Tag: Japan Tobacco International

  • JT Boosts Investment in Heating Products

    JT Boosts Investment in Heating Products

    Photo: JI

    Japan Tobacco will invest ¥300 billion ($2.25 billion) in its tobacco-heating products (THPs), with ¥200 billion designated for marketing the sticks internationally, reports Nikkei Asia

    “Last year, we couldn’t make the investment because there were not enough [heated-tobacco] devices due to the semiconductor shortage,” Japan Tobacco President Masamichi Terabatake was quoted as saying. “For 2023, we are back on track for procurements, and we are able to secure more than twice Japan’s supply volume compared to last year.”

    JT plans to roll out its Ploom X THP in more than 10 countries this year, reaching at least 20 new countries by the end of 2024. Currently available only in Japan and the U.K., the product is set to debut in Italy this month.

    To gain name recognition, JT will invest in pop-up shops and digital sales. It will develop flavors that match the tastes of each market.

    In the U.S., JT formed a joint venture with Altria Group. The partners will seek permission from the Food and Drug Administration to market Ploom by early 2025.

    While JT’s THP segment is currently in the red due to the forward investments, the company anticipates turning a profit in 2028 on overseas growth.

    JT will also invest in research and development, looking to develop the second generation and third generation of Ploom X devices.

    Global sales volume for cigarettes shrank 1.5 percent last year, JT said. By contrast, the global market for THPs last year grew 17 percent to $33.4 billion, according to Euromonitor International.

  • Chasing Unicorns

    Chasing Unicorns

    Photo: pimmimemom

    In their quest for cutting-edge innovations, tobacco companies have set up venture capital subsidiaries.

    By Stefanie Rossel

    Incessant innovation is at the heart of tobacco companies’ transformation process. Eager to move their businesses away from combustible cigarettes toward less hazardous alternatives and opportunities beyond nicotine, cigarette manufacturers have invested billions of dollars into innovation and scientific research. They have substantially expanded their research and development teams, recruiting talent from sectors such as consumer electronics while acquiring companies in adjacent business areas, including pharmaceutics.

    To avoid missing out on innovative trends and new technologies, however, tobacco companies in their transformation process need to think out of the box, or rather outside the organization, and keep an eye on the startup scene. For this purpose, the leading players have established platforms to serve windows on future technologies. In addition to using corporate venture capital (CVC), they are  working with incubators, accelerators and universities.

    Japan Tobacco International has chosen the latter approach. In March 2019, it teamed up with Silicon Valley-based Plug and Play Tech Center, a technology incubator, to run Vapetech, a program aimed at bringing together innovators and data experts to develop technology that improves the user experience and health benefits of vaping. Each year, Plug and Play selects about 20 startups that will develop ideas and solutions for a more enhanced vaping experience, JTI said in a statement. Startups with new devices or technology applicable to the Internet of Things (IoT), biometrics, data and lifestyle will enter a three-month program to develop their products and services and have access to investment and corporate partnerships.

    “We need new innovative products coming on in future years, so the Vapetech process will be really instrumental,” explains Suzanne Wise, senior vice president of corporate affairs and communications at JTI. “We surround startups with the right ecosystem and provide them with all they need. It’s a process where you get people completely from outside the industry, with different mindsets, who are looking at what we are facing as challenges, and they just come up with stuff that we say, gee, why not us?”

    Wanted: Extraordinary Solutions

    With PM Equity Partner (PMEP), Philip Morris International was the first tobacco company to set up a CVC division in 2016. CVC is a variant of venture capital where the required capital comes from a corporation outside of the financial sector. In contrast to risk financing, which primarily aims to generate a return for the venture capitalist, CVC also pursues strategic goals.

    Established companies use their CVC arms to develop new technologies or new business models, to explore other markets or for diversification. Staying ahead of competitors in a specific market is another motivation for CVC. In turn, startups benefit not only from the funding but also from getting access to technological know-how, distribution channels and cooperation partners.

    PMEP invests in early stage and growth-stage companies with technology-based business models and proven commercial traction, such as existing revenue or contracts, that fit into the focus it shares with its parent company: the ambition to replace cigarettes with smoke-free alternatives and explore new markets beyond nicotine.

    Candidate companies should be able to make a positive, significant and sustainable contribution to PMI’s core business and science-centric, technology-driven smoke-free vision, and they should operate in one of the four investment corridors defined by PMEP: life sciences, industrial technologies, consumer engagement and product technologies. Aspirants could, for example, offer innovations in inhaled therapeutics and computational research methodologies, industrial robotics and automation, or technology-based process optimization. Or they could bring in their solutions for bioauthentication, user identification or innovative customer care.

