Kaival Brands Innovations Group, Inc, parent to Bidi Vapor, LLC (“Bidi Vapor”), received its first royalty payments from Philip Morris International, Inc. (PMI) for marketing Bidi Vapor products in multiple countries.
In a press release, Kaival Brands announced that PMI achieved a record level of monthly sales in July for of its Bidi products that are marketed by PMI under the names VEEBA and VEEV NOW.
Eric Mosser, Chief Executive Officer and President of Kaival Brands, said he was pleased to see the positive trajectory of sales and royalties to the company.
“We are proud to work with Philip Morris and remain steadfast in our commitment to the responsible commercialization of better alternatives to cigarettes for adults who would otherwise continue smoking,” he said.
Kaival Brands Innovations Group, announced that its wholly-owned subsidiary, Kaival Brands International (KBI), has amended its agreement with Philip Morris Products, a wholly owned affiliate of Philip Morris International (PMI), for the development and distribution ENDS products in markets outside of the U.S.
Eric Mosser, CEO of Kaival Brands, the exclusive distributor of all products manufactured by Bidi Vapor, including the BIDI Stick electronic nicotine delivery system (ENDS), said in a press note that with more than a year of operational history for KBI and given the recent changes to regulations in international markets, it became clear that there were a number of opportunities to improve the terms of the original licensing agreement with PMI and reduce the burden of administering it.
“We are extremely pleased to reach an agreement that shall enable us to achieve our objectives. The revised licensing agreement simplifies the payment structure resulting in cost savings of approximately $2.7 million for the Company over the lifetime of the license agreement,” said Mosser. “It also enables better predictability and forecasting for KBI and streamlines data reporting. Finally, we anticipate that the acceleration of royalty payments will be a net positive to our financial performance over the duration of the agreement.”
Under the terms of the amended agreement, the parties agreed to revise certain terms, which provide for, among other things, a fixed pricing structure with volume-driven increases and a recapture of non-recurring engineering costs by KBI.
Accordingly, Kaival Brands expects a reconciliation payment of approximately $135,000. It projects approximately $300,000 in additional royalties to be earned through the end of 2023.
Philip Morris International plans to acquire Syqe Medical, an Israeli company, according to Calcalist. The deal could reach $650 million.
Syqe’s main product is a metered-dose inhaler for pain reduction using medical marijuana.
PMI will initially invest $120 million to aid in the process of obtaining U.S. Food and Drug Administration approval for Syqe’s inhaler. If approval is received, PMI will purchase all shares of Syqe for $650 million.
PMI subsidiary Vectura will conduct the transaction.
Philip Morris International announced it has made a deal with some Australian pharmacies to supply its VEEV vaping products below cost, despite the company’s opposition to the government’s new prescription vaping model.
VEEV marketing materials seen by Guardian Australia offer pharmacists an “introductory offer” to supply nicotine pods and devices at a discount.
The offer is also on the condition pharmacies do not sell a packet of two VEEV nicotine pods for more than AUD14.90 ($9.98) or devices for more than AUD19.90 – cheaper than what wholesalers can offer.
The recommended retail price for comparable pod products is AUD24.99. The marketing material for the offer only mentions PMI in fine print at the bottom of the document.
A spokesperson for the Pharmaceutical Society of Australia said it “urges pharmacists to be skeptical of any commercial offer from big tobacco”.
“There are currently no nicotine vaping products registered on the Australian Register of Therapeutic Goods and no company should be advertising unregulated products to Australian healthcare professionals,” the spokesperson said.
In May, the federal health minister, Mark Butler, announced that the government will ban the importation of nonprescription vaping products – including those that do not contain nicotine. Minimum quality standards for vapes are also being introduced, including restricting flavors, colors and other ingredients.
Vape products will require pharmaceutical-like packaging, and the allowed nicotine concentrations and volumes will be reduced. All single-use, disposable vapes are being banned.
A Philip Morris International spokesman told Guardian Australia; “We have always been open and transparent about the fact we will work within whatever legal and regulatory framework exists for these products in Australia”.
