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.”
R.J. Reynolds Vapor Co. (RJRV) has petitioned the U.S. Patent and Trademark Office for a review of six claims relating to the basic functionality of e-cigarettes in a patent assigned to Philip Morris Products, reports Law Street Media.
RJRV argues that the patent describes an approach that dates from 1990 and has “become accepted in view of its comparatively easy technical realizability in combination with its convincing functionality.’”
According to the filing, there are disadvantages in the prior technology that the asserted patent claims to fix, such as the increasing contamination of the vaporizing unit throughout its life, a fluid leak, and that due to its design, the e-cigarette’s length cannot be shortened.
RJRV takes issue with the patent’s six claims on the basis that to a person having ordinary skill in the field, it would have been obvious to combine previous inventions to overcome the claimed deficiencies.
RJRV requests the cancellation of the claims as unpatentable.
It’s not the first time that Reynolds and Philip Morris have quarreled about intellectual property. In June 2020, Philip Morris International filed counterclaims against Reynolds for patent infringement in the federal court action that RJR commenced against PMI and Altria, PMI’s IQOS distributor in the U.S., on April 9, 2020 in the Eastern District of Virginia.
A new international survey commissioned by Philip Morris International (PMI) and conducted by independent research firm Povaddo reveals a public appetite for a better approach to reducing the societal harm caused by cigarettes. Seven in 10 respondents (71 percent) believe that encouraging those adults who would otherwise continue to smoke to switch to smoke-free alternatives instead can complement other efforts to reduce harm.
Conducted in December 2020 among 22,500-plus adults in 20 countries and territories, the survey explores attitudes regarding the role of smoke-free alternatives in improving public health. The results reveal broad support for novel approaches to accelerating the decline of cigarette smoking. Specifically, the survey found that: 73 percent of adults agree that governments should consider the role alternative products can play in making their country smoke-free; 77 percent agree that adult smokers should have access to and accurate information about smoke-free alternatives that have been scientifically substantiated to be a better choice than continued smoking; and 67 percent of respondents say that if it is possible to end cigarette sales in their country within 10 to 15 years (through smokers quitting tobacco or switching to better, science-based alternatives), their government should dedicate time and resources to making that a reality.
Three in four respondents (76 percent) believe it is important for governments to dedicate time and resources to reducing smoking rates. However, a majority (58 percent) believe that more regulation and taxation of cigarettes will not be enough to achieve a smoke-free future.
Jacek Olczak
“Smoke-free products have already started to play an important role in lowering smoking rates,” said Jacek Olczak, chief operating officer at PMI, in a statement. “With the right regulatory encouragement, support from civil society and the full embrace of science, I believe it is possible for the public’s call to be answered and for cigarette sales to be a thing of the past in many countries within a decade to a decade and a half.”
Most adults surveyed want to see a shift in the societal approach to tobacco harm reduction, including more collaboration between governments and tobacco companies. Moreover, nearly seven in 10 respondents (68 percent) support tobacco companies working with governments, regulators and public health experts to ensure smokers have access to and accurate information about the better, smoke-free alternatives science has made available. Further, eight in 10 respondents believe both governments (88 percent) and businesses (81 percent) have a responsibility to embrace the latest scientific and technological developments.
Philip Morris International (PMI) wants smokefree products to account for more than half of its revenues by 2025, up from its earlier target range of 38-42 percent. The new goal was announced during PMI’s 2021 investor day on Feb. 10., a virtual event broadcast from the company’s operation’s center in Lausanne, Switzerland, during which senior management presented PMI’s business strategies and growth outlook.
The company shared its 2021 to 2023 targets, including net revenue and adjusted diluted earnings-per-share (EPS) compound annual organic growth of more than 5 percent and 9 percent, respectively, and 2023 heated tobacco unit shipment volume of 140 to 160 billion units.
PMI plans to launch IQOS ILUMA, the next generation of its IQOS heat-not-burn product featuring internal heating based on Smartcore induction technology, in the second half of 2021.
In addition, the company intends to launch IQOS VEEV, its MESH technology vapor product, in more than 20 markets this year. PMI expects to commercialize IQOS in a total of 100 markets by the end of 2025, from 64 markets at the end of 2020.
Also at the investor day, PMI announced its target of at least $1 billion in net revenues from “beyond nicotine” products in 2025.
With the right regulatory frameworks, dialogue and support from civil society, the company said cigarette sales can end within 10 to 15 years in many countries.
Andre Calantzopoulos
“In just five years, we have thoroughly transformed our company, building IQOS into a top-5 global nicotine brand—with nearly $7 billion in net revenues and over 17 million users across 64 markets—while maintaining our leadership position in the international cigarette category,” said PMI CEO Andre Calantzopoulos in a statement.
“We are now embarking on our next growth phase, further shifting to a better, more sustainable business by driving the development of the smokefree category and leveraging our leading commercial model, which places the consumer at the core, to switch more adult smokers to our smokefree products.”
“This next growth phase is underpinned by our unmatched portfolio of innovative products. We are very excited to announce the planned launch of IQOS ILUMA—the next generation of our IQOS heat-not-burn product featuring a new internal heating induction technology—during the second half of this year.”