    “The startup should have developed an innovation in one of these areas that substantially differs from other technologies currently used in its respective market segment,” explains Alexander Stoeckel, head of PMEP. “Furthermore, it should have left the startup phase behind and ideally have customer relations or a testable prototype because usually we test the startup’s innovation together with PMI’s respective departments and decide on an investment after we have understood which contribution this technology could contribute to our success as PMI.”

    Strong Funding Basis

    Being the CVC arm of a well-known company such as PMI helps generate business, according to Stoeckel. The fact that PMEP’s parent company is a tobacco corporation hasn’t been any hindrance yet, he says. “Founders are regularly surprised to find out how professional and broadly positioned PMI is.”

    The CVC team is in constant communication with PMI’s division heads to identify their challenges, suggestions, problems and innovation requirements in order to find startups that develop or already market matching solutions. In return, the investee companies will be able to make use of PMI’s extensive R&D capabilities, operational and marketing excellence, and deep involvement in supply chain. PMPE says it provides its entrepreneurs with long-term support not only in financing but also for mutual benefits at strategic and commercial levels. More precisely, it helps entrepreneurs strategize, steer partnerships, help with negotiations and raise and utilize capital.

    In October 2021, PMI allocated a further $200 million to the CVC’s initial $150 million investment. According to the company, ideal investments are between $2 million and $10 million in Series A stage companies, with flexibility to also consider investments in seed or late-growth companies. (Series A funding is the first round after the seed stage; companies need to have a strong plan for developing a business model that will generate long-term profit.)

    To date, PMEP has invested in 13 companies, according to Pitchbook.com. Among the companies still in PMEP’s portfolio is BOW Group, a startup specializing in wearables, connected vehicles and smart home products. The company is supporting PMI to deliver on its commitment of a consumer-centric ecosystem. Another investee company, Biognysis, enables PMI with its disruptive technology to identify biomarkers and understand the biological impact of switching to PMI’s IQOS heated-tobacco product.

    Driving the Change

    BAT created BTomorrow Ventures (BTV) in 2019 and established a £150 million ($176.33 million) fund to help accelerate BAT’s transformation. As BTV’s managing director, Lisa Smith, pointed out during the recent GTNF in Washington, D.C., “Transformation requires innovation, and BTV has set up a number of innovation ecosystems. It’s a highly competitive market, and finding the best innovators out there is difficult. Our role is to be the outward-looking ‘handshake’ to the outside world to show that we are the preferred partner of choice.” BTV’s job, she said, was to channel these innovators to the right part of its business. “There are many tasks in transformation, such as to quickly move the environmental, social and governance (ESG) agenda and to build the science and credibility to be able to operate in the beyond-nicotine world.”

    The CVC therefore invests in specialist categories, including consumer brands, digital transformation, new technologies, future sciences and sustainability. BTV has also established an accelerator and growth platform called BTV Labs and divided them it three categories: Consumer Delight Lab (focusing on consumer brands), Futures Lab (focusing on science, technology and digital) and an ESG Lab. In its portfolio are businesses from the functional food and beverage, electronic equipment and instruments, and cannabinoid sectors. To date, BTV has invested in 22 companies. Unicorn-nest.com estimates that the average round size was $3 million. With building a community a core part of BTV’s value proposition, the corporate venture unit stages “Binspired” events, a collaborative forum for CEOs or founders, investment partners and senior executives. In addition, it runs the “Battle of Minds” in partnership with BAT, which is a “business pitch” competition for students, graduates and early stage startups from around the globe.

    Lexy Prosszer, BTV’s investment principal who previously worked in BAT’s merger and acquisitions department, says that BTV was established to accommodate a different type of deal. “M&A was not set up to deliver on that in terms of speed, scale and credibility to get these entrepreneurs at the table to want a conversation with us and believe that BAT has got the right intentions to change and transform. With BTV, we’re meeting a real need that the corporate [sphere] has.”

    According to Prosszer, collaborating and engaging with startups has contributed to shift in mindset among BAT employees, encouraging them to do things faster. “They’re excited, engaged and love working with the entrepreneurs. Much has been achieved. It’s been a cultural shift to being open to how an entrepreneur might do things and how that can be leveraged to us to get our result faster.”

    Through BTV, observes BAT Finance and Transformation Director Tadeu Marroco, the company suddenly has access to understanding better products that otherwise would take ages to develop internally. “We can be closer to them and see how they perform in the markets. For entrepreneurs, it means that they can leverage on the massive strengths that BAT has as a multinational company with massive distribution capabilities.”

  • A Taste of Things to Come?

    A Taste of Things to Come?

