✦ A smoke-free tobacco company?

✦ A smoke-free tobacco company?
Philip Morris International

Hi Quartz members,

Tobacco giant Philip Morris International (PMI) would like everyone to quit smoking. Sort of.

PMI was formally created in a 2008 spin-off from Altria (née Philip Morris), which wanted to focus on the US and free its international arm from the attendant legal complexities. Today, PMI operates in over 180 countries, and cigarettes are the main source of its ~$29 billion in net annual revenue—at least, for now.

Like so many frazzled smokers before it, the company is swearing off cigs: In August, PMI said it would stop selling cigarettes in the UK over the next decade. And by 2025, the company plans to derive most of its sales from “smoke-free” products like IQOS—a stick that heats, rather than burns, tobacco. Considered less harmful than cigarettes but more harmful than quitting altogether, smoke-free products are now available in dozens of countries. And PMI is describing itself as a harm-reduction company.

This is when you might be thinking “Wait a minute…” Philip Morris, maker of Marlboros, is a major reason there’s even harm to reduce. It stoked a smoking epidemic, and hid its health consequences for five decades. Now it wants to cash in on the crisis it helped create?

“For years the tobacco control community has insisted that the industry develops better products, and we’ve done that,” says PMI’s director of US communications. “We are the only tobacco company that’s made that choice; what would you have us do instead?”

Only time will tell if PMI can really pull off such a pivot. But thanks in part to Big Tobacco, the smoke-free market is potentially huge: Roughly 1 billion people consume tobacco globally—including 150 million PMI customers—but only 50 million people are currently using smoke-free products.

By the digits

20 million: People who use IQOS, PMI’s flagship heated tobacco product

180+: Countries where PMI currently sells cigarettes

70: Countries where IQOS is available

$28.7 billion: PMI’s net revenue in 2020

$6.8 billion: PMI’s approximate net revenue from smoke-free products in 2020

€39 to €79 ($45-$96): Price of an IQOS kit in Europe, depending on the country

€2.80 to €7.50 ($3.25-$8.70): Price of a pack of 20 heated tobacco units, depending on the country

€3.40 to €10.50 ($3.94-$12.18): Price of a pack of 20 Marlboro cigarettes, depending on the country

Down in smoke

Despite a brief pandemic spike, tobacco consumption has been declining over the past few decades, thanks in part to government actions such as high taxes on cigarette sales, a ban on the advertisement of tobacco products, and restrictions on smoking in public places.

Analysts expect the volume of cigarette sales to decline about 7% by 2023 compared to 2018, but the World Health Organization says smoke-free products could slow down the reduction in tobacco use.

Tobacco users as a percentage of the global population

What’s “beyond nicotine”?

How does a company that makes billions off of nicotine addicts advance beyond it? PMI’s strategy is two-step:

  1. Smoke-free tobacco products. Heated tobacco products (HTPs) have built-in appeal for the world’s billion existing smokers. PMI currently has two types of HTPs, one that uses a heating blade and one that uses induction.
  2. Other smoke-free products. Imagine using an IQOS product to inhale aspirin, or to treat a respiratory disease. PMI calls this phase “beyond nicotine,” and already has a few such products in the works. The company hopes to generate $1 billion in revenue from these products by 2025.

Cignificant others

About 30% of PMI’s revenue currently comes from smoke-free products. The company wants that to hit 50% by 2025, but outside of the UK has set no deadlines for dropping cigarettes entirely.

Breakdown of Philip Morris International's revenue

New entries

In its quest to prepare for a future with fewer smokers, PMI has been shopping for other companies. It has acquired three of note so far:

  • OtiTopic, a US company that is working on developing  inhalable acetylsalicylic acid (aspirin) for emergency treatment of heart attacks (the risk of which increases with smoking). The potential market for the drug is 83 million people. PMI bought OtiTopic in August 2021, for an undisclosed sum believed to be north of $1.4 billion.
  • Fertin Pharma, a Danish company leader in Nicotine Replacement Therapy (NRT). PMI announced its intention to acquire the company in July, for $820 million.
  • Vectura, a UK-based leader in inhalation devices. The company develops products used to treat asthma and COPD for pharmaceutical clients, including Novartis, GlaxoSmithKline, and Bayer. PMI agreed to buy Vectura in July 2021, for $1.45 billion.

Keep learning

Have a healthy end to your week,

—Annalisa Merelli, senior reporter (grew up thinking Marlboro was a travel company)

One ugly thing

Pantone 448C, “drab dark brown,” was selected as the color of all cigarette packaging in Australia in 2012, and subsequently in many other countries. Considered “the ugliest color in the world” by design experts, it is so unappealing that it’s managed to turn smokers off buying cigarettes all over the world.

A Pantone swatch of the color drab dark brown