“As outlined today, we are well positioned to deliver excellent top- and bottom-line growth, as well as strong shareholder returns. We now aim to be a majority smokefree product company by 2025, an important milestone toward our ambition to deliver a smokefree future, to the benefit of adults who would otherwise continue to smoke, society, the company and our shareholders.”
Philip Morris reaffirmed its full-year 2021 guidance for earnings per share in the range of $5.90 to $6.00. For the three-year period between 2021 and 2023, Philip Morris is guiding for net revenue and adjusted EPS compound annual growth of 5 percent to 9 percent. Cigarette volume is expected to decline in that period. Philip Morris stock has fallen 3.5 percent over the last year while the benchmark S&P 500 index SPX, -0.03 percent is up 16.7 percent for the period.
A transcript and slides of the Investor Day are available at www.pmi.com/2021InvestorDay. An archive of the webcast will be available until 5 pm ET on March 11, 2021.
Between 2015 and 2019, total cigarette sales in Japan dropped by 34 percent, which can be associated with the commercial launch of heated tobacco products (HTPs), according to a white paper prepared by Frost & Sullivan and Philip Morris International (PMI).
Titled Tobacco Harm Reduction and Novel Nicotine and Tobacco Products: Evidence from the Japanese Market, the report covers the impact of the commercial launch of novel nicotine and tobacco products (NNTPS) on tobacco use in japan and discusses the regulatory approach that the Japanese government is taking with regard to these products. It focuses on the Japanese market because HTPs have been commercially available in the country since 2013, and Japan is the largest market for HTPs, despite the absence of a formal THR policy to encourage this.
“The commercial availability of HTPs in Japan is associated with a significant drop in conventional cigarette sales, well ahead of the previous rate of decline,” explains Mark Dougan, consulting director, healthcare, Frost & Sullivan.
“Moreover, even after HTPs became available, sales of all tobacco products (HTPs and conventional cigarettes) continued to fall. Although there is mixed evidence, data from the 2019 National Health Survey indicates that 76 percent of consumers who use HTPs do so exclusively. Only 24 percent of HTP users maintain dual-use.”
According to Dougan, the Japanese government is differentiating HTPs from conventional cigarettes in regulations such as taxation, health warnings and indoor use restrictions, with HTPs generally receiving less-stringent regulatory settings than conventional cigarettes.
Frost & Sullivan also noted that the availability of HTPs has had a low impact on the initiation of tobacco use by never-smokers and re-initiation by former smokers. In addition, HTPs are also less likely to cause household fires than conventional cigarettes, which are the leading cause of household fires in Japan.
Healthier Choices Management Corp. (HCMC) has filed a patent infringement lawsuit against Philip Morris USA and Philip Morris Products over the IQOS tobacco heating product.
Among other products, HCMC markets vapor products, including the Q-Cup, a small quartz cup that heats cannabis or CBD concentrate.
“We look forward to proving our allegations of infringement in this matter and intend to continue to move forward against any and all companies that infringe upon our intellectual property in both the tobacco and cannabis categories,” said Jeff Holman, CEO of HCMC, in a statement.
IQOS is already the subject of two other patent infringement proceedings filed by R.J. Reynolds Tobacco Co (RJ). One is proceeding before the International Trade Commission and seeks to stop the importation of IQOS into the United States; the other is a patent infringement action currently pending in the Eastern District of Virginia. R.J. Reynolds’ patents are unrelated to and unaffiliated with the patents asserted in the HCMC case.
Philip Morris USA parent Altria Group rejects RJR’s claims and has countersued the company, alleging that RJR’s own electronic nicotine delivery systems products infringe multiple patents owned by Philip Morris International (PMI) and Altria Group.
In April, British American Tobacco (BAT) sued PMI in the United States and Germany for patent infringement. BAT’s claim focuses on IQOS’ heating blade technology, which the company says is an earlier version of the technology used in BAT’s Glo tobacco heating devices.
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.”
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.
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
Philip Morris International (PMI) has released its second-quarter results and reinstated its 2020 forecast.
Diluted earnings per share were down by 16.1 percent, and net revenues were down by 13.6 percent. Operating income was down by 14.3 percent.
Market share for heated-tobacco units in IQOS markets rose by 1.8 points to 6.3 percent.
“Despite a very challenging quarter due to the pandemic, we delivered results above our previously communicated expectations for both net revenues and reported diluted EPS,” said Andre Calantzopoulos, PMI’s chief executive officer.
“This primarily reflected favorable sequential performance in June, with a strong industry volume recovery—notably in the higher margin EU region—and substantial IQOS user acquisition growth as well as the benefit of certain nonunderlying factors, some of which we expect to reverse in the third quarter.”
PMI reinstated its 2020 full-year forecast after withdrawing it in April due to uncertainty surrounding the Covid-19 pandemic. The “forecast represents a projected increase of approximately 2 percent to 5 percent versus pro forma adjusted diluted earnings per share of $5.13 in 2019,” according to PMI.
