Philip Morris International has launched IQOS Iluma, the brand’s first tobacco-heating system based on induction-heating technology, in Japan.
The device’s Smartcore induction system heats the tobacco from within the new Terea Smartcore Stick. These newly designed sticks are to be used only with IQOS Iluma, which features an auto-start function that detects when the Terea stick is inserted and automatically turns on the device.
According to PMI, the bladeless IQOS devices offer a cleaner way to heat tobacco from the core without burning it. They also provide a more consistent experience and leave no tobacco residue, eliminating the need to clean the device. Additionally, the devices generate no combustion and no smoke. PMI says its market research indicates that IQOS Iluma provides a more pleasurable experience compared to previous IQOS generations.
“IQOS Iluma is our most innovative offering to date and the new flagship in our portfolio of science-backed, smoke-free products. Its breakthrough induction-heating technology heats tobacco from within, without burning, so there’s no smoke, no ash and, like previous IQOS devices, it emits, on average, 95 percent lower levels of harmful chemicals compared with cigarettes,” said Michele Cattoni, vice president of heated-tobacco platforms at PMI, in a statement.
“However, unlike our previous tobacco-heating systems, IQOS Iluma has no blade. That means no tobacco residue or cleaning—ever. With this, and other product features, we aim to address consumer pain points that may have hindered some adult smokers from beginning or maintaining their journey away from cigarettes in the past.”
IQOS Iluma is available in two versions—IQOS Iluma Prime and IQOS Iluma. Both devices use new induction-heating technology but offer different designs. IQOS Iluma Prime and IQOS Iluma are available in Japan for pre-order on IQOS.com beginning Aug. 17, 2021, and for purchase at IQOS stores on Aug. 18, 2021.
As of June 30, 2021, PMI’s smoke-free products are available in 67 markets. The company has stated its ambition to be present in 100 markets with its smoke-free products by 2025. There are more than 20 million users of the IQOS tobacco-heating system globally, and PMI estimates that more than 73 percent (approximately 14.7 million) of these men and women have switched completely to IQOS and stopped smoking with the balance in various stages of switching. PMI’s ambition is that by 2025, at least 40 million PMI cigarette smokers who would otherwise continue to smoke will have switched to smoke-free products. Furthermore, the company’s ambition is that more than half of its net revenues will come from smoke-free products by 2025.
Presenting at the Goldman Sachs Global Staples Forum on May 18, Philip Morris International CEO Jacek Olczak highlighted the next steps in the company’s strategy to becoming a majority smoke-free company in terms of net revenue by 2025.
Olczak highlighted IQOS’ strong and accelerating topline momentum and potentially lucrative opportunities to expand beyond nicotine into broader lifestyle/wellness markets, such as high-margin botanicals and respiratory drug delivery.
IQOS added more than 1.5 million users in the first quarter of 2021, according to Olczak—well above its historical average of 1 million new users per quarter. Robust conversions at 70 percent to 80 percent continue to dwarf the average conversion rates of many vapor products, which are in the mid-teens.
The heat-not-burn device is now available in 66 markets, with a user base of 19.1 million, of which 14 million have stopped smoking and fully converted to IQOS.
Olczak was particularly excited about the launch, scheduled for the second half of 2021, of PMI’s ILUMA IQOS product, which he believes could drive even higher conversion rates and margins as PMI continues to leverage its fixed cost base on IQOS while streamlining its customer acquisition and retention.
Olczak also reviewed management’s ongoing efforts to digitalize and simplify business processes, including PMI’s commercialization strategies around IQOS. According to him, these efforts have already yielded $60 million of gross savings in selling, general and administrative expenses toward management’s target of $1 billion in 2021–2023.
Olczak believes that PMI’s digitalization efforts will not only further reduce the cost of acquiring and retaining new users and ultimately drive more profitable growth but also accelerate conversion and customer acquisition, especially with the eventual global rollout of PMI’s digital customer experience.
