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iQOS: Helping Philip Morris Focus On A Smoke-Free Future


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Philip Morris International ( PM ) seems to be fully committed to designing a smoke-free future, wherein smokers' demands are to be met through potentially less harmful alternatives to cigarettes. The company's momentum continues to grow behind a full-scale effort to market smoke-free products that can ultimately replace cigarettes, after a successful iQOS launch, which has converted four million adult smokers to the new product. According to Tony Snyder, Vice President of Communications, adult smokers are looking for products "that offer the satisfying taste, ritual, and pleasure they get from cigarettes, but with far lower amounts of the harmful compounds found in smoke." PM has hired over 400 scientists and experts, along with an investment of more than $3 billion in research, product development, and scientific substantiation. In this two-part series, we will focus on how iQOS is enabling Philip Morris to focus on a smoke-free future, and how the device will ensure growth for the company in the long term.

Developing Cigarette Alternatives

When a cigarette combusts, it burns tobacco leaves to generate smoke, which contains nicotine, naturally found in tobacco, as well as many harmful chemicals. According to PM, it is these harmful chemicals, and not the nicotine, in cigarette smoke, which is the primary cause of smoking-related diseases. It is for this reason that the company is developing alternatives to cigarettes, products without the smoke, but with nicotine and taste that can satisfy the existing smokers. In this regard, the company has a two-pronged focus: one is to heat tobacco to generate a nicotine-containing vapor, while reducing the level of harmful chemicals; and the other way is to produce a nicotine-containing vapor without using tobacco.

Laboratory tests on the aerosol of the company's most advanced smoke-free alternative, iQOS, have shown significantly lower levels of harmful and potentially harmful constituents (HPHCs), and reduced toxicity than cigarette smoke. Furthermore, one 90-day study in the US and one 90-day study in Japan reported that smokers who switched completely reduced their exposure to selected HPHCs, approaching those observed in people who quit smoking for the duration of the studies. IQOS is currently present nationwide or in key cities in 31 markets worldwide, including Japan, Canada, Germany, Italy, and the UK, with plans to make it available in key cities in up to 35 countries by the end of 2017. The company has also filed a Modified Risk Tobacco Product Application (MRTPA) for the product with the US FDA.

Demand For Alternatives

According to WHO estimates, there will be over a billion smokers by 2025. With such a huge demand for tobacco products in the future, the presence of less harmful alternatives to cigarettes is essential. For this, not only do alternatives need to be developed, but they also must be appealing to consumers. A significant health benefit can only be achieved when a large number of smokers switch from cigarettes to such products. The company's innovation pipeline includes four product platforms that can meet the varying preferences of adult smokers, aiding them in the switch. Currently, the cigarette alternatives available in the market have centered on liquid-based products that produce a vapor, and contain no tobacco. The lack of tobacco may not give the same experience as cigarettes that many consumers look for, and, in this regard, since iQOS uses tobacco, it may appeal to such users.

Source: Euromonitor

The company also aims to transition its resources from cigarettes to smoke-free alternatives in the future, and has proposed regulatory policies that encourage the replacement of cigarettes with such alternatives. The company has recognized the serious health risks posed by cigarettes and other tobacco products. Hence, accordingly, they claim an obligation to develop and market products responsibly. Success in the cigarette business has given them the resources to pursue this ambitious vision.

We have a $118 price estimate for Philip Morris , which is higher than the current market price. The chart above has been made using our new interactive platform .

See Our Complete Analysis For Philip Morris International

Have more questions on Philip Morris? See the links below:

  • Why Is Korea Easier To Conquer For iQOS Than Europe?
  • Philip Morris: Focusing On A Smoke-Free Future
  • Philip Morris Falls On A Weak Third Quarter
  • iQOS- A Product Of Innovation Or Necessity For Philip Morris?

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking and encourages readers to comment and ask questions in the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Philip Morris International .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Stocks , US Markets , Investing Ideas
Referenced Symbols: PM , MO



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