Philip Morris International plans to take Swedish Match off of the stock market now that it owns a large enough share of the company to initiate a compulsory redemption of remaining shares, according to Reuters.
“We are delighted to have obtained over 90 percent ownership of Swedish Match, allowing us to initiate a minority redemption process to acquire the remaining shares outstanding and request the delisting of the company from the stock market,” said PMI CEO Jacek Olczak in a statement.
“This transaction marks a major milestone in accelerating our shared objective of a smoke-free future. We look forward to welcoming Swedish Match’s employees and leading oral nicotine portfolio into the PMI family to create a global smoke-free champion, notably bringing IQOS and Zyn together in both the U.S. and international markets.
“We are very excited about the growth, value creation and progress in tobacco harm reduction that we believe can be achieved together over the coming years. Despite the increased cost of financing over recent months, we expect the combination to be low single-digit accretive to PMI’s adjusted diluted EPS in 2023, before potential revenue synergies and excluding transaction-related and one-off costs and the amortization of acquired intangibles.”
In May, PMI submitted a $16 billion takeover bid for Swedish Match. The bid initially received pushback from Elliott Management, Framtiden and other stakeholders as they felt that it undervalued the company. PMI later raised its bid from SKK106 ($10.21) per share to SKK116 per share. Elliott Management, Framtiden and the other shareholders agreed to tender their shares after the bid was raised, and PMI secured over 83 percent approval by the end of the initial offer period.
Philip Morris International released its third annual Integrated Report, which includes an updated Statement of Purpose, a new environmental, social and governance (ESG) framework as well as detailed information about PMI’s strategic vision, performance, governance and value creation model. The content was informed by a formal sustainability materiality assessment conducted in 2021.
“Sustainability and business performance are fully interrelated and mutually reinforcing. Our actions—grounded in data, science and facts—speak louder than words. PMI is committed to serving as an agent of change and advocate of positive values. We understand that our business must become a provider of effective alternatives to continued smoking for adult smokers who don’t quit. To achieve this, we are positioning ourselves at the forefront of consumer centricity, technology, science and innovation. With an eye to the long term, we are also expanding our business into areas beyond tobacco and nicotine, such as wellness and healthcare,” said Jacek Olczak, CEO of PMI, in a company press release.
The company’s 2021 sustainability materiality assessment helped identify the ESG issues on which PMI should prioritize and focus its resources. PMI subsequently redesigned its ESG framework, recognizing two distinct topic areas: those related to PMI’s products and those related to its business operations. This distinction forms the basis of PMI’s new approach to sustainability, which consists of eight clear impact-driven strategies that aim to address its most material ESG topics. These eight strategies—four aimed to address the impact of PMI’s products and four aimed to address the company’s operational impact—are accompanied by a robust framework of nine governance-related factors.
“I’m proud to be able to say that our executive compensation program now reflects our commitment to put sustainability at the core of our corporate strategy,” said Emmanuel Babeau, chief financial officer at PMI. “PMI’s Sustainability Index aligns us even further with the interests of shareholders and other stakeholders, forming a strong link between our executive compensation practices and the company’s short-[term] and long-term ESG performance.”
Philip Morris International has reached its global company-wide target to improve gender balance, ensuring at least 40 percent female representation in managerial roles by 2022, according to a company press release.
Jacek Olczak, CEO at PMI, commented, “I am immensely proud of PMI’s vision, commitment and achievement in ensuring equal opportunities are given to all in the workplace, irrespective of gender. Meeting this target demonstrates that our inclusion and diversity strategy is working. Diverse profiles, backgrounds and perspectives allow us to make better and more considered decisions as well as contribute to better and more sustainable performance. I firmly believe that a culture of fairness, inclusion and diversity [is] crucial to PMI’s progress in achieving a smoke-free future and will continue to benefit the company as we become more reflective of our consumer base.”
