Philip Morris International and the future of tobacco

In much the same way car manufacturers have been evolving motoring technology to create alternatives to fossil fuels in a bid to protect our environment and make cars cleaner, the tobacco industry is set to realise the potential of 20 years of research in its bid to reduce the harm caused by traditional smoking with a range of innovative ‘heat not burn’ and ‘e-cigarette’ products.

PMI (Philip Morris International) is leading this innovation and has entered the market with what it believes will be a game changer for smokers: IQOS. The letters stand for I Quit Ordinary Smoking, which clearly spells out where the company sees the tobacco industry heading. Rothmans, Benson & Hedges (owned by PMI since 2008) launched IQOS in Canada this year; one of 20 test markets worldwide.

READ THE LATEST BUSINESS REVIEW CANADA MAGAZINE

Business Director Peter Luongo says the real challenge lies in letting smokers know there is an alternative. While not risk free, it’s one he believes is a better choice than continuing to smoke traditional cigarettes. “What we’re able to do in each market is based on the local regulations,” he concedes. “We launched in the UK earlier this year but, like Canada, it’s a relatively restrictive environment. You don’t have a display of tobacco products in stores so consumers may continue to ask for their pack of cigarettes because they don’t know what the alternatives are.”

Smoking: the future

“In all markets we want to have a discussion with the governments and regulators about understanding the continuum of risk for these products and that they should have fewer restrictions on them than they should for cigarettes,” Luongo continues. “Validation from the FDA (America’s Food and Drug Administration) helps in those discussions. It can give people comfort; yes these products are less risky, yes it makes sense for us to encourage people to switch. Therefore, we should look at all the restrictions on selling and promotion and try to have regulations that are more tailored to the risk of the product rather than a one-size-fits-all approach where you lump all tobacco products into the same category.”

So, what exactly is IQOS and how does it work? PMI’s Chief Medical Advisor Mikael Franzon has worked in the pharma industry for over 25 years developing medicinal nicotine products for the likes of Pharmacia and Pfizer. Guiding the company’s scientific substantiation program, he believes there is compelling evidence for why smokers should switch to IQOS. He maintains the heightened health risks with regular cigarettes come from combustion at high temperatures which releases harmful components in smoke. “This re-usable electronic device uses heated tobacco,” explains Franzon. “But unlike a normal cigarette where the heat reaches 900 degrees Celsius when you take a puff, we are reducing it down to 350 degrees Celsius. By doing that, the tobacco is heated but not burned so there’s no ashes and no smoke.”

The IQOS HeatControl system is a significant step forward from previous modified tobacco products, insists Franzon: “You can have the perfect technology solutions, but if no one wants to use them then there’s no impact on public health. There’s a balance to strike. After 20 years of innovation and development we’ve arrived at a product which seems to do both: IQOS.” Luongo echoes that sentiment and, from a commercial standpoint, is keen to balance the needs of providing what PMI calls a ‘healthier form of smoking’ with a product that is still satisfying to adult smokers who want to continue smoking.

Smoke signals

PMI has spent many years working on product development at its Innovation Cube in Lausanne where the IQOS HeatControl system was realised.

Its new products are set to be available across four platforms. Alongside IQOS, P2 is set to launch in selective markets later this year. It also uses the ‘heat not burn’ prinicipal, but offers a more traditional approach for smokers with its carbon-heated tip. It’s a disposable product which looks exactly like a cigarette but works just like IQOS.

PMI’s third and fourth platforms are nicotine delivery systems - e-cigarettes and inhalers, where e-liquids are heated up to deliver nicotine vapour without tobacco. “The issue with older types of e-cigarettes was that they couldn’t keep the heat,” explains Franzon. “Some would increase dramatically. Ours have a standardised chip that keeps the heat at a certain temperature, but if it goes up it shuts down and it doesn’t keep going if the canister is empty of liquid so it’s safer and you don’t get any dry puffs.”

With the products now coming online, Luongo says that PMI is targeting selective geographies globally and plans to be in around 35 markets by the end of the year. So where has it been most successful with uptake so far?

“Japan had the product on the market first,” he notes. “PMI started testing the product there in late 2014 - it’s one of the few markets where the product is available nationally. In Japan, we’re seeing dramatic decreases in cigarette sales because of the fact that people are switching to IQOS – Japanese cigarette consumption for the first half of this year was down 9-10%. A driving factor there is that the environment for communicating around tobacco is much less restrictive than it is in most of Europe.”

How does PMI plan to overcome the challenge of gaining acceptance for the idea of a ‘healthier form of smoking’? “There’s more and more acceptance of the concept,” maintains Luongo. “There’s a big misconception that nicotine is the main cause of harm in a cigarette. It’s not true. Yes, nicotine is addictive and it’s not risk free, but really the main cause of harm with a cigarette is the fact that it’s burning and you’re inhaling the byproducts of that burning; that’s what’s causing the real harm, combustion. In the UK there was a report by Public Health England acknowledging e-cigarettes contain 95% less toxicants than traditional cigarettes. Studies in Canada also point to the fact vaping products are potentially less harmful and something that should be part of public policy to drive people towards these alternatives.” He appreciates it will take a while for public understanding and public policy to catch up with the science, and says that when you’re talking about new technology with a range of stakeholders it requires independent verification, which is a slow process.

So, how is this impacting on PMI’s business model? “It’s a better business model,” argues Luongo. “Because we think there’s an opportunity to capture share from our competitors with better products. There are over a billion smokers worldwide and, even with declines in incidents, you still see a very stable number of smokers over time as a result of the fact that populations, on a global basis, are growing. All of the things that have been tried to date from a public policy perspective really haven’t moved the needle enough… which is why it makes sense to have people switch to these alternatives as quickly as possible. Here in Canada we’ve got four million smokers (one in 10 Canadians) and feel it’s the right thing to do to offer them an alternative.”

New outlets planned

The immediate goal for Rothmans, Benson & Hedges in Canada is to meet and exceed the government’s target of reducing smoking by 5% by 2035. “We think we can get there faster by switching people to products like IQOS,” says Luongo, who is planning the opening of more IQOS stores and looking at the potential for partnerships in the vaping space. “It’s pretty clear that’s a long time to get to that target and we think we can make more progress if we can communicate with people about it.”

Luongo claims the ultimate goal is “to eventually eliminate cigarette usage, eliminate smoking”, and is hopeful that governments can help the industry get there. “In the car industry with the move away from fossil fuels there are a number of things that many governments do: tax rebates and consumer incentives with electrical vehicles to help people take these steps. In a similar way, they could be incentivising people to switch to less harmful tobacco products. For now, we’ll focus on helping people make the switch, one smoker at a time.”