Neuchâtel, Switzerland—A big tobacco company with a state-of-the-art research and development center by the lake in this Swiss city is doing the unthinkable. It is discouraging people from smoking cigarettes.
Philip Morris International, one of the world’s largest tobacco manufacturers, wants its customers to “unsmoke” as a part of its transformation process that will eventually see it stop selling cigarettes one day in favor of smoke-free products such as heated tobacco.
“What we know is we are transitioning from a cigarette company to hopefully stop selling cigarettes. We don’t know when because we realize that what is funding our transition is still cigarettes. But one day, not so distant from now, we would like to finish cigarettes,” says Mário Moniz Barreto, senior manager of global communications and market activation at PMI.
This corporate decision is seen to have a huge impact on the global cigarette market of over 1 billion smokers, including 15.9 million smokers, representing 14.7 percent of the population in the Philippines where PMI has a dominant market share. Of the more than 100 billion cigarettes sold in the Philippines last year, 67 billion were under the PMI brands.
Data from the World Health Organization show that smoking combustible cigarettes remains the single greatest preventable cause of death in the world as it kills more than 8 million people each year. Around 80 percent of the over 1 billion smokers in the world live in low- and middle-income countries like the Philippines.
Globally, PMI products are used by 145 million out of over 1 billion smokers. Businesswise, the company’s transformation may not make sense, but Barreto says the company is sincere in making cigarette smokers switch to smoke-free products such as heated tobacco under the Heets brand using IQOS electronic devices.
On why PMI decided to transform the business, Baretto says smoking is addictive and causes a number of serious diseases. “Smoking is bad for you because of the combustion and it is addictive because of nicotine,” he says. “On the other hand, heated tobacco products are, on average, 90 percent to 95 percent less toxic than cigarettes.”
He says it is primarily the toxins and carcinogens in tobacco smoke, and not the nicotine that cause illness and death. He says that when a cigarette is lit, the burning of tobacco and other materials produces thousands of chemicals, many of which are recognized as being associated with the development of smoking-related diseases.
PMI’s smoke-free products, on the other hand, are designed to significantly reduce or eliminate the formation of these chemicals, while approaching as much as possible the taste, nicotine delivery and ritual characteristics of cigarettes, he says.
These smoke-free products include electrically-heated tobacco product called iQOS with Heets, carbon-heated tobacco product called Teeps, nicotine-delivery system called Steem and e-vapor product called iQOS Mesh.
Baretto says PMI has invested over $6 billion since 2008 in research, product development, scientific substantiation and manufacturing capacity of these smoke-free products. It established a $120-million R&D facility called the Cube in Neuchatel, which is home to 430 scientists, engineers and experts in 30 disciplines from 40 countries. They include experts in material science, consumer electronics, clinical science and systems toxicology.
PMI received 4,600 patents and has over 6,300 pending applications on smoke-free products. PMI spun off Altria Group Inc. in 2008. In 2016, PMI CEO Andre Calantzopoulos announced the company’s ambition to “convince all current adult smokers that intend to continue smoking to switch to smoke-free products as soon as possible.”
Baretto says this is possible by making smoke-free products palatable to smokers. “The taste is important, so is the experience, the aroma and the rituals. It has to have a taste that is palatable. It has to have a ritual which is also appealing to cigarette smokers. Otherwise, we will not complete the change,” he says.
Baretto says under PMI’s “unsmoke initiative”, smokers are encouraged to quit or switch to smoke-free products. “If you don’t smoke, don’t start. If you smoke, quit. If you don’t quit, change,” he says, quoting PMI’s campaign.
PMI is confident about its transition to smoke-free products because of the success of IQOS in Japan which has enabled nearly a third of smokers in that country to switch to smoke-free products. “If you look at Japan, no country has ever had such a strong and fast reduction in smoking prevalence where heated tobacco products already represent 25 percent of the tobacco market,” says Baretto.
PMI now has factories that produce smoke-free products in Switzerland, Italy, Korea, Romania, Greece, Russia and Poland. Its electronic devices are produced in Malaysia. Baretto clarifies that PMI targets only adult smokers as the market for its smoke-free products.
“These products are not intended for non-smokers or minors. No minor should be using any form of nicotine product in anyway,” he says.
There are currently 12.4 million IQOS users globally, of which 71 percent or 8.8 million have stopped smoking and switched to IQOS. It is present in 52 markets, and PMI will soon bring the product to the Philippines this year, according to Dave Gomez, director of communications at PMFTC, the joint-venture company of Philip Morris Philippines Manufacturing Inc. and Fortune Tobacco Corp.
“We plan to launch and commercialize IQOS in the Philippines by the second quarter of this year. We cannot say the exact date because there are still some regulatory and legal requirements that we have to meet,” says Gomez.
“The whole organization of PMI in the Philippines is excited with the coming of IQOS because we believe in the product, we believe in the science,” says Gomez.
Gomez says while the formal launching of the product has yet to take place, there are close to 10,000 Filipinos who are already IQOS users. He says that with the passage of Republic Act No. 11467 which hikes the excise taxes on alcohol and e-cigarettes, there is already a tax category for heated tobacco products and IQOS will fall under that category.