“What gets measured really does get done,” said Silke Muenster, chief diversity officer. “This was a whole company effort requiring everyone to take responsibility. I am delighted that we have met our target on time but recognize that we still have a long way to go on our diversity, equity and inclusion journey. With this in mind, we have our next gender representation target: 35 percent of women in senior roles by 2025.
“Having a truly diverse workforce is an essential part of our goal to achieve a smoke-free future. I am very proud of the progress we have made to date, and I am confident about achieving more in the future.”
PMI has also been recertified as a global EQUAL-SALARY organization for the second time since 2019 by the independent EQUAL-SALARY Foundation. The recertification verifies that PMI continues to pay female and male employees equally for equal work in the more than 90 markets where PMI operates.
The EQUAL-SALARY Foundation is an independent, nonprofit organization based in Switzerland. The EQUAL-SALARY certification verifies that organizations have sustainable policies and practices to ensure that they pay their male and female employees equally for equal work.
Philip Morris International is suspending operations in Ukraine, including its factory in Kharkiv, following the invasion of Russian forces into the country, according to The Wall Street Journal.
“The safety and security of our colleagues and their families is our primary concern, and we have, therefore, temporarily suspended our operations in Ukraine,” said PMI CEO Jacek Olczak. “Our employees are advised to stay at home or in any safe place and follow instructions from local authorities.”
PMI has more than 1,300 employees in Ukraine. The country accounted for about 2 percent of PMI’s total cigarette and heated-tobacco shipment volume in 2021.
PMI has stated that it has contingency plans in place to restart operations once conditions are safe.
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.
PMI’s Impact project attempts to fight illicit cigarette trade by bringing together stakeholders from different backgrounds.
By Stefanie Rossel
One of the many side effects of globalization is the continuous rise of illicit trade. Smuggling, counterfeiting and tax evasion account for an estimated loss of $2.2 trillion, or almost 3 percent, of the world’s economy each year. The World Economic Forum (WEF) has worked out an interesting equation: If illicit trade were a country, its economy would be larger than that of Brazil, Italy and Canada. With an estimated 600 billion cigarettes worldwide being commercialized illegally each year, the tobacco industry is affected too; one in ten cigarettes is sold illicitly. According to data from the Organization for Economic Cooperation and Development, illicit tobacco trade accounts for $40 billion in lost revenue annually.
Transnational criminal networks profit from illegal trade in virtually any product imaginable. In addition to cigarettes, they deal in drugs, fake pharmaceuticals, endangered wildlife species and even humans. Illicit trade thus negatively impacts economic stability, public health and safety and serves to finance criminality and terrorism.
It’s a threat that affects developing and developed countries alike, albeit at varying degrees, and that governments have widely acknowledged as such. Twenty intergovernmental organizations currently deal with the problem, largely by sector or subject, the WEF reports. To efficiently address the interconnected, global nature of illicit trade, though, experts agree that a joint international, cross-sectoral approach is required.
Such an approach is the idea behind Philip Morris International’s (PMI) Impact project, which the company launched in 2016. “Illegal trade goes beyond any specific country, region or industry,” says Christian Swan, director of illicit trade prevention and coordinator of PMI Impact at PMI. “Its various forms—ranging from tobacco smuggling and the counterfeiting of pharmaceuticals and electronics to trade in drugs, arms and even human trafficking—are inevitably interlinked as the criminal networks behind these activities exploit the same trafficking routes and corrupt networks. We firmly believe that an inclusive approach that addresses this complex problem from multiple aspects and enhances collaboration and dialogue among impacted stakeholders is essential if we want to achieve meaningful progress against illegal trade.”
The global initiative, which is not limited to the illicit trade of cigarettes, supplements the company’s ongoing anti-illicit trade efforts, according to Swan, and stems from the realization that to make real progress against illegal trade, an inclusive approach for governments, the private sector and civil society was needed to work together to address the issue in its entirety—across a range of illegally traded goods and by tackling related crimes such as money laundering and organized crime. PMI Impact funds third-party projects against illegal trade and related crimes, covering a wide range of activities including research, training programs for law enforcement agencies, awareness raising initiatives, the development of technological solutions and the funding of equipment to help combat crime and communication initiatives to foster cross-sector and public-private collaboration.
