Next Generation Products: Philip Morris International

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In recent years various consumer tobacco and nicotine products have come onto the market. These have been collectively referred to as new, novel, or alternative tobacco and nicotine products and the range continues to grow. The tobacco control community uses different terms to describe these products. TobaccoTactics focuses on those in which the large transnational tobacco companies have an interest, and currently refers to them as “next generation products” (abbreviated as NGPs). There is ongoing scientific and policy debate about the role of these products in tobacco control, and whether they can help reduce the harms of tobacco.

Like its competitors, Philip Morris International (PMI) has been investing in tobacco and nicotine products that, unlike cigarettes, have potential for growth in developed markets.1 These products are known as Next Generation Products (NGPs), and can include snus, e-cigarettes, and heated tobacco products (HTPs).

Background

NGPs are often publicly linked to tobacco companies’ harm reduction strategies. PMI, for example, has marketed its flagship NGP IQOS (see below) since 2016 under its catchphrase “this changes everything” (trademarked in 2017).23 In conjunction, PMI began making claims of corporate transformation and commitment to social change focussed on a smoke-free future:4

“Society expects us to act responsibly. And we are doing just that by designing a smoke-free future.”5

By October 2019, PMI had replaced the word “designing” with “delivering” (a smoke-free future), signposting the central role of the company in the realisation of this future.67

Despite the promising language in 2016-17,  the majority of the company’s earnings still come from conventional cigarettes.89 At its 2019 Annual General Meeting, PMI CEO André Calantzopoulos further confirmed to shareholders that “Our combustible tobacco portfolio remains the foundation of our business”.10 During the Covid-19 pandemic, PMI stated that in 2020 its “combustible tobacco portfolio showed resilience”9 and Marlboro cigarettes remain key to PMI’s business model.11 

In May 2017, Vaping Post quoted Calantzopoulos (from an interview with Nikkei Asian Review), saying that in five years’ time (i.e. by 2022) “PMI could start talking to governments about phasing out combustible cigarettes entirely”.12 However, in 2020 PMI’s business is still predominantly focused on the sale of conventional tobacco products. There is evidence of new cigarette brand variants being launched in lower income countries, and traditional tobacco products continue to be vigorously promoted.1314 1516

Snus

From 2002, a time of increased tobacco regulation and declining cigarettes sales in Europe, the international tobacco companies started investing in a Swedish smokeless tobacco called snus. 17 The product is sold as a paste or in a tiny pouch, and placed between the gum and lip for a period of time.

PMI was the last of the big international tobacco companies to invest in snus, albeit with little apparent enthusiasm. In October 2006, PMI acquired snus manufacturer Rocker Productions, and briefly sold 1847 by Phillip Morris on the Swedish market.18 Three years later, it sold Rocker Productions to Swedish Match as part of a deal that saw PMI and Swedish Match set up joint venture SMPM International to “globalise snus”.19 The joint venture never achieved commercial success, and in 2015 the two companies “mutually agreed” to dissolve the company.20

Although the other transnational tobacco companies had invested in snus-type products, including nicotine pouches, it was not until late 2019 that PMI expressed an interest. When questioned about the company’s plans at an investment conference, Calantzopoulos conceded that this was “an emerging category….which we are looking at as well”.21 

In May 2021, PMI acquired Danish snus manufacturer AG Snus, which produces tobacco leaf products and nicotine pouches.2223 This acquisition was not widely publicised. See below for information on PMI’s acquisition of Fertin Pharma, which produces other oral nicotine products.

  • For more information about the tobacco industry’s snus investments, including Altria’s interests in tobacco-free nicotine pouches, and product launches by PMI’s competitors, go to Cigarette Companies Investing in Snus.
Image 1: PMI’s IQOS Duo which was launched in September 2019 (screenshot taken from uk.iqos.com, February 2020)

Heated Tobacco Products

The year before the snus joint venture came to an end, PMI entered the HTP and e-cigarette markets (see below). At the time, CEO Calantzopoulos told the Wall Street Journal that he believed the future was in HTPs.24

PMI’s flagship HTP product, called IQOS (image 1), uses a battery-operated device that heats tobacco sticks called HEETS, which are available in several flavours. They are also sold under cigarette brands Marlboro and Parliament in some countries.9

PMI periodically launches new and updated versions of its products which it tests in various markets, including the Dominican Republic. TEEPS, PMI’s second HTP brand, and ILUMA, PMI’s latest IQOS variant, are currently in development.

