Philip Morris International expects to record a record loss of about £220 million ($198 million) on the sale of its inhaled-therapeutics Vectura Group unit to Molex Asia Holdings in the third quarter, reports The Wall Street Journal, citing a securities filing.
On Sept. 17, PMI’s pharmaceutical subsidiary, Vectura Fertin Pharma, announced it would sell its Vectura Group business to Molex. The company acquired Vectura Group in 2021 for $1.24 billion as part of PMI’s drive to diversify beyond nicotine.
The company now says that “unwarranted opposition” to its transformation has affected Vectura Group’s engagement with the scientific community and its commercial relationships.
The remaining units of Vectura Fertin Pharma will continue to operate under a new corporate identity and develop oral consumer health and wellness offerings as well as inhaled prescription products for pain management and cardiovascular emergencies.
Philip Morris International is selling Vectura to Molex Asia Holdings for £150 million ($198 million) cash upfront and potential deferred payments of up to £148 million—about a third of the price it paid for the company three years ago. Vectura will be operated by Molex’ Phillips Medisize unit.
In 2021, PMI paid about $1.2 billion for the U.K. maker of asthma inhalers as part of its efforts to diversify into the pharmaceutical business.
The deal attracted heavy criticism from anti-smoking campaigners who said the cigarette manufacturer should not benefit from a company that offers treatments of ailments caused or worsened by tobacco products.
The fierce opposition played a roll in PMI’s decision to sell the unit at a loss. “Despite the investment and commitment to developing products and therapies vital to patients, unwarranted opposition to PMI’s transformation has impacted Vectura’s scientific engagement and commercial CDMO [contract developing and manufacturing organization] relationships.” PMI wrote in statement.
“With its experience in pharmaceutical drug delivery devices and its global manufacturing footprint, Phillips Medisize is best placed to lead Vectura into the future—while releasing it from the unreasonable burden of external constraints and criticism related to our ownership,” said PMI CEO Jacek Olczak.
Vectura is part of a “health and wellness” unit that also includes Fertin Pharma, the producer of a smoking-cessation aid, that PMI bought for about $820 million in 2021. Last year, PMI took a $680 million impairment charge on the unit after unsuccessful clinical trials and slower-than-expected development of other products.
Selling Vectura will allow PMI to “rid itself of a financially struggling unit,” said Kenneth Shea, a Bloomberg Intelligence analyst. “But it also represents a strategic backpedal to the company’s once-bold ambition to serve the inhaled therapeutics medical market,” he added.
Philip Morris International is considering selling a stake in Vectura, according to Reuters.
PMI is looking to bring on a partner to help operate and grow Vectura’s drug manufacturing outsourcing business, according to company statements to the Wall Street Journal. PMI could possibly sell a majority or a minority stake. Other options are a licensing or royalties deal or a commercial partnership.
In 2021, PMI bought Vectura for $1.36 billion as part of the company’s long-term plan to transition to a “broader healthcare and wellness” company. PMI also acquired Fertin Pharma and OtiTopic in the same year.
“We aim to accelerate Vectura’s growth and will be exploring potential partnerships to enhance its contract development and manufacturing organization business,” Chief Financial Officer Emmanuel Babeau said in July, noting that the company remained committed to developing the wellness healthcare segment.
Philip Morris International’s foray into pharmaceuticals is proving more challenging than expected, according to The Wall Street Journal.
The tobacco multinational took a $680 million charge in the latest quarter on its wellness and healthcare business, two years after agreeing to buy inhaled-medicine maker Vectura Group for £1 billion ($1.31 billion).
After an unsuccessful clinical trial, Vectura won’t be submitting its inhalable aspiring product to the U.S. Food and Drug Administration this year.
PMI is postponing its 2025 goal to exceed $1 billion in net revenues from health and wellness products. The company still sees growth potential in products such as smoking-cessation treatments and medicinal cannabis.
The setbacks have been compounded by the recent departures of several top Vectura executives.
According to a report in The Times, Vectura CEO Michael Austwick is stepping down having been in the role only since he joined from Novartis in June last year.
Thomas Gibbs, Vectura’s chief executive in the United States, also left in 2023 after just over a year at the company to join Lundbeck, a drugs company based in Denmark, and there is uncertainty over the future of Lizzie Knowles as Vectura Group’s chief financial officer.