“Importantly, the projects supported from PMI Impact tackle illegal trade in its many forms,” says Swan.
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Making progress
When PMI started its initiative, it initially committed $100 million. “PMI Impact is the first corporate initiative of its kind, and we are proud of the progress it has achieved to date,” says Swan. “Under the first two funding rounds, the initiative has allocated a total of $48 million to fund 60 projects in 30 countries. Our aspiration for PMI Impact has been to create a platform for groundbreaking ideas, engaging dialogue and progressive initiatives against illegal trade and related crimes, and we have been delighted to see this vision come to life.”
The projects come from organizations covering a broad range of public, private and academic sectors including think tanks, research institutions, universities and law enforcement authorities. According to Swan, establishing a network between these sectors is more valuable than any individual project.
To select suitable projects, a council of independent experts with profound knowledge in the fields of law, anti-corruption, human rights and technology was installed with an open and defined evaluation process. Projects funded so far include, for instance, the strengthening of the criminal justice response to illicit trade in southeastern Europe on the basis of a comprehensive understanding of local vulnerabilities in their regional context, an analysis of attitudes and behaviors that motivate consumers to buy counterfeit goods and the effectiveness of alternative strategies to combat illicit trade, and the creation of a digital platform to identify and track critical processes and produce relevant intelligence in the context of illegal trade.
“Overall, the innovative thinking and expertise that the grantees have put forward are a valuable addition to the global efforts against illegal trade, and the 2019 PMI Impact Report details the progress achieved by each of the funded projects individually,” Swan says. “Particularly in today’s hyper-connected world—with growing concerns around global security, the proliferation of criminal organizations and the surge of new digital tools—it’s more important than ever for public and private actors as well as civil society to take a common-sense and collaborative approach to accelerate progress against illegal trade and related crimes.”
According to Swan, the grantees retain full independence in the implementation of their projects, including in deciding how to best communicate the results of their work and share best practices. “For example, some of the grantees have presented their projects and results in public forums, to media and [to] other stakeholders. From our side, we strive to create opportunities for PMI Impact grantees to come together and share their perspectives, learn from each other and engage with other experts and leaders working around the world to address illegal trade. We have supported such public events in several locations throughout the years.”
Wanted: new projects
Despite its setup, critics have complained that projects financially supported by tobacco companies cannot be objective. That same argument also contributed to the end in 2016 of an anti-illicit trade agreement between cigarette manufacturers (including PMI) and the EU. “We understand some may be skeptical, and we invite constructive feedback and dialogue—even with those who disagree with us,” says Swan. “To that end—transparency is key for us. The initiative’s application terms and selection rules are publicly available on the PMI Impact website, we publicize the results of each funding round and we have also recently launched the first report detailing each funded project.”
Swan encourages everyone with an interest in eliminating illegal trade to review the initiative and the opportunities it creates for progress in this global issue and invites any organization interested in applying to visit the PMI Impact website for more information.
“Eliminating illicit tobacco trade has been a long-standing priority for PMI and is an integral part of the large-scale business transformation we are undergoing to deliver a smoke-free future,” says Swan. “Illicit trade makes cheap, unregulated tobacco products easily accessible—undermining efforts to reduce smoking prevalence and protect youth from smoking. It is clear that, in order to replace cigarettes with better alternatives for millions of men and women who would otherwise continue to smoke, we must also ensure that there are no illegal actors sustaining a black market for cigarettes. To that end, we continue to invest significantly in supply chain controls through preventive and protective measures and work with law enforcement and other stakeholders to promote strong action against illegal networks.”
Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.
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.
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.
Philip Morris International (PMI) will invest approximately €300 million ($323.72 million) to convert its Papastratos cigarette factory, in Greece, into a manufacturing facility for the tobacco sticks to be used with its IQOS tobacco-heating product. These tobacco sticks are currently commercialized as Heets or HeatSticks.