“This is in stark contrast to dozens of other vaping companies who are providing their product via the black market,” he said.
The High Court of Justice in London ruled April 17 that Philip Morris Products’ (PMP) patents protecting a tobacco-heating technology are valid, reports Law360. The ruling represents a defeat for BAT and its Nicoventures subsidiary, which had sought to revoke PMP’s patents.
While considering the patent valid, the court also said that BAT’s Glo heated-tobacco products did not infringe the patents, heading off an infringement counterclaim filed by PMP.
The April 17 ruling is the latest chapter in an ongoing intellectual property dispute between the tobacco giants.
PMP initially sued BAT and Nicoventures, claiming they infringed several of its tobacco-heating technology patents. This prompted BAT and Nicoventures to file counterclaims seeking to invalidate the patents.
The proceedings have now branched off into several different actions before the High Court.
In the current case, Nicoventures argued, among other things, that the PMP technology was obvious in light of a 1998 patent application referred to as “Pienemann,” which covers a “system for providing an inhalable aerosol.”
While Pienemann, like PMP’s technology, has multiple heating elements, Judge Michael Tappin said that a skilled team would consider the multiple heaters to “mimic” one heater. Pienemann also did not specify the inclusion of a thin-film heater as seen in the PMP patent, instead describing a “graphite loaded sheath,” according to the judgment.
Regarding the infringement claim, Tappin said that BAT’s Glo products did not infringe the patents because they did not include a method of allowing different parts of the heating system to be heated at different times.
Healthier Choices Management (HCM) filed the appeal to the CAFC after a district court ruled in Phillip Morris’s favor, dismissing the patent infringement case. HCM alleged that Phillip Morris infringed on its patent for an electronic pipe, U.S. Patent No. 10,561,170.
The CAFC reversed the district court’s dismissal of the original complaint and its denial of HCM’s motion to amend the complaint. Additionally, the appeals court vacated the award of attorneys’ fees to Phillip Morris.
The main dispute between the two companies is whether one of Phillip Morris’s products initiates a combustion reaction. HCM alleged that the product in question from Phillip Morris does induce a combustion reaction, while Philip Morris claimed that the product is combustion-less.
If the product does involve combustion, it would bolster HCM’s case that Phillip Morris infringed on its patent, according to IP Watchdog.
However, the district court agreed with Phillip Morris that an attached exhibit from HCM proved that Phillip Morris’s product does not use combustion. Thus, there was no infringement found and the case was dismissed.
The district court also denied HCM’s motion to file an amended complaint.
As a result of the district court ruling, HCM appealed to the CAFC, arguing that the district court erred in dismissing the case, denying its motion to amend its case. HCM also asked that if the case be remanded that it be assigned to a different judge, and the company contested the attorney fees that Phillip Morris was awarded.
CAFC sided with Phillip Morris and denied HCM’s request for reassignment. The case will go back to Judge Timothy C. Batten of the United States District Court for the Northern District of Georgia.
In an address at the recent ET Global Business Summit 2023 in New Delhi, Philip Morris International CEO’s, Jacek Olczak, emphasized the need for leveraging science and technology for a better, more sustainable future, according to a PMI press release.
Conceived in 2015, and now in its seventh edition, the Global Business Summit seeks to provide solutions to macroeconomic challenges by curating government-to-government interactions, business to government meetings, business-to-business engagements and to serve as a conduit for corporates and governments to secure investments in India from domestic and international allies.
Held on Feb. 17-18, the New Delhi summit was attended by Indian Prime Minister Narendra Modi, along with several CEOs, policymakers and academics.
Speaking on the theme “Sustainable economy for the greater good,” Olczak stressed how innovation has grown rapidly over the past decades with investments across a wide range of industries, including the energy and automotive sectors.
“Science and technology integrated with a collaboration between private and public has proven to be key to identify solutions to overcome difficult challenges,” he said.
Olczak then touched up PMI’s commitment to realizing a smoke-free future. Thanks to advances in science and technology, it is now possible to eliminate combustion and replace it with controlled heating, at much lower temperatures. At these lower temperatures, these products generate significantly lower levels of harmful compounds, according to Olczak, who also spoke about the clinical and non-clinical studies that have been conducted on PMI’s heated tobacco products.