    Nveed Chaudhary | Photo Courtesy of the Broughton Group

    What the recent marketing denial order for Logic’s menthol vapes implies for flavored e-cigarettes

    By Stefanie Rossel

    On Oct. 26, the U.S. Food and Drug Administration wrote a new chapter in the story of electronic nicotine-delivery systems (ENDS) regulation. That day, the agency for the first time rejected a premarket tobacco product application (PMTA) for a menthol e-cigarette. Logic Technology Development received marketing denial orders (MDOs) for its Logic Power Menthol E-Liquid Package and its Logic Pro Menthol E-Liquid Package.

    In a press release accompanying its decision, the FDA said the rejection was based on a full scientific review. The applications, the FDA argued, “lacked sufficient evidence to demonstrate that permitting the marketing of the products would be appropriate for the protection of the public health.” The evidence provided within the application, it said, did not demonstrate that these menthol-flavored e-cigarettes were more effective in promoting complete switching or significant cigarette use reduction relative to tobacco-flavored e-cigarettes among adult smokers.

    In its statement, the agency also referred to the 2022 National Youth Tobacco Survey (NYTS), which had been released shortly before the Logic MDO. “For nontobacco-flavored e-cigarettes, including menthol-flavored e-cigarettes, existing evidence demonstrates a known and substantial risk with regard to youth appeal, uptake and use,” the FDA wrote.

    Tobacco harm reduction advocates were dismayed. The MDO shattered their hopes that mentholated vapor products would be allowed to remain on the market as a less risky alternative to mentholated cigarettes, which the FDA wants to prohibit. They were also surprised given that the FDA in late 2021 authorized 22nd Century Group to market its reduced-nicotine VLN Menthol King brand as a modified-risk tobacco product.

    According to data by the Centers for Disease Control and Prevention, menthol-flavored products accounted for 37 percent of all cigarette sales in the U.S. in 2019 and 2020.

    Misplaced Priorities

    Critics also lambasted the agency’s focus on the risk of youth uptake at the expense of the opportunity to move adult smokers to lower risk products. Christopher Russell, director at Russell Burnett Research and Consultancy, made up a quick calculation based on recent NYTS data. Of the 2.55 million U.S. students who had used an e-cigarette in the past 30 days according to the survey, 84.9 percent had used flavored vapes. Of the current flavor vapers, 26.6 percent consumed menthol ENDS, which corresponded to 2.12 percent of U.S. youth having vaped menthol in the past 30 days. “MDOs for menthol e-cigarettes,” he concluded, “equals banning menthol to 100 percent of adults in order to protect under 3 percent of youth.”

    Neil McKeganey, co-director of the Centre for Substance Use Research, went a step further, quoting a Scottish study carried out by his institution that looked at ENDS use among representative samples of U.S. youth and adults in 2021 and 2022. Out of the 1,215 youth aged 13 to 17 surveyed in 2022, he said, 0.2 percent had ever used a Logic Power and 0.5 percent had ever used a Logic Pro.

    When the Scottish researchers looked at youth e-cigarette use over the last 30 days, the levels of Logic use shrank to 0.1 percent of youth reporting having used the Logic Power during that period whereas the level of Logic Pro use was so low that it was not even recorded.

    “In dispatching the MDOs for these two products,” he stated, “the FDA seems to have set aside a commitment to review the data around individual devices and liquids and to formulate a response in terms of the brand of products being used and justify the denial orders issued by reference to the NYTS data.”

    Jim McDonald of Vaping360 predicted a rise in illicit trade if the FDA blocks the legal path to market for menthol vape products. The FDA, he said, ignored the fact that most youth vapers use unauthorized gray market flavored disposable vapes, many of which are menthol flavored. “They will continue using these products, too, while the FDA pursues its goal of eliminating legal vaping, locked into the belief that its ‘authority’ has some effect on the market,” wrote McDonald.

    In March, the FDA authorized Logic devices with tobacco-flavored refills. To date, the agency has not approved a single vapor product with nontobacco flavors.

    Shortly after receiving its MDO, Logic Technology Development secured a stay of the FDA order in court, allowing retailers and wholesalers to continue selling Logic menthol products for the duration of the stay. Even if the court requires the FDA to reevaluate the evidence, this does not guarantee a more favorable outcome for Logic and the future of menthol vape in the United States.

    Understanding the FDA’s Requirements

    Despite Logic Technology Development’s travails, Nveed Chaudhary, chief scientific and regulatory officer at Broughton Group, is confident the recent MDOs do not mark the beginning of the end for menthol and other nontobacco-flavored e-liquids in the U.S.