Because the equipment necessary to manufacture tobacco sticks is larger than that required for cigarette manufacturing, the current facility area will be expanded. Once fully operational, the plant will have an annual capacity of around 20 billion tobacco sticks. The investment will create 400 new jobs at Papastratos, which already employs approximately 800 people. Construction on the site will commence immediately, with production scheduled to begin in January 2018.
“This investment is further evidence of our progress towards a smoke-free future,” said Frederic de Wilde, PMI’s regional president for the European Union. “We are encouraged by the 1.4 million smokers who have already switched to IQOS around the world, and we expect this momentum to continue.”
Located in Aspropyrgos, the Papastratos plant in will be PMI’s third facility fully dedicated to the manufacture of smoke-free products. In October 2016, PMI announced completion of its first facility for tobacco sticks manufacturing near Bologna, Italy, in addition to a pre-existing small scale industrial development center in Neuchatel, Switzerland.
IQOS is one of four smoke-free product types from PMI to address adult smoker demand for potentially less-harmful alternatives to cigarettes. Launched in late 2014 in two city test markets, the product is expected to be available in key cities in more than 30 markets in 2017.
Since 2008, PMI has hired more than 400 scientists and experts and invested over $3 billion in research, product development, and scientific substantiation. Results of scientific research to assess the reduced-risk potential of IQOS are very promising, according to PMI, and the company has been sharing its scientific methodologies and findings for independent third-party review and verification.
According to Stifel, PMI sold every HeatStick it produced in 2016 (7.4 billion units). For 2017, the investment bank expects the company to sell 27 billion HeatSticks and achieve a break-even profit performance.
IQOS could spell the beginning of the end for combustible cigarettes. But will it receive the required regulatory support?
By George Gay
When Philip Morris International (PMI) reported in February last year that its 2015 cigarette shipment volume was down by 1 percent, CEO Andre Calantzopoulos was able to provide some good news too, part of which described how PMI had significantly expanded the rollout of iQOS—one of its heated tobacco vapor products—in Japan and had introduced it into several new markets. Cigarette volume was down again, this time by 1.4 percent, when the company reported in April 2016 its first-quarter results for 2016, but at that time Calantzopoulos was able to say that PMI was “excited by the progress, best represented by our impressive HeatStick [the consumable insert part of the iQOS system] share momentum in Japan, of our reduced-risk product, iQOS.”
The second quarter, reported in July 2016, saw cigarette volume down by 4.8 percent, but again the news from the vapor front was better. “A highlight of the quarter was our exceptional iQOS performance in Japan, where HeatSticks reached a national share for the quarter of 2.2 percent, demonstrating the tremendous potential of the reduced-risk products category,” Calantzopoulos said in a statement that seemed, in talking of an actual market share rather than generalities, to lift the progress of iQOS onto another plane. And in the third quarter, reported in October 2016, cigarette volume was down by 5.4 percent, but Calantzopoulos was able to say, “We are particularly encouraged by the strong performance of iQOS across all of its launch geographies, particularly in Japan, where HeatSticks recorded a quarterly share of 3.5 percent.”
Three and a half percent. It doesn’t take a genius to figure out where this is going, especially given the fact that, in September 2016, PMI announced that it was inaugurating in Italy its first manufacturing facility for large-scale production of two heated-tobacco alternatives to cigarettes. The initial annual production capacity of the factory, which has involved an investment of about €500 million ($532.12 million), will be about 30 billion units. The announcement was given weight, I believe, by the fact that it was made at an event at the factory in the presence of then Italian Prime Minister Matteo Renzi.
“Our ambition is to lead a full-scale effort to ensure that noncombustible products ultimately replace cigarettes to the benefit of adult smokers, society, our company and our shareholders,” said Calantzopoulos. “This factory is a milestone in our roadmap toward this paradigm shift.”