Olczak also touched on PMI’s longer term opportunities beyond heat-not-burn and vaping, including nicotine pouches and next-generation devices.
Management is also looking into adjacencies, such as broader lifestyle/wellness markets, such as high-margin botanicals (including pure CBD) and respiratory drug delivery. The company aspires to achieve at least $1 billion in incremental net revenue from its beyond nicotine efforts by 2025.
Olczak expressed optimism about PMI’s competitive advantages in terms of its capabilities around product safety and efficacy and validating/substantiating scientific claims.
Philip Morris International’s IQOS device infringes two patents owned by British American Tobacco subsidiary Reynolds American Inc., reports Bloomberg, citing a note posted by Judge Clark Cheney on the U.S. International Trade Commission’s website.
The next step is a likely review by the full commission, which has the power to halt products at the U.S. border and is scheduled to complete the investigation by Sept. 15.
IQOS is the only heat-not-burn product authorized for sale in the U.S., where it’s sold by Altria. Last year, the U.S. Food and Drug Administration allowed the company to market IQOS as reducing consumers’ exposure to harmful chemicals found in cigarettes.
Reynolds claims PMI and Altria copied patented technology that it had developed for its Vuse Vibe and Vuse Solo vaping products, for which it’s filed for FDA approval. The company complained to the ITC in April 2020.
Altria responded with its own patent-infringement claims, and a separate suit against Reynolds in May. Altria also lodged petitions with the U.S. Patent and Trademark Office challenging the validity of a half-dozen Reynolds’ patents.
The judge has to make a determination on whether even temporarily removing such products is appropriate for public health and what alternatives there are for consumers.
Reynolds said it expects the judge will recommend an import ban, adding that the unauthorized use of its inventions “undermines our ability to invest and innovate and thereby reduce the health impact of our business.”
Philip Morris called the judge’s findings “one step in a long process that does not have an immediate effect” and it will present its position to the commission.
“BAT’s litigation in the U.S. is part of a worldwide attempt—which has been entirely unsuccessful to date—that is meant to undermine the heated-tobacco segment, where they lag far behind,” the company said.
PMI has also argued that, even if a patent violation is found, it’s not in the public’s interest to keep the IQOS out of the U.S.
“The judge has to make a determination on whether even temporarily removing such products is appropriate for public health and what alternatives there are for consumers,” said PMI Executive Chairman Andre Calantzopoulos. “If we remove a product that exists, and the only alternative that people have are cigarettes, it’s a consideration of public-health interest and that has to be taken into account.”
The U.S. Food and Drug Administration (FDA) today opened a public comment period on Philip Morris International’s application seeking authorization to market the IQOS 3 electrically heated tobacco system as a modified risk tobacco product (MRTP).
PMI’s application requests the same reduced exposure modification orders granted on July 7, 2020, for the IQOS 2.4 system—the first, and only, electronic nicotine product to be granted marketing orders through the FDA’s MRTP process. To authorize MRTP consumer communications, the FDA’s Center for Tobacco Products is required by law to conclude that a product is appropriate to promote the public health.
The IQOS 3 device contains a number of technological advancements, compared to the IQOS 2.4 device, including longer battery life and quicker recharge between uses. It was authorized for sale in the U.S. via the FDA’s pre-market review process on Dec. 7, 2020, having met the standard that permitting its sale is appropriate to protect public health.
This application underscores PMI’s ongoing commitment to make new innovations available to American adult smokers through the FDA process.
“PMI is fully committed to a smoke-free future, one where we completely replace cigarettes with scientifically substantiated smoke-free alternatives that are a better choice for adults who would otherwise continue smoking,” said PMI CEO Jacek Olczak.
“Our commitment to a science-based future is unmatched, having invested more than $8 billion since 2008 on smoke-free products. This application underscores PMI’s ongoing commitment to make new innovations available to American adult smokers through the FDA process; the confidence we have in our science; and our belief that public scrutiny and open engagement with governments is vital to achieving a smoke-free future.”
