request to extend the intellectual property protections the company currently has for its product under a European Union registered community design so it will remain in effect in the U.K. after Britain leaves the bloc.
The smoking device dispute dates to November 2018 when PMP sued Shunbao Technology for infringement of its registered design.
Phillip Morris filed its claim in the U.K. shortly after discovering the rival company had created a “cheap knockoff” smokeless product called AMO that was already being marketed in China, according to its written arguments to the court.
May 18, 2020
PMI Investigated for Tobacco Heating Patent Infringement

Photo: R.J. Reynolds Vapor Co.
The U.S. International Trade Commission (ITC) has opened a probe into vapor products imported by cigarette giant Philip Morris USA (PM) after R.J. Reynolds complained that PM’s tobacco-heating system infringes Reynolds’ patents, according to a report by Law360.
The investigation will determine whether the IQOS tobacco vaporizers marketed by Philip Morris and parent company Altria use tobacco-heating systems and sticks that violate patents for R.J. Reynolds’ Vuse vaping system. R.J. Reynolds seeks cease-and-desist orders barring imports of the allegedly infringing products.
The patents describe a device that heats tobacco held in a removable cartridge to 350 degrees when vapors containing nicotine are released without producing smoke, according to R.J. Reynolds’ April 9 complaint to the ITC.
R.J. Reynolds, which is owned by British American Tobacco, said Philip Morris has sold the alleged copycat IQOS system in the U.S. since October 2019 and has imported the product from manufacturers in Italy, Switzerland and Malaysia for years to use in clinical testing.
“We believe the allegations are without merit, and we are fully prepared to defend ourselves,” Philip Morris spokesman Corey Henry told Law360 in a statement Wednesday, noting the company has spent $7 billion developing its smoke-free tobacco products over the past two decades.
R.J. Reynolds filed a suit accusing Altria and Phillip Morris of six counts of trademark infringement in Virginia federal court the same day R.J. Reynolds filed its ITC petition. In that case, the company seeks treble damages and court declarations that Altria and Philip Morris have infringed its intellectual property.

Photo: PMI
May 18, 2020
Turning up the heat
Tobacco heating products may be even more effective in helping smokers quit than are e-cigarettes.
Since the December 2016 launch of Philip Morris International’s iQOS in the U.K., about 70 percent of people who used the heat-not-burn device managed to give up conventional cigarettes compared with a conversion rate of about 15-20 percent for those who used vapor products, according to Peter Nixon, managing director of PMI in the United Kingdom.
Nixon called the phenomenon “unprecedented.”
While vapor products use nicotine-laced e-liquids, iQOS heats tobacco sticks, called Heets, to a high enough temperature to create a vapor but not smoke.
British American Tobacco and Japan Tobacco are also selling similar devices, but PMI is currently the market leader, according to Nixon.
Nixon told the BBC that the company hopes to produce 100 billion Heets next year, up from less than 400 million in 2015.
July 3, 2017
‘Heets’ facility in Germany
Philip Morris International plans to invest approximately $320 million in a new high-tech facility in Dresden, Germany, to produce “Heets,” the tobacco units to be used with the electronic tobacco heating device IQOS.
Construction of the 80,000 square meter facility is scheduled to begin in late 2017. Once fully operational in early 2019, the factory is expected to employ about 500 people.
IQOS and Heets have been available for adult smokers in Germany since June 2016, starting with pilot commercialization in Munich, Frankfurt and Berlin. IQOS is currently available in key cities in more than 25 markets around the world.
“This investment represents another step towards a future in which smoke-free products replace cigarettes,” said André Calantzopoulos, PMI’s CEO. “Already, over two million people have given up smoking and switched to IQOS, and we know this is just the beginning. We are fully committed to meet smoker demand for potentially less harmful alternatives to cigarettes.”
“We are encouraged by the successful launch of IQOS in Germany and its performance in other European countries,” said Frederic de Wilde, president of PMI’s European Union region. “Europe has become a hub for PMI’s research, development and investment in better alternatives to cigarettes.”
With this announcement, Germany will join a growing list of countries where PMI manufactures tobacco units for IQOS, including Italy and Switzerland. In addition, PMI recently announced the conversion of the cigarette manufacturing facility of its affiliate in Greece. By the end of 2018, PMI plans to have a total annual installed capacity of heated tobacco units of approximately 100 billion units.
IQOS is one of four smoke-free product platforms that PMI is developing to address adult smoker demand for better alternatives to cigarettes.
Since 2008, PMI has hired more than 400 scientists and experts and invested over $3 billion in research, product development and scientific substantiation for smoke-free products. The company shares its scientific methodologies and findings for independent third-party review and verification, and has published its research in more than 200 articles and book chapters since 2011.

June 19, 2017