Philip Morris International (PMI) has reached agreement with Altria Group to end the two companies’ commercial relationship covering IQOS in the US as of 30 April 2024.
Under the deal announced on Thursday, PMI will thereafter have the full rights to commercialise IQOS in the US.
As part of the agreement, PMI will pay a total cash consideration of US$2.7 billion, of which US$1.0 billion was paid at the inception of the agreement using available cash. The remaining US$1.7 billion, plus interest, will be paid by July 2023 at the latest.
The original agreement between the two companies, which established a roadmap for the commercialisation of heat-not-burn products in the US, was announced in 2013. It accounted for Altria’s ownership of certain US intellectual property rights related to the IQOS technology that were developed prior to PMI’s 2008 spin-off.
Following IQOS’s breakthrough authorisation for sale in the US in 2019, the agreement covered an initial five-year commercialisation term for the product through April 2024. The deal also included a potential renewal – subject to certain performance milestones – covering a second five-year term through April 2029.
“Today marks another historic milestone in our journey towards a smoke-free future,” said PMI Chief Executive Officer Jacek Olczak. “This agreement gives PMI full US commercialisation rights to IQOS within approximately 18 months and provides a clear path to fulfilling the product’s full potential in the world’s largest smoke-free market, leveraging PMI’s full strategic and financial commitment to IQOS’s success. The agreement also avoids what could have been an uncertain and protracted legal process that would have severely hindered the fast deployment of IQOS in the US.”
PMI described IQOS as the world’s leading smoke-free product, with strong growth achieved across a wide range of international markets [including an already well-established and fast-growing presence in travel retail – Ed].
The group established the innovative heat-not-burn category, driving its growth and becoming a $US9 billion annual net revenue business outside the US in 2021, some six years after its initial commercial launch.
In this short time, the product has achieved double-digit national shares across several Asian, European and other markets – all with varying demographic profiles and adult smoker taste preferences – PMI said
PMI said IQOS represents a “very substantial” growth opportunity in the US smoke-free market, whose retail value represents around 60% of that for the rest of the world, excluding China.
“We are ready to invest behind IQOS to bring it to market at scale across the US, leveraging the proven capabilities of our outstanding commercial engine, which we will deploy domestically during the transition period to April 30, 2024,” Olczak continued. “The route-to-market is clear given the well-established distribution and retail channels in the US and we are well prepared to proceed autonomously to develop IQOS and the rest of our smoke-free portfolio should the offer for Swedish Match fail.”
PMI said it is already well advanced in its plans for the commercialisation of IQOS in the US as it prepares for domestic manufacturing, important regulatory submissions – including Pre-market Tobacco Applications (PMTAs) for ILUMA in the second half of 2023 – as well as the development US sales, distribution, retail, consumer engagement and support capabilities over the next 18 months.
“Our commercial plans include full-scale launches in key cities and regions with rapid progression to a national presence, and we believe that IQOS heat-not-burn products could account for around 10% of total US cigarette and heated tobacco unit volume by 2030,” Olczak continued
“We look forward to replicating our international success in fully switching adults who would otherwise continue to smoke, to better alternatives. According to 2022 U.S. Center for Disease Control and Prevention (CDC) data, the US is home to around 31 million adult smokers, and I believe that IQOS – the only inhalable smoke-free nicotine product to have received an MRTP Authorization from the U.S. Food and Drug Administration and thus be recognised as appropriate for the promotion of public health – can play a meaningful role in further reducing smoking rates.”