But if there were still any doubts about PMI’s commitment to heated-tobacco technology, Calantzopoulos disposed of them in announcing toward the end of last year the launch of iQOS in the U.K. At that time, he said he would like to work with governments toward the “phase-out” of conventional cigarettes. He was quoted by the BBC as saying that the company knew its products harmed their consumers and that the only correct response was “to find and commercialize” ones that were less harmful. “That is clearly our objective,” he said.
Long road ahead
Andre Calantzopoulos
Not everyone was won over. The Guardian newspaper quoted Rae Maile, tobacco industry analyst with City of London firm Cenkos Securities, as saying that Calantzopoulos was vague about how long it might take for cigarettes to disappear. “He didn’t say when … so it’s any time in the next century,” Maile said. “There are 1 billion people quite happy with smoking,” he said. “Cigarettes are easy to use, convenient and don’t need recharging. People know the health risks and are willing to accept them.”
Maile was perhaps a little harsh in expecting a timeline for the phase-out, but there’s clearly some truth in what he said. Inertia reigns, and it will take some heavy lifting by a lot of people—some of whom are not used to cooperating with each other—to shift smokers away from their habit. But, then again, sometimes products just capture the imagination. Calantzopoulos said that trials in Japan had shown that 70 percent of smokers stayed with iQOS, compared with a general conversion rate of 20 percent for e-cigarettes.
Maile’s comments hit home, however, partly because of his raising of the convenience issue. But even this has two sides to it. On the one side, a pack of cigarettes and a lighter constitute a very compact and easy-to-use system of nicotine delivery. On the other, cigarettes are not convenient if you are unable to use them in an increasing number of places, even in your own home if you live in some multi-unit dwellings in the U.S. and elsewhere. So clearly, if governments decide that it is preferable that those people determined to use nicotine products vape rather than smoke, they can help in balancing the convenience issue by allowing the use of vapor devices in more places than they allow the use of cigarettes. As Calantzopoulos implied at the launch of iQOS in the U.K., there are good reasons why governments and the vapor industry should work together on these issues—as long as any discussions are open.
Much will depend, no doubt, on how representative Japan’s tobacco and vapor markets turn out to have been. And now that the iQOS manufacturing capacity limitations have been overcome, the U.K. market will be an interesting test from a number of points of view. I’m not a marketing man, but I would be surprised if there wasn’t a fairly large gap between the attitudes and aspirations of Japanese and British nicotine consumers.
Another issue concerns the fact that the authorities in the U.K. have generally embraced the idea of tobacco harm reduction and gone a long way in encouraging smokers to use e-cigarettes to try to quit smoking. Despite what the U.S. Food and Drug Administration and the European Commission might think, e-cigarettes are not tobacco products. But iQOS is a tobacco product—though not a combustible one—and it will be interesting to watch how, if at all, the launch of iQOS shifts the vapor debate in the U.K.
Broad debate
Products such as iQOS have great potential, providing that authorities embrace the principle of harm reduction and implement appropriate regulatory frameworks.
One thing that is certain is that there needs to be a wide-ranging debate about products such as iQOS, Japan Tobacco’s Ploom and British American Tobacco’s Glo. I noticed that the preamble to a question posed last year by a member of the European Parliament to the commission said, in part, “The major difference between iQOS and e-cigarettes is that while the latter use a liquid transformed into vapor, iQOS heats the tobacco and keeps it burning, which is very harmful to health.” The commission, for all its faults, is usually well-informed, and I’m sure that the answer, which I hadn’t seen at the time of writing, will point out the error—and the danger—of using the word “burning,” given that the developers of these products have gone to considerable lengths to ensure that the tobacco they contain is not burned.
Tobacco and vapor companies can go some way toward promoting the harm reduction debate, and, on its website, PMI describes its various vapor products as consumer goods, intended as substitutes for combustible tobacco products. It says that any claim that the use of a particular product is less harmful than is smoking should be backed up by robust science. “Our scientific assessment program follows a step-by-step approach inspired by standards and practices long adopted by the pharmaceutical industry and by guidance issued by the U.S. [Food and Drug Administration’s] Center for Tobacco Products,” it says.