The Altria Group Inc. asked the U.S. Food and Drug Administration (FDA) for its help in convincing Americans that nicotine isn’t linked to cancer. In a letter to the regulatory agency, the maker of IQOS and Juul products asked for the FDA to assist in combatting misperceptions about nicotine as part of a proposed $100 million advertising campaign to reduce the harm caused by tobacco.
According to a letter seen by Bloomberg, Altria states that nearly three-fourths of U.S. adults incorrectly believe nicotine causes cancer, citing government research. Clearing up the drug’s health risks will be key to the agency reducing smoking combustible cigarettes because it will help convince cigarette users to switch to noncombustible options for nicotine, the company said.
While there are at least 60 well-established carcinogens in cigarette smoke, it’s been known for years that nicotine isn’t the direct cause of many of smoking’s ills. The drug has even been touted as a way to ease tension and sharpen the mind. But nicotine is the ingredient that addicts people to tobacco products, and it has risks, according to the National Institute on Drug Abuse, a government agency.
The FDA “should commit resources and expertise to correct the deeply entrenched public misperceptions regarding the health risks of nicotine,” Paige Magness, Altria’s senior vice president of regulatory affairs, said in the letter dated Feb. 25. Such a campaign would help the agency by getting more smokers to use noncombustible offerings that “may present lower health risk,” according to the letter.
The FDA declined to comment, according to Bloomberg.
Tobacco and vapor product analyst Bonnie Herzog of Goldman Sachs cites the Covid-19 pandemic as the main reason Philip Morris International (PMI) and Altria have slowed down the national launch of IQOS.
In March, Philip Morris USA closed its Atlanta, Georgia, and Richmond, Virginia, IQOS stores temporarily, paused its IQOS inperson marketing efforts and delayed the launch of IQOS in Charlotte, North Carolina, due to Covid-19 concerns. While the U.S. Food and Drug Administration (FDA) granted modified-risk tobacco product (MRTP) status to IQOS in July, sales of IQOS have not been strong during the pandemic.
“It has been more of a slow rollout and that has a lot to do with the fact that the technology that has been approved in the U.S. is older technology of IQOS,” said Herzog. “Philip Morris has applied to get approval of 3.0, but that’s still pending. We’re optimistic, assuming they can get approval from the FDA for that.” Herzog projects that by 2025, IQOS could account for as much as 12.2 percent of Altria’s volumes.”
Philip Morris Fortune Tobacco Co. (PMFTC) is opening its first four IQOS stores in Manila, reports The Manilla Standard.
While the heat-not-burn product has been available in the Philippines through several retail outlets since April, the opening of the stores marks a significant step towards achieving the company’s vision of a smoke-free future, according to PMFTC President Denis Gorkun.
“PMFTC’s vision is to help adult smokers who would otherwise continue to smoke to move away from cigarettes as quickly as possible and switch to a better alternative,” Gorkun said.
PMFTC parent company Philip Morris International has invested more than $7 billion in research, development and production capabilities to create smoke-free products such as IQOS, which are now available in several countries.
In July, the U.S. Food and Drugs Administration (FDA) authorized the marketing of IQOS and heat sticks in the U.S. with a reduced exposure claim adding that such issuance is appropriate for the promotion of public health.
Gorkun said the FDA decision shows that IQOS is a fundamentally different tobacco product compared to cigarettes and a better choice for adults who would otherwise continue smoking.
About 60 percent of Filipino adult smokers are willing to try smoke-free alternatives provided they are made commercially available and meet quality production standards, according to a study commissioned by PMFTC.
PMFTC said IQOS is aimed at adult smokers. The company is implementing age verification and access restriction to ensure that only legal age consumers 21 years old and above will have access to the stores, the e-commerce website and the IQOS products.
The Therapeutic Goods Administration (TGA) in Australia rejected an application from Philip Morris (PM) that would have allowed the sale of heated-tobacco products.