Austwick’s predecessor, Will Downie, and Chief Financial Officer Paul Fry stepped down shortly after PMI’s takeover of Vectura.
The tobacco group’s acquisition of Vectura caused a backlash among public health professionals, with pharmaceutical conferences banning Vectura representatives from their events.
While lambasted by anti-smoking activists, the tobacco industry’s move into pharmaceuticals may well turn out to be a positive for public health.
By Cheryl K. Olson
“The pharmaceuticalization of the tobacco industry.” This awkward phrase comes from a 2017 Annuals of Internal Medicine article referring to industry moves into noncombustible nicotine products. But recently, it’s gaining some literal truth. Legacy tobacco companies are stepping up diversification into pharmaceutical ventures.
Given that their current business direction is stalling, new adjacent opportunities that let tobacco companies use their specialized knowledge (say, of the tobacco plant genome or lung physiology or means of delivering substances) make sense. It may seem counterintuitive, or ethically iffy, for these companies to start offering solutions to problems they helped create. But they may frankly be well placed to do so because of their deep expertise. The criticisms of current industry moves into medical research and pharmaceuticals, such as Philip Morris International’s acquisition of Vectura and Fertin Pharma, seem more rooted in emotion than in practical concerns about effects on public health.
A Tour of Recent Criticisms of Diversification
Let’s review some recent criticisms and attempt to separate the moral from the practical. Take this September STAT+ article by Olivia Goldhill, titled “Tobacco Giant Philip Morris is Investing Billions in Health Care. Critics Say It’s Peddling Cures for Its Own Poison.”
The tone of the article makes ordinary business behavior sound sinister. Vectura Fertin Pharma, a firm combining two companies previously acquired by PMI, was “quietly incorporated.” PMI has been “racking up patents and taking over healthcare companies, an unlikely pivot that has accelerated dramatically in the past year.” PMI has also been “poaching considerable regulatory and pharma expertise.” All this in the article’s first two paragraphs.
The recent move by Matt Holman, who was director of the Office of Science at the Food and Drug Administration’s Center for Tobacco Products (Goldhill mislabels him as head of the CTP), to a position at PMI is described as a “move that shocked public health and tobacco researchers.” Why the surprise? Employees cycling from the FDA to the pharmaceutical companies they reviewed is commonplace; back in 2016, Time magazine called it “a revolving door.”
When PMI purchased Vectura, best known for making asthma medicine inhalers, the Reuters headline read, “Philip Morris seals deal for U.K.’s Vectura despite health group concerns.” The chief executive of Asthma U.K. and the British Lung Foundation stated, “There’s now a very real risk that Vectura’s deal with big tobacco will lead to the cigarette industry wielding undue influence on U.K. health policy.”
The U.S. reaction was similar. A joint statement by the presidents of the American Lung Association and American Thoracic Society called the acquisition a “reprehensible choice” by PMI. They were concerned that PMI might use Vectura’s inhalation technologies “to make their tobacco products more addictive.” They raised the prospect that PMI “could further profit from the disease their products have caused by now selling therapies to the same people who were sickened by smoking.”
The idea of cigarette companies profiting from conditions such as asthma and lung disease was reportedly also raised by British government officials, with the U.K. business minister asking for information on PMI’s plans for Vectura.
A deliberate company strategy to invest simultaneously in selling addictive poison and in peddling cures for that addiction would indeed be reprehensible. Is that what’s happening here? Or are tobacco companies making effortful attempts to find paths to replace the profits from cigarettes with profits from products that don’t harm and might improve public health?
Time will tell. PMI’s website states, “We are focused on our mission to one day stop selling cigarettes.” The Guardian newspaper’s coverage noted that while the Vectura acquisition was part of PMI’s smoke-free vision, “the company still makes about three-quarters of its $28 billion in annual revenue from ‘combustible’ products that involve the burning of tobacco.”