    While he agrees with McKeganey that the FDA’s positions are being driven in large part by the data from cross-sectional studies like the NYTS, Chaudhary believes the fundamental issue is how the PMTA studies were designed, how the data has been interpreted and how the arguments have been presented to the FDA. “Based on the original PMTA guidance and then the Final Rule, many, if not all, of the applications for menthol and nontobacco-flavored products were considered to be ‘equal,’” he says. According to Chaudhary, the relative benefits of all the ENDS flavors together were compared with the risks of smoking combustible cigarettes. The youth access measures introduced were the same across all flavors of a given platform.

    “What has become very clear from the FDA’s recent communications, especially through the MDOs, is that they do not consider all flavors of ENDS to have the same risk profile—in this case, the risk of promoting on-ramping amongst youth,” says Chaudhary.

    “Therefore, the expectation from the FDA has evolved. Given the data from studies such as NYTS, the FDA are now saying that the PMTA applications need to demonstrate that there is additional benefit of the menthol over tobacco flavors for current smokers—essentially that the additional benefit outweighs the continued risk of youth finding menthol more attractive. Over time, as the industry presents this data to FDA and FDA begin to approve menthol-flavored products, I can imagine a situation where the same would apply to other nontobacco and nonmenthol flavors—only that, for these flavors, an additional benefit for smokers compared with menthol that outweighs the risk on youth use would be required.”

    Remediating Deficiencies

    Chaudhary believes that “with the addition of a few relatively inexpensive studies and an overhaul of the dossier to build the arguments that FDA want to see,” Logic Technology Development should be able to convince the agency of the additional benefits of nontobacco flavors.

    Attempts at rectification, however, may prove futile. In January 2020, the FDA banned all flavors except tobacco and menthol in cartridge-based e-cigarettes. In September 2020, the agency signaled that it would not authorize flavored products without extraordinary evidence. With Logic Technologies Development being part of Japan Tobacco International, one of the world’s leading players, it may furthermore be assumed that the company submitted a very comprehensive application.

    While acknowledging that many of the applicants are large multinationals with the financial power to conduct large complex studies, Chaudhary says this does not mean that the studies that the FDA is now looking for were in fact conducted. “It all goes back to the industry’s understanding of the PMTA guidance and final rule back in September 2020 and the way in which the FDA have chosen to enforce the rule today,” he says. “The ongoing view of FDA is that that NYTS illustrates a preference for menthol flavors amongst youth. Therefore, since the original studies were designed to compare all flavors of ENDS to combustible cigarettes; they are not geared to demonstrate additional benefit of menthol flavors compared with tobacco flavors. I would say for any new applications, that has to be a central question to which the application must provide answers.”

    Chaudhary deems it likely that much of the data required to build these arguments already exists in the comprehensive PMTA applications—perhaps with some gaps that could be potentially filled with relatively inexpensive studies. He expects the FDA to apply the same logic to flavored disposable products, which are exempt from the agency’s 2020 flavor ban and have recently experienced a surge in sales. “I would imagine that unless any company has constructed their PMTAs to show the additional benefit of flavors compared to menthol and menthol compared with tobacco flavor, they will also receive MDOs,” says Chaudhary.

    “I think we all agree that this is awful news for U.S. smokers who will be denied the wide range of options that they need to stop smoking,” he continues. “It seems that the only way to re-offer smokers these critical choices is to ensure that we as an industry are responsible. We must ensure that we understand the evidence the FDA want to receive and provide this data to them so that menthol and ultimately other flavors can be authorized back into the marketplace, and all smokers can continue their off-ramping journeys.”

    Chaudhary says the industry needs to move forward, put aside grievances that have arisen as a result of how the FDA has enforced the PMTA final rule and provide the agency with the data it wants to see to ensure that smokers can have these products in their hands at the earliest opportunity.

    “Any integrated technology that can minimize or even eliminate underage use of e-cigarettes would lower the risk of youth use and therefore lower the bar for the additional benefit data that the FDA are now asking for,” he says.

  • Firms Urge Crackdown on Illicit Trade

    Firms Urge Crackdown on Illicit Trade

    Photo: Ivan Semenovych

    Tobacco companies have called on the government of Ukraine to crack down on the illegal cigarette trade, reports Interfax Ukraine.

    Speaking during a roundtable discussion organized by the American Chamber of Commerce in Ukraine, Philip Morris Ukraine General Manager Maksym Barabash noted that war, inflation and the associated drop in consumer incomes had accelerated the growth of the illegal tobacco market in Ukraine.