This follows the Australian government’s ban on the import of nicotine-based e-cigarettes. Health Minister Greg Hunt planned to implement the ban beginning July 1 of this year, but the ban has now been pushed back to the beginning of 2021 to allow those who have been using e-cigarettes with nicotine to quit smoking combustibles to get prescriptions and end their addiction.
The ban would make the import of vaporizer nicotine and e-cigarettes allowable only with a doctor’s prescription.
There were 82 submissions in the TGA decision that supported heated-tobacco products, and the U.S. Food and Drug Administration concluded that PM’s tobacco-heating product “is expected to benefit the health of the population as a whole.” The TGA received submissions from the Lung Foundation, Cancer Council Australia, Australian Council on Health and Smoking, and the National Heart Foundation, though, that stated their concerns regarding public health risks of heated-tobacco products. The TGA ultimately decided there were “significant safety concerns with heated-tobacco products,” according to news.com.au.
“Study after study shows that scientifically substantiated smoke-free products that do not generate smoke, while not risk-free, are a much better alternative for adult smokers who would otherwise continue to smoke cigarettes,” said Tammy Chan, Philip Morris managing director. “It’s time Australian authorities recognize that many adult smokers will continue to smoke cigarettes—the most harmful way of consuming nicotine—unless the government rethinks its tobacco control policy. Smoke-free products can play a role in reducing smoking rates.”
According to Chan, Australia’s stance on smoke-free products is at odds with other countries; heated-tobacco products are available in 50 other countries.
Next generation tobacco products like heat-not-burn (HNB) offer a less risky alternative to combustible cigarettes. Making these products more available to smokers would translate into public health gains, according to Helen Redmond, adjunct professor at New York University-Silver School of Social Work.
Because the tobacco is not burned, the levels of harmful chemicals produced by HNB products are significantly lower compared to combustible cigarette smoke, according to Redmond. She made the statement before the U.S. Food and Drug Administration (FDA) authorized the marketing of IQOS, the tobacco heating system produced by Philip Morris International, as a modified risk tobacco product (MRTP).
It has been known for decades that tar and carcinogens found in tobacco smoke, causes the death and disease associated with smoking and not nicotine. “The use of nicotine is no threat, because nicotine is not the problem. Combustible tobacco is,” Redmond said. “There is a widespread, mistaken notion that nicotine causes cancer and other health problems. That is false. What causes health problems is lighting tobacco on fire. The combustion releases thousands of toxic chemicals.”
The FDA’s MRTP authorization shows that IQOS is a fundamentally different product than combustible cigarettes, and must be regulated differently. The FDA’s decision is consistent with earlier conclusions of other leading regulatory and scientific bodies, including in the United Kingdom, Germany and the Netherlands, which have found that the product emits lower levels of harmful toxicants.
“If HNB products appeal to smokers who, for whatever reason, find that vaping — estimated by Public Health England to be 95 percent safer than smoking — isn’t for them, it’s a huge win for public health,” she added.
She said e-cigarettes and HNB devices proved effective in making smokers switch because they offer the same pleasure, rituals and relaxation associated with smoking. A February 2019 clinical trial by UK’s National Institute for Health Research found that e-cigarette was twice as effective as nicotine replacement treatments such as patches and gum at helping smokers quit.
Redmond cited the case of Japan where nearly a third of smokers have already switched to HNBs. “HNB products have been available in Japan since 2014. The result— cigarette sales in the country have plummeted, outstripping anything abstinence-only messages have achieved” she said.
PMI has conducted extensive research on IQOS, including 18 non-clinical and 10 clinical studies. Based on PMI evidence to date, switching completely to IQOS — while not risk-free — is a better alternative for those who would otherwise continue to smoke.
Another study by Canadian and American researchers looked at how trends in the sale of cigarettes in Japan between 2011 and 2019 correspond to the sales of HTPs that were introduced into the Japanese market in late 2015.
The researchers concluded that the accelerated five-fold decline in cigarette sales in Japan since 2016 was due to the introduction of HTPs.