Critics of the tobacco industry didn’t always take such a dim view of moves away from cigarettes. A quick search in Google Scholar for “tobacco industry diversification” brought up this 1985 piece by Alan Blum in the New York State Journal of Medicine. He stated, “Some health professionals believe that criticism of tobacco companies for promoting cigarette smoking should be tempered because they have become conglomerates that are diversifying into nontobacco products and services. By encouraging such diversification, it is reasoned, health professionals can help expedite the phasing out of smoking while tobacco companies can have an opportunity to replace the resultant lost revenue.”
Blum’s concern was that this belief among “individuals working to eliminate smoking may be misguided.” This was not because those individuals saw industry diversification as a potentially positive step. Rather, he thought diversification wasn’t happening fast enough. Blum noted that tobacco companies were not decreasing investment in cigarette manufacturing and that “the percentage of total profit accounted for by tobacco sales is still the highest of all sources of revenue for tobacco companies.”
“Those It Employs [or] Funds Are Therefore Banned”
PMI’s announced acquisition of Vectura triggered efforts to exclude its employees and their research. The Drug Delivery to the Lungs conference terminated Vectura’s sponsorship. A Thoraxeditorial titled “Vectura and Philip Morris: The leopard has not changed its spots” stated that “The tobacco industry, those it employs and those it funds are therefore banned from membership of professional societies, including the British Thoracic Society (BTS).” The BTS would “exclude the tobacco industry as a legitimate partner in science and education,” including “publishing in respectable journals” and collaborations with universities. The editorial warns that “Vectura employees will need to consider their future.”
The treatment Vectura’s employees received is far from unique. Ian Fearon, director of whatIF? Consulting, has conducted research in a variety of settings and helps manufacturers write up their scientific data for publication. “The barriers to publication for tobacco companies and independent ENDS [electronic nicotine-delivery system] manufacturers are high, with many journals flatly refusing to even accept a paper to undergo peer review,” he said. “One major irony is the ‘we need the industry to be transparent’ phrase, yet the reality is that the number of journals willing to publish manufacturers’ data, despite its potential importance in assessing public health impacts, is small and diminishing.”
Fearon noted the criticism Juul received for “buying out” a 2021 special issue of the American Journal of Health Behavior to fully present their findings, which were a comprehensive examination of the potential impact of Juul on public health. Such publishing fees are common in academia; Juul even paid extra to make the articles free to all readers.
Derek Yach, formerly with the World Health Organization and the Foundation for a Smoke-Free World, equates the opposition based on the tobacco industry’s past bad practices to the 1980s U.S. boycott of Nestle. “That pushed NGOs [nongovernmental organizations] and WHO to vilify them for decades despite changes in their marketing way back,” he said. “To this day, in many public health leadership settings, Nestle is a real villain, regardless of all they have done to change. I suspect that playbook will apply here too.”
Yach sees the downside of diversification as less about ethics and public health and more about the practical difficulties. “It’s all about company focus and the inevitable clash of cultures—a pharma culture versus a tobacco company one, for example—and as a result, the ability to manage the transition.”
David Sweanor
Thinking About Diversification: A Conversation with David Sweanor
David Sweanor of the Centre for Health Law, Policy and Ethics at the University of Ottawa has long monitored tobacco company behavior.
Tobacco Reporter: Why are you interested in the issue of tobacco companies diversifying into things like pharmaceuticals?
Sweanor: My main interest is public health policy: How do you end up with a healthier population? Is this doing anything that’s going to create poorer health—in which case, there’d be a need to oppose it or try to regulate it in some way? Is it going to be neutral in terms of public health? Then, who cares who owns these companies?
If it’s something that could actually be good for public health, then we should be supporting it. And there’s reason to believe this could be the case. When companies have loads of resources to throw at something, and if this signals more of a move to transformation within the industry, it would be incredible for public health.
If they are working on [inhalation] technologies for lower risk alternatives to cigarettes, we have the potential for enormous breakthroughs. If we can get any of the major companies to really switch to being all-in on risk reduction, it would completely change the environment. The impact globally would be remarkable and happen very quickly.
If you want to get tobacco companies to switch to being in favor of transformation, the last thing you want to do is prevent them from doing things that would aid transformation. If you’re trying to get automobile companies to switch to electric cars, don’t prevent them from buying companies with battery technologies. You’re forcing them to continue to focus on internal combustion engines.
What do you see as valid and invalid criticisms of this diversification?