    In August 2022 alone, the share of illegal tobacco products grew by 5 percentage points to 21.9 percent from 16.9 percent in 2021. According to Barabash, the state misses out on UAH44 ($1.19) from each illegal pack of cigarettes. To date in fiscal year 2022, the state budget has already lost UAH20.6 billion in unpaid tobacco taxes.

    To facilitate the fight against illegal cigarettes, tobacco companies proposed the creation of a joint working group with a coordination center in the Office of the President.

    “Countering illegal turnover of tobacco products belongs to the competence of several regulatory and law enforcement agencies,” said Svitlana Sharamok, general manager of Japan Tobacco International Ukraine. “However, due to the unclear division of powers, these agencies do not always work in a coordinated manner and sometimes even compete with each other.”

    Sharamok added that the work of the new group should not be judged by the number of raids or confiscated cigarettes but by the decrease in illegal sales.

  • Ploom X Debuts in the United Kingdom

    Ploom X Debuts in the United Kingdom

    Photo: JTI

    Japan Tobacco International has launched its Ploom X heated-tobacco device at select locations in the United Kingdom, the company announced in a press release. This product is now available in the Greater London area, at pop-up stores in Shoreditch, online nationwide and in selected online vape stores.

    According to JTI, Ploom X represents the cutting edge of the next generation of heated-tobacco products. Technological upgrades include:

    • A redesigned “HeatFlow” system and a higher heating temperature to ensure a more consistent nicotine delivery and a more enhanced flavor delivery;
    • One easy-to-use heating mode;
    • Adjustments to the airflow system enabling a more consistent vapor delivery and increased vapor volume;
    • Session times of up to 5 minutes and the ability to use more EVO tobacco sticks per charge, with up to 22 sessions with one charge; and
    • A smaller and more compact device. Users can customize the device with colorful magnetic front panels.

    According to JTI, Ploom X reduces the level of nine smoke constituents by an average of 90 percent to 95 percent.

    Ploom devices are designed to be used exclusively with EVO tobacco sticks, which contain a tobacco blend made from microground and fine-cut tobacco.

    With 20 sticks in a pack and a recommended retail price of £4.50, EVO costs less than half the price of a pack of cigarettes in the U.K. EVO tobacco sticks are available in classic tobacco, menthol, and fruit and menthol infusions. The company also offers capsule variants that offer consumers the option to release an additional burst of flavor.

    “The launch of Ploom X marks a milestone in JTI’s story and also sets a new paradigm in the heated-tobacco category,” said JTI Director of Marketing Mark McGuinness. “Ploom X is a truly innovative product that will exceed consumer expectations, making their tobacco moments even more pleasurable and truly unique.”

  • Robust Pricing Boosts JT Results

    Robust Pricing Boosts JT Results

    Masamichi Terabatake (Photo: JT Group)

    The JT Group reported revenue of ¥2 trillion ($13.5 billion) for the first nine months of 2022, up 13.7 percent over the comparable 2021 period.

    Core revenue at constant currency exchange rates increased by 4.1 percent to ¥1.77 trillion. Adjusted operating profit at constant currency increased by 6.5 percent to ¥78.4 billion. On a reported basis, adjusted operating profit increased by 17.5 percent to ¥637.8 billion. Operating profit increased by 20.5 percent to ¥579.3 billion while profit increased by 19.2 percent to ¥403.8 billion.

    “In the nine-month results, the JT Group delivered a strong performance, mainly driven by robust pricing in the tobacco business,” said JT Group President and CEO Masamichi Terabatake in a statement. “We are also encouraged by the Ploom X volume and share performance in Japan. We have launched Ploom X in the U.K. starting in London. We will accelerate Ploom X launches internationally from 2023.”

    Terabatake said he had high expectations of the recently announced joint venture with Altria Group to market and commercialize heated-tobacco sticks products in the U.S. “I strongly believe that this cooperation will increase the global harm reduction possibilities for adult consumers and drive incremental value for JT and Altria,” he said.

    “We have revised our 2022 full-year guidance upward, driven by business momentum as well as favorable currency movements against the Japanese yen,” said Terabatake. “Following the upward revisions of our guidance, we are pleased to share our plan to increase our annual dividend guidance by ¥38 to ¥188.”

  • Altria and JT to Sell Heated Products in U.S.

    Altria and JT to Sell Heated Products in U.S.

    Photo: ASDF

    The JT Group and Altria Group, through their Japan Tobacco International and Philip Morris USA subsidiaries, have established a joint venture to market and commercialize heated-tobacco sticks (HTS) products in the U.S. with Ploom-branded devices and Marlboro-branded consumables.

    The two groups also signed a long-term, nonbinding global memorandum of understanding (MOU) to explore commercial opportunities for a wide range of potentially reduced-risk products (RRP).