A survey conducted by the Department of Health shows that 12 million or 76 percent of the 15.9 million Filipino smokers are interested or plan to quit smoking tobacco.
Dr. Nuno Fazenda, program manager for scientific engagement and public communications at PMI, says the totality of evidence, which comprises PMI’s clinical data, aerosol chemistry and non-clinical data, shows that switching to IQOS completely, while not risk-free, presents less risk of harm compared to continuing to smoke cigarettes.
Fazenda explains that instead of producing smoke, IQOS generates aerosol (vapor) that dissipates very rapidly. He says that while IQOs is not a risk-free product, “you will see levels of toxicants and carcinogens at a drastically reduced levels compared to what you see in cigarette smoke.”
“We have very strong indications of the reduced risk of the product. The final answer won’t come in 20 to 25 years, in the same way that when pharma companies are launching a product, the final answer on the safety and efficacy will be coming in 20 to 25 years. But before commercializing the product, you can conduct scientific studies on different fronts that give you indication, very strong confidence on the reduced risk potential of the product. If we look at the totality of the evidence, there is a very strong and compelling case for the reduced risk potential of IQOS,” says Fazenda.
Fazenda says PMI has been working on smoke-free products for a very long time. “This building [the Cube] was inaugurated 10 years ago, but we are actually working on science behind this on a much longer than 10 years. It is home to more than 400 scientists and engineers. We have biologists, engineers, medical doctors, cardiologists and pulmonologists conducting studies. We have chemists, physicists, behavioral scientists, clinical scientists. These scientific experts are required to look at different aspects of reduced risk profile of these products compared to cigarettes,” he says.
“The underlying principle behind our smoke-free products was basically to heat tobacco at lower temperature [350 degrees Celsius], or below the threshold at which combustion takes place, in order to deliver nicotine and flavors,” says Fazenda.
Dr. Serge Maeder, director of product research at PMI, confirms that IQOS was a product of a 12-year research and development before it was formally introduced in Japan and Italy in 2014. “In a tobacco company, developing a new cigarette was a matter of six months. But for this product, it took 12 years,” he says.
“Our CEO André Calantzopoulos was dead set that we need to fix the product, we need to have a better product because cigarette kills. We need to develop a better alternative. He was really behind the effort and really understood that developing this product is not a matter of six months or 12 months,” says Maeder.
“You can have the best product in the world in terms of reducing toxicants, but if you don’t make it good for people in terms of taste, you have no chance. People will never adopt it. Our main goal from day 1 is that unless we got the taste right and satisfaction right with consumers, we have a problem. We may have the best product in the world, we may claim 95-percent reduction in carcinogens, but if the taste is not right, people will simply not adopt the product. From the very start, we were always looking at these two aspects—get the taste right, reduce toxicants,” says Maeder.
Maeder says PMI continues its research and development to produce even better products in the future. “You will see technologies rising in the next few years that are very different to achieve the same goal—reduce the risk of smoking. Compared to what we had before, it would be completely different in the years to come. If you don’t have the latest innovations, you might just disappear. That is why we have this building—research and development—to look at everything we can do to improve the current version of the product, but also what sort of other technologies we can use in the future,” He says.
“We are developing things that will mature in the next few years, for some maybe a decade. We already have this pipeline of things that while some people are working on the next evolution of device, other people are working on the next way to generate aerosol in the future,” he says.
Baretto says everyone in PMI is on board the company’s transition journey. “This is a path with no return. The whole company, from the more senior to the junior levels, is fully invested in this direction of smoke-free future,” he says.
“We believe that we will be able to make not only smokers of our brands switch, but also the smokers of the brands of other companies. As we think that it is in our best interest, it is also in the interest of public health because we still have 1 billion smokers out there who despite all the warnings, taxation and restrictions, are still smoking. It is in the interest of public health, for those that don’t stop smoking, to switch,” he says.
Baretto says the new direction also provides PMI employees additional motivation. “If you talk to any PMI employee, you will see that people are much more motivated to work because we believe that we are working not only in the best interest of the company, but also in the best interest of our clients,” he says.
PMI aims to substantially increase the share of smoke-free products in its total sales over the coming years. In 2018, PMI posted net revenues of $29.6 billion, 13.8 percent of which came from smoke-free products.
Its aspiration is to make more than 40 million smokers switch to smoke-free products by 2025, up from 12.4 million at present. This will translate into an increase in the share of net revenues from smoke-free products from 13.8 percent in 2018 to a range of 38 percent to 42 percent by 2025.
PMI also aims to increase the shipment of smoke-free products from 42 billion units in 2018 to a range of 90 billion to 100 billion by 2021 and more than 250 billion by 2025.
Baretto, however, says this transformation would depend on government regulation of smoke-free products. “We are absolutely convinced that we have found something that is much better for current smokers, but we cannot do this on our own. We need regulation and the support of the public,” he says.
“We want to do away with cigarettes. We want to transform our business into a more sustainable business,” says Baretto.