No valid ones immediately come to mind. If they were buying up technology that gave a far better alternative to cigarettes and then trying to kill that, then yeah.
It’s easy to talk about the invalid criticisms. A really good example of that is in Canada, where Medicago, based in Quebec City, developed a vaccine for Covid-19. In developing countries, this vaccine would work well because it doesn’t need to be stored at cold temperatures. Philip Morris has an indirect holding of about 30 percent in Medicago. Anti-tobacco groups attacked the government for approving the vaccine, and WHO refused to approve it.
What’s the thinking behind that? It’s saying: We don’t like this company because we think it’s done bad things in the past. To deal with this, we’ll prevent them from doing good things now. They created an epidemic of disease from smoking that became larger and lasted longer than it should have. So we’re going to prevent them from doing things that could reduce this epidemic of disease from Covid to make it last longer than it should.
Are people following the principles of the Enlightenment or the Inquisition? So much now with mainstream anti-tobacco groups is the latter. We don’t care about the quality of your work; we won’t give you a platform to discuss or debate it. That some affiliation you have is more important than the knowledge you bring is pretty reprehensible. It’s like saying Roman Catholics are not allowed to express their views.
What do you see as potential benefits to public health from this diversification? For example, Matt Holman’s new position as vice president of U.S. scientific engagement and regulatory strategy at PMI.
Look at the counterfactual. If they don’t do that, the only people working in cigarette companies working on transformation spent their careers working on and understanding and benefiting from cigarettes. If General Motors says, “we’re hiring engineers who understand electric mobility rather than hydrocarbons,” isn’t that a good thing? How can you transform if all the people in senior positions have their expertise in internal combustion engines?
We see this in high tech all the time; one company will buy another to get the expertise of their employees. You need them at the table when you make decisions on where to go with the next generation.–C.K.O
Addendum
In the main article above, I stated that the boycott of Nestle from the 1980s has had a lingering negative effect on WHO and many public health leaders’ views of the company many decades later. This despite Nestle being a global leader in addressing food insecurity, sustainable agriculture and the use of 21st nutrition science (see the company’s 2021 annual report).
In the second half of October, Nestle’s past came back to haunt the company. The WHO Foundation, set up to build innovative private public partnerships, banned future Nestle contributions despite having originally accepted a grant for their work on addressing Covid-19.
The WHO Foundation already bans contributions from tobacco and arms manufacturers though it is unclear how “tobacco” is defined. Does it include governments with state monopolies? Does it include standalone e-cigarette, or nicotine pouch companies? Does it distinguish between companies where revenue from reduced risk products is increasing while combustible revenues are decreasing? Probably not.
Labelling companies as good or bad is the far easier option. But that option that ignores serious transformation and the opportunity to nudge and support the good emerging faster.
Derek Yach
Cheryl K. Olson is a California-based public health researcher who specializes in behavioral health issues and consults on tobacco product behaviors via McKinney Regulatory Science Advisors. She spent 15 years on the faculty of Harvard Medical School.
Seventy percent of respondents to an international survey conducted earlier this year said they are either “bothered” or “really bothered” when tobacco companies make money from an inhaler, medication or other devices that treat their lung conditions.
A total of 1,196 people who reported inhaler use completed the survey in early 2022.
After Philip Morris International acquired pharmaceutical company Vectura in 2021, patient advocacy groups wanted to understand patients’ attitudes toward tobacco organizations’ stake in the companies that make their respiratory inhaler devices. Vectura develops several widely used medical delivery devices and/or formulations for inhaled therapies used in people with chronic lung diseases, including chronic obstructive pulmonary disease (COPD) and asthma.
The COPD Foundation partnered with Global Allergy and Airways Patient Platform and Lung Foundation Australia to conduct the survey among people with chronic lung diseases in English, Spanish and German between January and March of 2022.
In addition to expressing concern about tobacco ownership of lung treatments, a significant share (48 percent) of patients surveyed also said they would strongly consider switching inhalers if they knew that a tobacco company made or sold their brand of an inhaler.
“This was an unexpected finding, as many patients in my own practice indicated a preference to stick to medications that work for them,” said Byron Thomashow, chief medical officer at the COPD Foundation, and co-author of the Thorax brief in a statement. “However, socioeconomic, and systemic factors such as insurance coverage, health care system limitations, and convenience strongly influence the patient’s ability to make treatment choices.”