Drawing parallels with other industries, Olczak spoke about the need to address challenges at their source, while also working to identify safer alternatives. The harm-reduction principles underpinning the moves from wood-fuel stoves to gas-fueled stoves, and from combustion-engine vehicles to less-polluting alternatives, also apply to tobacco, according to Olczak.
Taking the example of Japan, he noted how the introduction of heated tobacco products in that country has contributed to a decline in cigarette sales at an annual rate of 1.8 percent on average over the past few years.
With the expanded availability of heated tobacco products, almost 35 percent of cigarettes in Japan have been replaced by heated tobacco products over the past seven years. Recent analysis has also shown a downward trend in hospitalizations for Chronic Obstructive Pulmonary Disease. Additionally, research funded by the country’s Ministry of Health and Welfare shows there is negligible adoption of these products by minors, according to PMI. “Similar dynamics are being observed in several European countries,” said Olczak.
Olczak also spoke about how the estimated 200 million users of oral tobacco in India could be offered modern, safer oral tobacco products, like the ones available in Scandinavia.
According to Olczak, PMI’s biggest contribution to society lies in addressing cigarette health effects. Throughout the company’s history, it has been a leading player in the cigarette market. Now, the company is intentionally leaving that behind, he said, embarking on a transformation to provide adults who would otherwise continue to smoke.
“All that’s needed is for today’s innovative, science-based products to be matched by equally innovative policies that encourage people that smoke to switch to less harmful alternatives. This is where India can help drive positive change for the rest of the world. And as chair of the G20, it can be a prime example for emerging economies,” he opined.
“Innovation in the tobacco industry is finally a reality,” said Olczak. “The question we must ask ourselves is this: How do we ensure that innovations are used in the service of people? In other words, how do we leverage technology, science, and innovation to accelerate public health progress and get millions of Indian smokers away from cigarettes? Given India’s history in leveraging innovative solutions to solve issues of society, I am confident that India will be a global leader in progressive tobacco policies going forward,” he concluded.
Philip Morris International’s Indonesian subsidiary, Sampoerna, inaugurated a factory for the production of IQOS HEETS consumables in Karawang, West Java, on Jan. 12, reports The Jakarta Post.
The facility, which started operations in the fourth quarter of 2022, represents an investment of more than $186 million.
The new HEETS factory, which will serve customers in Indonesia and the Asia Pacific region, fits with the government’s policy to encourage investment and increase the export of finished products. Speaking at the inauguration, Coordinating Minister for Economic Affairs Airlangga Hartarto said the investment will encourage innovation and create value in other sectors, such as retail, agriculture and R&D.
According to PMI, the Indonesian plant is the company’s seventh factory for innovative smoke-free products worldwide and its first in Southeast Asia.
During the inauguration, Sampoerna President Director Vassilis Gkatzelis conveyed his appreciation to the Indonesian government for the conducive investment climate, as well as the government’s commitment to maintaining national economic stability.
“As a company that has been operating for almost 110 years, we aim to continue to contribute to the national economy through continuous investment as well as the economic impact on the national tobacco industry supply chain and ecosystem,” he said.
Vassilis also noted PMI’s considerable investment in smoking alternatives. The company, he said, has invested more than $9 billion to develop, scientifically substantiate and commercialize innovative smoke-free tobacco products.
IQOS debuted in Indonesia through limited market testing since 2019 and is available in Jakarta, Surabaya, Denpasar and Bandung, among other cities.
Tobacco-related products, especially vaping and heat-not-burn, were among the 10 fastest growing technologies in 2022 when measured by the number of U.S. patents issued, according to IFI Claims Patent Services.
Philip Morris International, which is in the process of replacing its combustible cigarette business with less harmful smoking alternatives, was the most prolific claimant in the vaping/tobacco business, filing 1,364 cigarette patent applications in 2022.