E-Cigarettes

Image 2: The IQOS Mesh (screenshot taken from pmi.com, December 2019)

As with snus, PMI was the last of the international tobacco companies to move into the e-cigarette market. In November 2013, PMI announced that it was going to produce its own e-cigarette.25 By 2019 the company had three e-cigarette brands in its product portfolio, two of which were sold only in the United Kingdom (UK) and Ireland, and the other only in Spain and Israel.

The most recent addition was developed in-house: IQOS Mesh (image 2), the only PMI e-cigarette labelled under the IQOS brand. CEO Calantzopoulos informed investors in December 2019 that Mesh was ready for further commercialisation, but that a global roll-out had been postponed due to the backlash against e-cigarettes following the sudden deaths of a number of vapers in the US.21 In January 2020, the roll-out appeared to be going ahead, with Calantzopoulos announcing “a launch in the coming months”.26 However it was delayed further by the Covid-19 pandemic and finally launched under the Veev brand name in September 2020.27928

Market Expansion and Consolidation

At the beginning of 2020 PMI stated that its “Reduced Risk Products” (RRPs) account for nearly 20% of its net revenue, although it does not disclose publicly the profits from IQOS or other NGPs.29 In early 2021 it stated that this figure was nearly 25%9. It continues to expand the sales of its products through independent retailers and IQOS stores. In January 2020, the company reported that it had opened 26 new IQOS stores in South Africa since launching there in 2017.30

Collaboration with KT&G on HTPs and Hybrids

In January 2020, PMI announced a new “collaboration” with South Korean tobacco company KT&G (which dominates the South Korean market), to commercialize KT&G’s range of “smoke-free” products globally, alongside IQOS.26 The deal covered KT&G’s e-cigarettes, heated tobacco and hybrid (vapour and tobacco) products. Although KT&G has a US subsidiary, PMI stated at the time, that there were “no current plans to commercialize KT&G products in the U.S.”2631 

In August 2020, KT&G’s lil SOLID HTP devices and Fiit heated tobacco sticks were launched in Russia, followed by Ukraine three weeks later.2732  It appears that lil SOLID is a rebranded Lil Plus device.33

When announcing its financial results in October 2020, PMI made clear the importance of having KT&G’s products in its product portfolio:

“This means that in both these markets [Russia and Ukraine] we now have HTU brands at three price points within the heat-notburn category: super-premium HEETS Creations/Dimensions, premium HEETS and mid-priced Fiit, all of which present attractive margins.”27

PMI launched KT&G’s lil HYBRID device in Japan in October 2020.34 This device uses as form of tobacco leaf and an e-liquid. While the tobacco contains nicotine, PMI referred to these as “Miix consumables and nicotine-free liquid cartridge”.27 This is likely to be because E-cigarette liquids containing nicotine are banned in Japan.  KT&G stated that its lil Hybrid was a “distinctive platform”. However Japan Tobacco International (JTI) markets a range of hybrid HTPs (for details see Next Generation Products: Japan Tobacco International).  It appears that PMI aims to gain further market share in JTI’s home market, which is already dominated by IQOS.

Undermining Tobacco Control Legislation

Although PMI has been promoting a “smoke-free” narrative, including funding the Foundation for a Smoke-Free World and its “Unsmoke” marketing campaign, it has also been working to undermine smoking bans and enable the use of IQOS in smoke-free areas.35 Just two months after the public smoking ban was introduced in the Czechia (then the Czech Republic) in 2017, PMI promoted IQOS on Radio Praha to Czech smokers. According to the radio station it: “might allow them [smokers] to ‘smoke’ in public places once again”.36