Vectura CEO Will Downie and Chief Financial Officer Paul Fry have stepped down from their roles with the company following the £1 billion ($1.31 billion) takeover by Philip Morris International, reports The Times.
PMI acquired Vectura last year as part of the company’s “beyond nicotine” strategy. This move caused controversy in the healthcare industry as Vectura is a producer of inhalers and medicines for smoking-related conditions. Critics said the takeover represented a conflict of interest.
Following the takeover, Vectura was banned from many pharmaceutical industry conferences due to the company’s new ties to the tobacco industry.
The tobacco industry’s involvement in pharmaceutical businesses is facing increasing scrutiny. In March, the World Health Organization said it would deny an emergency use listing to Medicago’s Convifenz Covid-19 vaccine, because of the company’s tobacco ties.
PMI owns a minority stake in Medicago, which now faces pressure to seek a different shareholder.
A group of international respiratory societies has banned researchers associated with tobacco companies from publishing papers in their journals following Philip Morris International’s acquisition of the U.K.-based pharmaceutical firm Vectura, reports Nature. The measure comes on top of the groups’ decade-long publishing ban on researchers directly funded by tobacco companies.
In a joint statement, the groups describe PMI’s purchase of Vectura as “highly unethical and inappropriate.”
Scientists at Vectura produce drugs that treat asthma and chronic obstructive pulmonary disease, including some smoking-related respiratory illnesses. “That is the ultimate conflict of interest,” said Gregory Downey, a pulmonologist at the University of Colorado Denver and president-elect of the American Thoracic Society, which co-signed the statement.
“The issue is that ‘Big Tobacco’ could use, and will use, this technology not only to potentially enhance delivery of tobacco-containing substances and nicotine devices but to addict more people.”
Moira Gilchrist, vice president of strategic and scientific communications at PMI in Lausanne, Switzerland, says the idea that the company would use Vectura’s technology in this way is “false and without basis.”
“We openly welcome and encourage legitimate critique and debate about our business transformation, but when this morphs into actively ostracizing scientists and attempting to prevent the prescribing of proven medicines for patients, we should pause and think of the implications,” Gilchrist adds.
Signatories of the statement include The European Respiratory Society, International Union Against Tuberculosis and Lung Diseases, Asian Pacific Society of Respirology, Asociacion Latino Americana De Torax, and the Global Initiative for Asthma.
The Drug Delivery to the Lungs (DDL) conference, a leading event, has terminated Vectura’s sponsorship and the company’s representative has stepped down from its committee.
“In light of the recent acquisition of Vectura by PMI, the DDL committee [has] sadly decided that they can no longer accept support from Vectura,” the organizers said in a memo seen by The Times.
PMI Global Services’ offer for inhaled drug delivery solutions provider Vectura Group has become unconditional, having received valid acceptances for or acquired 74.77 percent of Vectura shares, in excess of the 50 percent required under the acceptance condition, as well as confirming that all other conditions to the offer have been satisfied or waived. PMI has extended the offer to allow for the tender of further shares.
“We have reached an important milestone in our acquisition of Vectura and are pleased to have secured over 74 percent of the company’s shares, in excess of the 50 percent required to make our offer unconditional and PMI the majority shareholder,” said PMI CEO Jacek Olczak in a statement.
“We are very excited about the critical role Vectura will play in our ‘beyond nicotine’ strategy and look forward to working with Vectura’s scientists and providing them with the resources and expertise to grow their business to help us achieve our goal of generating at least $1 billion in net revenues from Beyond Nicotine products by 2025.”
PMI’s proposed acquisition of Vectura is part of its long-term strategy to move beyond nicotine and will provide support for Vectura’s continued growth. The tobacco firm intends to build on Vectura’s scientific capabilities to develop products and services that go beyond nicotine. PMI aims to achieve at least $1 billion in annual net revenues from non-nicotine sources by 2025.
PMI’s acquisition follows a bidding war with the private equity firm Carlyle.
PMI’s bid unleashed a storm of criticism from public health advocates who dislike the idea of a tobacco company investing in the lung health business.