South Korean electronics titan Samsung took the top spot from longtime leader IBM. Following Samsung and IBM, the top 10 patent earners were Taiwan Semiconductor, Huawei Technologies, Canon, LG Electronics, Qualcomm, Intel, Apple and Toyota Motor.
Technology related to autonomous vehicles ascended to the No. 1 spot among IFI’s Fastest Growing Technologies list last year. While “Computing Based on Biological Models” dropped to No. 4 from its perch at No. 1 last year, artificial intelligence research has pervaded multiple patent categories, including earth drilling, quantum computers and machine learning.
Rounding out the top fastest growing technologies were “Electrical Digital Data Processing,” with a compound annual growth rate CAGR) of 33.9 percent; “Special Features Related to Earth Drilling Including AI and Simulation Models” (CAGR 32.5 percent); “Computing Based on Biological Models” (CAGR 32.1 percent); and “Electrically Operated Smoking Devices” (CAGR 31.3 percent).
“Cigars, Cigarettes” registered a CAGR of 28.3 percent.
The IQOS heat-not-burn brand remains one of the most popular products in the category.
By Norm Bour
For those who have been in the nicotine industry for more than a few years, the IQOS saga is an amazing story of the ups and downs and volatility of the vapor market. If there is a real-life example of a “killer app,” IQOS changed the direction of vaping and introduced the concept of “heat-not-burn.”
First launched in Italy and Japan in 2016, IQOS was initially shot down by the U.S. Food and Drug Administration, which has been the regulatory agency’s tendency since it received the authority to regulate vaping products. Since the FDA started soliciting and accepting premarket tobacco product applications, a long and arduous approval process, it has approved just a handful of products and cost the industry hundreds of millions of dollars and countless hours of legal work and accounting.
IQOS didn’t find the process any easier.
Owned by Philip Morris International, which has billions of dollars to spend on new technologies and employs who knows how many well-connected lobbyists, none of that made a difference. Since the company has an international footprint, PMI could focus on greener pastures and jurisdictions with less challenging regulations, so the company put its efforts on “testing” IQOS outside the U.S., where it was generally well received.
PMI built its first factory in Italy, and after the initial tests in Italy and Japan proved successful, it introduced IQOS in the U.K. Over the years, PMI has partnered with several international companies and marketed IQOS under a variety of names. However, the U.S. market proved to be more challenging.
In 2020, however, the FDA agreed that IQOS “significantly reduces exposure to harmful or potentially harmful chemicals,” and PMI launched the product in the U.S. that year. After launching IQOS in a handful of states and gaining a single-digit share of the overall market, PMI suddenly found the door slammed shut on IQOS by a copyright infringement claim by BAT, the U.K.-based parent company of Reynolds American Inc (RAI).
In September 2021, the International Trade Commission (ITC) upheld an initial determination from May 2021 that IQOS infringed on two RAI patents. The ITC barred PMI’s then-partner, Altria Group, from importing PMI’s IQOS 2.4, IQOS 3 and IQOS 3 Duo products into the U.S.
Following the ITC ruling, PMI stated, “At the present time, we do not expect to have access to IQOS devices or Marlboro HeatSticks in 2022. However, we remain focused on returning IQOS to the market as soon as possible. Our teams are actively working on reentry plans, and we expect to be ready to bring IQOS back to U.S. consumers when available.”
In order to get its tobacco-heating device back on U.S. store shelves, in early 2022 PMI announced its plans to manufacture IQOS in the United States. In October 2022, PMI agreed to pay Altria Group approximately $2.7 billion for the exclusive U.S. commercialization rights to the IQOS tobacco-heating system effective April 20, 2024.
“We remain committed to creating long-term value through our vision,” said Altria CEO Billy Gifford in a statement. “We believe that this agreement provides us with fair compensation and greater flexibility to allocate resources toward ‘moving beyond smoking.’”
In an interview with Bloomberg, PMI CEO Jacek Olczak said the company had planned to manufacture IQOS in the U.S. all along. “From the very beginning of us going to the FDA, we had in mind that IQOS would one day not only be sold in the U.S. but manufactured there, if you take into consideration the size of the market and the opportunity for IQOS,” he said. “It’s just happening sooner because of the ITC decision.”