PMI has also been courting the hospitality industry to relax smoking bans by allowing the use of IQOS where smoking is banned.35 Allegedly more than 1,000 hotels around the world were offering “IQOS friendly rooms” in 2018, and “…in some cases, allow the use of smoke-free products in common areas”.37 The UK IQOS website published a list of the “15 Best IQOS Friendly Locations in London”, venues that are “happy to accommodate users of heated tobacco technology”.38

In January 2020, Calantzopoulos argued that advertising regulations should be relaxed, saying that in the UK it was “difficult to talk to a consumer about a tobacco product” if the product could not be easily seen, which would make it “very difficult to switch”.39 However, although PMI has opened multiple IQOS stores in London, Bristol, Cardiff and Manchester, as an investigation by the Bureau of Investigative Journalist pointed out, as of February 2020 there were none in the UK towns and cities with the highest smoking rates.35

In February 2020, an investigation by The Guardian newspaper revealed that, in the UK, PMI lobbied for lighter regulation of IQOS, as a “considerably less harmful novel smokeless tobacco product” (CLHTP). PMI also proposed setting up a UK£1 billion fund for cessation services in exchange for the relaxation of advertising regulations for e-cigarettes and HTPs.40 It also tried to get IQOS adopted as a cessation product in New Zealand.414243

PMI has also taken advantage of tobacco control measures being implemented in the UK in order to promote its HTPs. In January 2019, PMI promoted  IQOS and new, stronger variants of menthol HEETS sticks in the UK, ahead of the deferred EU Tobacco Products Directive ban on menthol cigarettes (due to come into effect in May 2020).44454647 An “IQOS Menthol starter kit” aimed at convenience stores was available to retailers via a website called “menthol-ban-retail.co.uk”.4448 Run by Philip Morris Ltd (PML), the website stated that “From 20th May 2020, the only menthol tobacco you can sell is HEETS” (noting that specialist cigars and cigarillos were exempted from the ban). It also contained a claim that “51% of menthol smokers would replace menthol cigarettes with IQOS after the ban”.48

PMI has lobbied to overturn HTP and e-cigarette bans and create a market for its products in Australia.495051  For more details see Heated Tobacco Products.

Acquired Pharmaceutical Companies and NRT-Type Products

In a presentation to investors in February 2021, PMI stated that it planned to go “beyond nicotine” into “botanicals” and “respiratory drug delivery” (image 3).52 It said that this was part of its “long term evolution into a broader lifestyle & consumer wellness company”.52

Screenshot of PMI Beyond Nicotine slide

Image 3: Slide from PMI presentation to investors, 10 February 2021. (Source PMI website)

It is not clear if this strategy includes cannabis products (see below).

Fertin Pharma and Oral Nicotine

In July 2021, PMI announced that it was acquiring Fertin Pharma for around US$820 million.  PMI described the company as “a leading developer and manufacturer of innovative pharmaceutical and well-being products based on oral and intra-oral delivery systems”.53 In a press release CEO Jack Olczak said that the company was a “leading producer of Nicotine Replacement Therapy (NRT) solutions”. PMI referred to these products as “modern oral” and includes nicotine pouches in the same category.53 (The term “modern oral” appears to have been first used by British American Tobacco).

Vectura Inhalers

Also in July 2021, PMI announced its intention to acquire Vectura, a UK company specialising in inhaler products to deliver medicines.5455

Syqe Medical Inhalers

In 2016, PMI bought an Israeli company, Syqe Medical, which was developing a cannabis inhaler.56

TobaccoTactics Resources

Relevant links

TCRG Research

References

  1. Euromonitor International, Global Tobacco Key Findings Part 2: Vapour Products. August 2016 (behind paywall)
  2. Philip Morris International, This Changes Everything: Annual Report 2016, 2017, accessed January 2020
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  4. R. Davies, A. Monaghan, Philip Morris’s vision of cigarette-free future met with scepticism, The Guardian, 30 November 2016, accessed September 2017
  5. Philip Morris Products S.A., Delivering a smoke-free future. How long will PMI be in the cigarette business?, PMI website, undated, accessed December 2019
  6. Philip Morris International, Designing a Smoke-Free future, PMI website, archived 30 September 2019, accessed December 2019
  7. Philip Morris International, Delivering a smoke-free future, PMI website, archived 16 October 2019, accessed December 2019
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