Philip Morris Products receives the first modified-exposure order for an ENDS product for IQOS.
By Timothy S. Donahue
It’s a major development. It may also serve as a precursor to what action the U.S. Food and Drug Administration (FDA) may take when reviewing premarket tobacco product applications (PMTAs) for vapor products that must be submitted by Sept. 9. On July 7, the FDA issued exposure modification orders to Philip Morris Products’ (PMP) heat-not-burn system, IQOS. The order also included the device’s holder and charger as well as three variants of the Marlboro HeatStick.
“Through the modified-risk tobacco product application (MRTP) 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 evi-dence and understandable,” said Mitch Zeller, director of the FDA’s Center for Tobacco Products (CTP). “Data submit-ted 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.”
IQOS is the first next-generation tobacco product to receive exposure modification orders and only the second product to be authorized as a modified-risk tobacco product. In October 2019, the FDA authorized Swedish Match U.S. division’s amended MRTP applications for eight variet-ies of General snus. IQOS is produced by Philip Morris International (PMI), parent to PMP, and marketed in the U.S. by Philip Morris USA, a subsidiary of Altria Group.
During a recent call with investors, Emmanuel Babeau, PMI’s chief financial officer, said following a review of its extensive scientific evidence package, the FDA found that an exposure modification order for IQOS is appropriate to promote the public health in the United States.
Credit: PMI
“[This dem-onstrates] that IQOS is [a] fundamentally different product from combustible cigarette[s] and a better choice for adults who would otherwise continue to smoke,” he said. “The agency concluded that issuing the order for IQOS is expected to benefit the health of the population as a whole, taking into account both users of tobacco products and persons who do not currently use tobacco products.”
In a press release, Billy Gifford, CEO of Altria Group, stated that the authorization gives its Philip Morris USA subsidiary an “opportunity to communicate additional benefits of switching to IQOS, and this decision is an important step for adult smokers.” In a late July earnings call, Altria announced it would be expanding marketing of IQOS to Charlotte, North Carolina. T
he company said it plans to expand marketing to four more cities over the next 18 months. In April of 2019, the FDA authorized the marketing of IQOS through the PMTA pathway. By granting IQOS an MRTP, 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.
“The FDA’s decision is a historic public health mile-stone,” 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. [The] FDA determined that scientific studies show that switching completely from conventional cigarettes to IQOS reduces exposure to harmful or potentially harmful chemicals.”
According to the FDA website, a reduced-risk claim authorization would generally allow a company to say a product is less harmful than combustible cigarettes. However, according to the FDA, the current reduced-exposure claim authorization only allows PMP to state that IQOS heats, rather than burns, tobacco and significantly reduces the production of harmful and potentially harmful chemicals.
It also allows the company to state that scientific studies have shown that switching completely from conventional cigarettes to the IQOS system significantly reduces the body’s exposure to harmful or potentially harmful chemicals.
Additionally, when granting its modified-exposure order, the FDA found that “testing of actual consumer perception shows that, as the applicant proposes to label and market the product, consumers will not be misled into believing that the product is or has been demonstrated to be less harmful or presents or has been demonstrated to present less of a risk of disease than one or more other commercially marketed tobacco products.”
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, according to the FDA. 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 decision and subsequent comprehensive post-market controls and monitoring, focusing on use prevention, provide an important example of how government and public health organization around the world can implement an inclusive, science-based approach to help rapidly shift adult smokers who would otherwise continue smoking to better options while simultaneously guarding against unintended consequences,” said Babeau.
GLOBAL GROWTH
In the investor call, Babeau revealed that the first half of 2020 has seen continued momentum for IQOS with an estimated 15.4 million users at the end of the second quarter. “Our commercial model pivoted rapidly to digital and remote engagements while preserving high rates of IQOS’ user acquisition and brand retention,” he said. “With volumes of heated-tobacco units growing 24 percent in [the second quarter] shows that, as the applicant proposes to label and market the product, consumers will not be misled into believing that the product is or has been demonstrated to be less harmful or presents or has been demonstrated to present less of a risk of disease than one or more other commercially marketed tobacco products.”