    “As part of our strategic focus on HTS, we’re very enthusiastic to launch our Ploom brand in the U.S., the world’s largest RRP market in value, through our partnership with the market leader, Altria,” said  Masamichi Terabatake, president and CEO of the JT Group’s tobacco business, in a statement.  

    “We also look forward to entering into a long-term strategic collaboration with Altria to further explore global commercial opportunities in the RRP category. I strongly believe that this cooperation will increase the global harm reduction possibilities for adult consumers and drive incremental value for the JT Group and Altria.”

    “We are excited to begin a new partnership with JT Group, a leading international tobacco company,” said Altria CEO Billy Gifford in a statement. “We believe this relationship can accelerate harm reduction for adult smokers across the globe.”

    “We believe moving beyond smoking in the U.S. requires multiple FDA-authorized products within each smoke-free category to appeal to a diverse range of adult smokers. We believe that our joint venture and pipeline of heated-tobacco products position us well to increase adoption of smoke-free products.”

    The joint venture establishes a new company, Horizon Innovations, for the U.S. commercialization of current and future HTS products owned and developed by either party. Horizon will commercialize HTS products in the U.S. under the Ploom and Marlboro trademarks.

    JTI will have a 25 percent economic interest in Horizon to reflect its HTS product contribution. PM USA will have a 75 percent economic interest, reflecting the company’s strong distribution network and infrastructure, as well as its initial capital contribution of $150 million to Horizon.

    Subsequent capital contributions made to Horizon will be split according to the parties’ respective economic interest. JTI and PM USA will both maintain independent ownership of their respective intellectual properties, including any IP acquired after the formation of the joint venture that supports the development of future HTS products.

    “I strongly believe that this cooperation will increase the global harm reduction possibilities for adult consumers and drive incremental value for the JT Group and Altria.”

    As part of the joint venture, JTI and PM USA will combine their scientific and regulatory expertise to jointly prepare U.S. Food and Drug Administration filings, including a premarket tobacco product application (PMTA) for the latest version of Ploom HTS products. The parties currently expect to submit the PMTA for these products in the first half of 2025. Upon PMTA authorization, JTI will supply HTS devices and PM USA will manufacture HTS consumables for Horizon. In addition, JTI and PM USA have agreed to commercialization milestones for Horizon, which include distribution requirements and minimum levels of cumulative marketing investments.

    “By forming this JV [joint venture], we are bringing together the marketing, innovation, R&D and science capabilities that JTI has developed over the years with Altria’s science, U.S. regulatory experience and vast infrastructure to create a very strong proposition for the U.S. adult smoker,” said JTI CEO Eddy Pirard.

    Separate to the JV, the JT Group and Altria also announced the mutual signing of a nonbinding MOU. Under this MOU, the parties aim to structure a strategic partnership over time to market and commercialize a wide range of potentially reduced-risk products and strengthen their shared development capabilities and geographic reach. The companies believe this collaboration will accelerate global tobacco harm reduction solutions and bring significant value to their respective businesses.

    Altria’s pipeline of heated-tobacco products includes tobacco-heating product formats and new-to-market technologies. “We believe HTC products can appeal to U.S. adult smokers who are open to novel smoke-free products but have not yet found a satisfying alternative to cigarettes,” the company wrote. “This audience includes the millions of U.S. adult smokers who tried, but ultimately rejected, e-vapor products.”

    Altria expects to finalize the design of its HTC platform 1 technology (HTC1) by the end of this year and then begin regulatory preparations for a PMTA submission by the end of 2024.

    The company also expects to partner with JT to launch the HTC1 technology in an international test market in late 2024 or early 2025 using JT’s sales and distribution network.

    Prior to the recent agreement with the JT Group, Altria terminated its noncompete agreement with Juul Labs and sold its exclusive U.S. commercialization rights for the IQOS tobacco-heating system to Philip Morris International for about $2.9 billion.

  • JTI Investing in Philippines

    JTI Investing in Philippines

    Photo: Skórzewiak

    Japan Tobacco International is expanding its operations in the Philippines, hiring additional workers for its global business service center (GBSC).

    The GBSC was established in 2020, at the height of the Covid-19 pandemic, to service JTI’s affiliates in Asia-Pacific and the Americas. In an interview with the Manila Bulletin Business, JTI Philippines General Manager John Freda said the company would be hiring an additional 150 people, bringing the center’s overall manpower to 600.

    Although there are no immediate plans, Freda did not discount the possibility of JTI producing its Ploom heated-tobacco sticks in the Philippines, which serves as the company’s manufacturing hub for the Asia-Pacific region. Ploom is currently produced in Japan and in the EU.