“Our studies on one of our heated-tobacco products, Platform 1 [iQOS], are well-advanced. We have already determined that the aerosol generated by Platform 1 produces 90 to 95 percent less harmful and potentially harmful compounds compared to a reference cigarette, and that the aerosol is 90 to 95 percent less toxic than smoke from a reference cigarette. In a three-month clinical study recently carried out in Japan and the U.S., the average reduction in 15 biomarkers of exposure to 15 harmful and potentially harmful compounds measured in smokers who switched to Platform 1 approached the effect observed in smokers who quit smoking for the duration of the study.
“While conclusions on the risk reduction profile of Platform 1 will be based on the totality of the evidence, such results give us confidence that we are on course with our plans to demonstrate that Platform 1 is not only a reduced-exposure product but also a less harmful alternative for smokers.”
PMI’s science is to be put to the test. In December 2016, the company announced it had submitted to the U.S. Food and Drug Administration’s (FDA) Center for Tobacco Products a modified-risk tobacco product (MRTP) application for its iQOS electronically heated tobacco product. “This is consistent with the company’s stated goal of submitting its MRTP application in 2016,” the company said in a note posted on its website. “PMI anticipates the FDA taking a minimum of 60 days to complete an administrative review to determine whether to accept the application for substantive review.”
There is a lot at stake here, and it is just as well that PMI is making this application. Much of the vapor industry is currently under threat in the U.S. because of the rules brought in by the FDA that have deemed e-cigarettes to be “tobacco products” and that in important aspects are more restrictive than are the rules governing traditional tobacco cigarettes. Some observers have been fighting to put clear water between e-cigarettes and combustible cigarettes and have been hoping that the new administration would be opposed to the deeming rule’s threatening the existence of thousands of small businesses. Launching onto the U.S. market a vapor device that does contain tobacco might complicate the debate and will almost certainly be used by those intractably opposed to vapor products.
Of course, a premarket tobacco product application will be made for iQOS soon, and the product is likely to be on the U.S. market by July, a long while before it receives MRTP certification, assuming that its MRTP application is successful. But if the FDA accepts the MRTP application for “substantive review,” this will go at least some way to placating some of those opposed to vapor products.
If the FDA were to grant an MRTP in respect of iQOS, it would certainly be a game changer given that U.S. consumers proved accepting of the product. But it would probably be as well not to hold our breath. The FDA proved inordinately slow and ultimately unhelpful in assessing the first full MRTP application to be put before it, which had to do with snus, a tobacco product that doesn’t involve inhalation and that has been shown to be protective against Parkinson’s disease (also see “Trailblazer,” page xx).
High stakes
Bonnie Herzog
There is a lot at stake, too, beyond the reduced-risk battleground. Following the announcement by PMI that it had made an MRTP application for iQOS, Altria issued a reminder that it has an exclusive license to sell the product in the U.S. In December 2013, PMI and Altria announced that they had established a strategic framework to commercialize reduced-risk products and e-cigarettes. “Under the terms of a set of licensing, supply and cooperation agreements, Altria will make available its e-cigarette products exclusively to PMI for commercialization outside the United States, and PMI will make available two of its candidate reduced-risk tobacco products exclusively to Altria for commercialization in the United States,” the announcement said.
Bonnie Herzog, managing director of equity research for tobacco (and a number of other business sectors) at Wells Fargo Securities, said that, based on a detailed, 10-year analysis of the market potential for the iQOS platform globally, she believed the product had the potential to change the trajectory of smoking. And, she added, both PMI and Altria had a competitive advantage given iQOS’ “superior technology,” given its “first mover” advantage with commercialization and clinical trials, and given the ability to leverage the ubiquitous Marlboro brand.
In fact, Herzog believes that the iQOS issue could accelerate the acquisition of Altria by PMI. Herzog said that iQOS would be worth more to PMI if it owned Altria because PMI would in that case capture the full sales margin. It would also be able to accelerate the growth of iQOS in the U.S. given that it would then have full control over sales and distribution there, as well as elsewhere in the world.