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 deter-minations 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, according to the FDA. The orders also require the includes strong growth in Italy, the Czech Republic, Poland and Germany, and in historically slower markets such as the U.K., where HTU [heated-tobacco unit] volumes increased more than five-fold over the prior year quarter, and Spain. National offtake share surpassed 1 percent in both of these latter markets despite limited distribution.”
PMI sees its IQOS products as a “critical enabler” for the future growth of RRPs. The company estimates that there were 15.4 million IQOS users worldwide as of June 30. The product’s steady increase in market share reflects widespread user growth momentum across all key IQOS geographies, including Japan, the EU region and Russia, according to Babeau.
“We further estimate that 72 percent of this total—11.2 million adult smokers—have stopped smoking and switched to IQOS with the balance in various stages of conversion,” said Babeau. “We observe an early indication that the propensity of smokers to switch to RRPs is trending positively since the pandemic began, and we will see how this develops in the coming period. We are also optimistic that the FDA’s granting of the modified-risk tobacco product order for a version of IQOS will contribute over time to a better understanding of the heated-tobacco category and the benefit of switching to IQOS compared to continued smoking.”
In Russia, where IQOS was released in 2015, IQOS’ market share rose by three points to reach 5.9 percent. In Japan, where IQOS was released in 2014, PMI’s total reported share for heated-tobacco units reached 20 percent in the second quarter, according to Babeau. IQOS users grew to an estimated total of 5.8 million, of which an estimated 4.3 million have stopped smoking traditional cigarettes and fully switched to IQOS.
“On an adjusted total tobacco view, including cigarillos and adjusted for trade inventory movement, the share for our HTU brands increased by two points versus the prior year quarter and by 0.7 points sequentially to 18.5 percent,” he said. “[Second quarter] 2020 adjusted in-market sales volume for our HTU brands grew 4.9 percent sequentially. This helped drive growth of the overall heated-tobacco category to [a] second-quarter total tobacco share of over 25 percent.”
In addition to strong RRP growth in existing markets, the geographical expansion of IQOS continues. Despite the pandemic-related restriction, PMI has leveraged its digital capabilities to launch in four new markets: Austria, North Macedonia, Montenegro and Saudi Arabia. This takes the total number of markets where IQOS is available for sale to 57.
Babeau said the company still plans to expand its portfolio of smoke-free offerings in the second half of the year with the launches of IQOS VEEV in the vapor category and a licensed KT&G product in select markets.
“We are on track to reach our 2021 target of 90 billion to 100 billion shipments of heated-tobacco units. RRPs now make up almost 25 percent of our net revenue, and we expect this percentage to grow over time. With digital effi-ciency, operating leverage from scale effect and productivity saving simultaneously driving up the profitability of RRPs, this is a very positive dynamic for our margin outlook,” said Babeau.
“The historic milestone of modified-risk tobacco product authorization for IQOS is a further testament to the integrity of the product and brand proposition and underlying the need for government to implement science-based regulation. In addition, after a difficult April and May, the industry recov-ery has now started, providing better visibility for the rest of the year.”
Toward the end of the call, Bonnie Herzog, an analyst with Goldman Sachs, suggested that PMI has been adding more new users during the pandemic than originally expected. Babeau agreed, saying that this is going to come from the continuation of a “very strong acquisition” of new IQOS users. Herzog then asked if PMI had any intention of pursu-ing a modified-risk authorization. Babeau said a full MRTP is in the plans for IQOS.
“The FDA has left the door open to continue the dialog with them on precisely the next level. We intend to do that in the coming months. I would say the question is whether the reduced-risk authorization for marketing can come through a modified claim or through providing additional study or maybe a combination of both,” said Babeau. “That’s what we intend to discuss with the FDA in the coming months and, of course, we are impatient to have this dialog with them.” V