    JTI’s cigarette factory in Malvar, Batangas, exports more than 50 percent of its production mainly to 16 countries in the Asia-Pacific region. The factory employs 800 people with marketing team support of over 4,000 personnel across the country.

    In the interview, Freda also expressed his concern about the growing illicit cigarette trade in the Philippines, which is estimated to account for 16 percent to 18 percent of the market. In some areas in Mindanao, the share of smuggled cigarettes could reach 60 percent of the market.

    Citing the experience of Malaysia as a cautionary example, Freda urged the Philippines to step up enforcement and adopt reasonable rates of taxation.

    “We are paying PHP55 [$0.94] per pack in taxes, and clearly the illicit operator is not paying like that, and as prices increase due to taxation, it becomes even more profitable for smugglers and therefore need[s] strong enforcement measures,” he said.

  • Tools Of The Trade

    Tools Of The Trade

    Photo: JTI

    At a summer event in London, JTI showcases some of the devices that may help England achieve its smoke-free ambitions.

    By George Gay

    In his U.K. government-commissioned review, “Making Smoking Obsolete” [in England], Javed Khan said he had seen no evidence of a plan by industry to move toward meeting the ultimatum “for industry to make smoking obsolete,” which was included in the government’s 2019 prevention green paper. I’m not certain what is meant by “industry” here, but assuming it means partly or exclusively the tobacco industry, and perhaps the nicotine industry, this statement seems extraordinary. After all, one of Khan’s reviews, “Critical Interventions,” recommends promoting as effective tools to encourage smokers to quit their habit some of the products that, for well over a decade, the tobacco and nicotine industries have been developing, making available and promoting insofar as they have been allowed to do so.

    The independent e-cigarette industry has arisen almost solely for the purpose of converting as many smokers to vapers as possible—to making smoking obsolete, if you like. That is its raison d’etre. Of course, a purist might complain that individual vaping industry firms also want to make a profit, but making a reasonable profit provides funding for new developments and, more generally, makes the world go round.

    So perhaps the government’s ultimatum was aimed only at the tobacco industry. But even in this case, it seems somewhat uncharitable not to give recognition to the enormous investments and efforts that have been made by tobacco companies in developing what I am comfortable calling lower risk products and, especially, in the scientific validation of their products’ lower risk credentials. And this is not to mention that, as far as I am aware, it was individual tobacco companies that first started to apply the concept of “harm reduction” to tobacco/nicotine consumption and that, in the U.K., first suggested setting a target date for ending smoking: 2027.

    If my memory serves me correctly, the emergence of the tobacco harm reduction principle predated the arrival of vaping products and was based on snus, a product that is without doubt one of the least risky tobacco products of all but one that, inexplicably, was and is banned in the U.K. and one that Khan believes should remain banned. And it is worth mentioning that the country might conceivably have been well on the way to meeting the 2027 target if the government had been more ambitious and reacted more positively in 2017, when the target was suggested, largely based on the use of heated-tobacco products (HTPs). Certainly, I think the U.K. would have been in a better place if e-cigarette companies had been allowed to advertise the consumption of their vaping products as being 95 percent less risky than the consumption of combustible cigarettes, a figure that, to its credit, the government had long accepted.

    Coincidentally, a range of U.K.-market, lower risk products was on display during Japan Tobacco International U.K.’s summer event held at the Mandarin Oriental Hotel in London on July 13, one of which was launched in 2019 and another of which was launched in 2020—so, in line with the government’s ultimatum, though not necessarily in response to it. There were three products in all—a vaping device, an HTP and a nicotine pouch—so, at the very least, JTI U.K. must be given credit for having made a huge effort, if not toward making smoking obsolete per se but toward providing as far as it can the tools and encouragement for smokers to switch to less harmful products. It is, after all, beyond the power of a single company to “make” smoking obsolete; only the government has the power to come close to doing that and, no doubt for good reasons, it has chosen not to do so.

    The summer event, dubbed “Innovating for Tomorrow,” was attended by about 300 people, including those representing trade and retail partners, community investment partners, agencies, think tanks and the media. About 20 politicians from across the political spectrum were also scheduled to attend, though whether they all tore themselves away from the Conservative Party’s leadership hustings in Westminster I don’t know. Given this attendance and an abundance of fine drinks and delicious food, it is not surprising that the evening was devoted, aside from two short speeches—by Charlie Cunningham-Reid, U.K. corporate affairs and communications vice president for JTI U.K., and Gemma Bateson, U.K. sales director—to relaxed discussions around and away from the product displays. On what was for England a hot day, the venue, with its two large, airy rooms and pleasant garden overlooking Hyde Park, lent itself to such discussions.

