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Philip Morris' (PM) IQOS, Beyond Nicotine Growth Plans On-Track
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Consumers’ rising health consciousness has been an encouraging aspect for many to shift from cigarettes to other reduced-risk products (“RRPs”). Tobacco companies have been boosting smoke-free alternatives. Philip Morris International Inc. (PM - Free Report) is one such company that is acclaimed for developing leading low-risk alternatives. The company’s IQOS — a heat-not-burn device — is among the most popular RRPs in the industry. It has also been making radical progress in the respiratory drug delivery platform, as part of the ‘Beyond Nicotine’ strategy. Apart from these, pricing power has been a key catalyst for the company’s top-line growth.
IQOS Aids Boosting Revenues
RRPs, considered to be the next-generation tobacco products, have been gaining popularity owing to their less detrimental impacts on health. Philip Morris’ IQOS has been doing well across different markets globally. It launched IQOS in the United States in 2019, through a commercial deal with Altria Group, Inc. (MO - Free Report) that was approved by the FDA. Since then, the company has been expanding the brand by introducing its newer versions with improved features. Total users of IQOS as of the end of second-quarter 2021 were estimated to be about 20.1 million, including nearly 14.7 million users who have shifted from smoking to IQOS. Strong growth in IQOS boosted revenues in the RRPs category, which increased 41.7% to $2,276 million in the second quarter. Heated tobacco unit shipment volumes of 24.4 billion units rose 30.2% year over year. At the end of the second quarter, 13.5% of shipment volumes and 30% of net revenues came from smoke-free products.
As part of its transformation efforts, Philip Morris is committed toward expanding IQOS. It has started commercializing IQOS VEEV, which is its new e-vapor product. The company is also on track with the expansion of IQOS ILUMA. Philip Morris entered into a partnership with South Korea’s KT&G to commercialize the latter’s smoke-free products outside the country. Such efforts keep the company well placed for its transition to a majority smoke-free company by 2025. The company is on track to achieve its 2021 goal of 95-100 billion shipments of heated tobacco units. Other tobacco companies such as Turning Point Brands (TPB - Free Report) and British American Tobacco (BTI - Free Report) have also been expanding their offerings in the low-risk tobacco space.
Beyond Nicotine Products Expansion
Philip Morris has been firm on its ambitious plans to expand Beyond Nicotine products. As part of this initiative, it has been striving to achieve world-class expertise, scientific know-how and capabilities to develop products focused on inhaled therapeutics and respiratory drug delivery platforms for medical as well as wellness applications. In February 2021, the company announced plans of generating at least $1 billion in annual net revenues from the Beyond Nicotine business by 2025.
As part of the Beyond Nicotine strategy, the company acquired Fertin Pharma A/S — a leading manufacturer and developer of innovative pharmaceutical and well-being products that are based on oral and intra-oral delivery systems. Philip Morris acquired OtiTopic, a respiratory drug development company based in the United States. OtiTopic develops late-stage inhalable acetylsalicylic acid (“ASA”) treatment for acute myocardial infarction or heart attack. The company also secured more than 74% shares in Vectura Group plc, a provider of innovative inhaled drug delivery solutions for treating diseases related to smoking.
Strong Pricing is an Upside
Strong pricing for tobacco products has been a significant upside for Philip Morris. This has been boosting the company’s revenues and adjusted operating income, even in the face of the unfavorable tax environment. Though higher pricing might lead to possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases due to the addictive quality of cigarettes. Higher pricing variance was an upside to the company’s performance during the second quarter. In fact, gains from pricing contributed to growth across most regions during the quarter. Pricing power is likely to keep aiding the company’s performance in the forthcoming periods.
Wrapping Up
Philip Morris’ efforts to transform itself into a company that puts health and wellbeing in the forefront are praiseworthy. These growth endeavors as well as gains from pricing are likely to keep supporting the company, as it encounters headwinds related to the cigarette unit like stringent regulatory norms and declining market share.