In July 2020, the FDA authorized PMI and Altria to market IQOS with certain modified-exposure claims, giving the company a leg up over its rivals. PMI has not specified where it will be manufacturing IQOS but said it plans to sell IQOS in the U.S. again in the first half of 2023.
Meanwhile, overseas, specifically in Europe, IQOS stores are some of the most beautifully designed tobacco shops in the world. The products are available in 68 international markets, and PMI claims that “13.5 million adult smokers have made the switch from tobacco.”
PMI’s heated-tobacco products (HTPs) have been launched in key cities in Albania, Andorra, Armenia, Aruba, Austria, Bahrain, Bosnia and Herzegovina, Bulgaria, Canada, Canary Islands, Colombia, Costa Rica, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Dominican Republic, Egypt, Estonia, France, Georgia, Germany, Greece, Guatemala, Hungary, Iceland, Italy, Israel, Japan, Jordan, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Lebanon, Latvia, Lithuania, Malaysia, the Maldives, Mexico, Moldova, Monaco, Montenegro, Morocco, the Netherlands, New Zealand, North Macedonia, Norway, Palestine, the Philippines, Poland, Portugal, Reunion, Romania, Saudi Arabia, Serbia, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Tunisia, the United Arab Emirates, the United Kingdom, Uzbekistan, and in some duty-free shops.
PMI has marketed several HTPs under its IQOS brand, and the most popular versions today use “blade heating technology,” a proprietary system for its HEETS, or HeatSticks. That overall methodology encompasses several versions of IQOS.
The latest generation of IQOS, ILUMA, was released in 2021 and uses induction to heat the tobacco instead of the blade technology and requires no cleaning. These devices use specific heated-tobacco units called Terea Smartcore Sticks.
In 2022, PMI launched Bonds by IQOS, along with its compatible tobacco sticks, Blends, in a pilot market in the Philippines. The company intends to further commercialize the product into 2023. Equipped with “bladeless” resistive external heating technology, Bond emits 95 percent less harmful chemicals compared to cigarettes, according to PMI.
“Bonds by IQOS represents another step forward in our ambition to replace cigarettes with innovative, science-based, smoke-free alternatives,” said Olczak. “We know that no single smoke-free product will appeal to all adult smokers. Providing a range of alternatives to continued smoking—with a variety of taste, technology, usage and price options—is imperative and helps us to address a range of preferences as diverse as adult smokers themselves—ultimately encouraging them to leave cigarettes behind.”
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 aim is that more than half of its net revenues will come from smoke-free products by 2025.
In 2018, IQOS opened its first “boutique store” in one of the most fashionable, popular areas of Sofia, Bulgaria.
“I’ve been here since we opened, and it was a madhouse back then,” said the store manager, who asked to remain unnamed. “Many smokers, and even nonsmokers, had heard about the innovative smoking products and were looking for ways to quit smoking. Here in Bulgaria, we have the worse percentage of smokers in all of Europe, and even though it’s dropped, the numbers are between 30 [percent and] 40 percent depending upon age segmentation.
“Even now, four years later, many tourists visiting this area are shocked to find a store like this. Most of them are current or past smokers and are used to seeing small, ugly tobacco shops, so seeing such a classy place as this excites them.”
In November 2002, PMI launched its IQOS Iluma Prime at Dubai Duty Free. The appearance of IQOS Iluma Prime in Dubai International Airport terminals 1 and 3 follows the initial market launch in Japan and Switzerland duty-free in 2021.
“The launch of the IQOS Iluma Prime, our most refined and advanced device yet, in Dubai Duty Free further demonstrates our constant commitment to delight our legal-age consumers in travel retail with our most premium and stylish product range,” PMI vice president of Duty Free Edvinas Katilius said during the Dubai opening.
The electronic nicotine-delivery systems road is a rocky one, and it is difficult to predict what innovation may be around the next corner. For IQOS, however, market growth is on the horizon.
Norm Bour is the founder of VapeMentors and works with vape businesses worldwide. He can be reached at norm@VapeMentors.com.