    One of the products on display was Logic Compact (more information on the products displayed is available at www.jti.com/europe/united-kingdom), a closed-tank e-cigarette that is used with pods of e-liquid available in a range of flavors. At the display stand for these products, much was made of the high level of testing that was carried out on the devices and e-liquids. And, interestingly, a figure from the Office of National Statistics that was on display had it that about 3.3 million people in the U.K. used e-cigarettes, which was something of a testament to the effort that had been made by the vaping and tobacco industries to deliver smoking obsolescence.

    The most recent JTI U.K. reduced-risk product to be made available on the U.K. market and that was on display at the summer event was Ploom, an HTP launched in 2020. Ploom is said to offer an authentic smokeless tobacco experience delivered through the action of an innovative heating technology that causes no combustion and no burning and therefore produces no smoke or tar. Consumers have already embraced e-cigarettes, and the government has largely accepted them, so JTI U.K. will be hoping to see the same level of acceptance for HTPs. These products are certainly likely to appeal to consumers on price, especially those used to paying around £9 ($10.77) for a pack of cigarettes. After an initial outlay of about £45 on a device, consumers pay about £4.50 for a pack of 20 EVO tobacco sticks, which come in a range of flavors and strengths.

    Meanwhile, JTI U.K.’s Nordic Spirit nicotine pouches, which were launched in the U.K. in 2019 and are available in a range of flavors and strengths, are said to comprise a discreet product that can be used at any time since, on consumption, they produce no smoke or vapor and contain no tobacco. Here is a product, I think, that indicates the length JTI U.K. has gone to cut the use of combustible products. When it launched Nordic Spirit, the company could have had little idea how the product was going to be received because there was little knowledge about such products among U.K. consumers, who, after all, had not been allowed to buy snus, a cousin of the nicotine pouch. Surprisingly, perhaps, but encouragingly, participants at the London event were told that sales growth had been good, which is perhaps an indication of the importance of choice in offering alternative products to smokers, who too often are treated as if they comprised one homogeneous group with one set of likes and aspirations.

    The news about the growing interest in nicotine pouches must be good, too, for the environment. This is a pared-back product that must have a low negative impact on the environment, a feature that we are all discovering is hugely important. I have to say, too, that during conversations around the display stands, I heard of the initiatives being undertaken by JTI U.K. to ensure that when alternative devices are no longer operable, they are disposed of properly. There is probably some way to go in regard to this, but you have to say that these efforts are likely to be some way ahead of those of the government. As I am writing this piece, of the five people still standing for the leadership of the Conservative Party and therefore to become the next prime minister, only one was unequivocally backing the government’s net-zero emissions by 2050 target.

    It’s worth noting that a small pamphlet, “JTI U.K. at a Glance,” that was made available to participants at the summer event indicated that JTI is still committed, throughout its global operations, to net-zero greenhouse gas emissions by 2050.

  • JT Reports ‘Robust’ Performance

    JT Reports ‘Robust’ Performance

    Masamichi Terabatake (Photo: JT Group)

    The JT Group reported net revenue of ¥1.27 trillion ($9.55 billion) for the second quarter of 2022, up 10.7 percent over that reported in the comparable 2021 quarter. Core revenue at constant exchange rates increased by 3.7 percent to ¥1. 14 trillion. Adjusted operating profit at constant currency increased by 8 percent to ¥386.7 billion.

    On a reported basis, adjusted operating profit increased by 15.8 percent to ¥414.9 billion. Operating profit increased by 18.9 percent to ¥383 billion. Profit increased by 17.3 percent to ¥264.1 billion.

    “In the first half, the JT Group delivered a robust performance, mainly driven by strong pricing,” said JT Group President and CEO Masamichi Terabatake in a statement. “We are also encouraged by the Ploom X volume and share performance in Japan. In the second half of the year, we will be leveraging learnings from Japan for international Ploom X launches.

    “We have revised our 2022 full year reported adjusted operating profit and profit guidance upwards, driven by favorable currency movements against the Japanese yen. However, the adjusted operating profit at constant FX is revised downwards considering higher input costs impacting our supply chain operations. Dividend per share guidance for full year remains unchanged at 150 yen per share. The interim dividend is 75 yen per share.

    “Regarding Russia, while we continue to manufacture and distribute our products in full compliance with national and international sanctions, the operating environment is becoming increasingly complex. Under these circumstances, the JT Group continues to evaluate various options for its Russia business, including potentially transferring its ownership, and taking necessary decisions to address the changing situation in accordance with the group’s management principle.”