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Philip Morris' (PM) IQOS, Beyond Nicotine Growth Plans On-Track
Consumers’ rising health consciousness has been an encouraging aspect for many to shift from cigarettes to other reduced-risk products (“RRPs”). Tobacco companies have been boosting smoke-free alternatives. Philip Morris International Inc. (PM - Free Report) is one such company that is acclaimed for developing leading low-risk alternatives. The company’s IQOS — a heat-not-burn device — is among the most popular RRPs in the industry. It has also been making radical progress in the respiratory drug delivery platform, as part of the ‘Beyond Nicotine’ strategy. Apart from these, pricing power has been a key catalyst for the company’s top-line growth.
IQOS Aids Boosting Revenues
RRPs, considered to be the next-generation tobacco products, have been gaining popularity owing to their less detrimental impacts on health. Philip Morris’ IQOS has been doing well across different markets globally. It launched IQOS in the United States in 2019, through a commercial deal with Altria Group, Inc. (MO - Free Report) that was approved by the FDA. Since then, the company has been expanding the brand by introducing its newer versions with improved features. Total users of IQOS as of the end of second-quarter 2021 were estimated to be about 20.1 million, including nearly 14.7 million users who have shifted from smoking to IQOS. Strong growth in IQOS boosted revenues in the RRPs category, which increased 41.7% to $2,276 million in the second quarter. Heated tobacco unit shipment volumes of 24.4 billion units rose 30.2% year over year. At the end of the second quarter, 13.5% of shipment volumes and 30% of net revenues came from smoke-free products.
As part of its transformation efforts, Philip Morris is committed toward expanding IQOS. It has started commercializing IQOS VEEV, which is its new e-vapor product. The company is also on track with the expansion of IQOS ILUMA. Philip Morris entered into a partnership with South Korea’s KT&G to commercialize the latter’s smoke-free products outside the country. Such efforts keep the company well placed for its transition to a majority smoke-free company by 2025. The company is on track to achieve its 2021 goal of 95-100 billion shipments of heated tobacco units. Other tobacco companies such as Turning Point Brands (TPB - Free Report) and British American Tobacco (BTI - Free Report) have also been expanding their offerings in the low-risk tobacco space.
Beyond Nicotine Products Expansion
Philip Morris has been firm on its ambitious plans to expand Beyond Nicotine products. As part of this initiative, it has been striving to achieve world-class expertise, scientific know-how and capabilities to develop products focused on inhaled therapeutics and respiratory drug delivery platforms for medical as well as wellness applications. In February 2021, the company announced plans of generating at least $1 billion in annual net revenues from the Beyond Nicotine business by 2025.
As part of the Beyond Nicotine strategy, the company acquired Fertin Pharma A/S — a leading manufacturer and developer of innovative pharmaceutical and well-being products that are based on oral and intra-oral delivery systems. Philip Morris acquired OtiTopic, a respiratory drug development company based in the United States. OtiTopic develops late-stage inhalable acetylsalicylic acid (“ASA”) treatment for acute myocardial infarction or heart attack. The company also secured more than 74% shares in Vectura Group plc, a provider of innovative inhaled drug delivery solutions for treating diseases related to smoking.
Strong Pricing is an Upside
Strong pricing for tobacco products has been a significant upside for Philip Morris. This has been boosting the company’s revenues and adjusted operating income, even in the face of the unfavorable tax environment. Though higher pricing might lead to possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases due to the addictive quality of cigarettes. Higher pricing variance was an upside to the company’s performance during the second quarter. In fact, gains from pricing contributed to growth across most regions during the quarter. Pricing power is likely to keep aiding the company’s performance in the forthcoming periods.
Wrapping Up
Philip Morris’ efforts to transform itself into a company that puts health and wellbeing in the forefront are praiseworthy. These growth endeavors as well as gains from pricing are likely to keep supporting the company, as it encounters headwinds related to the cigarette unit like stringent regulatory norms and declining market share.