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Cautious on heat-not-burn

The European Commission is in favor of a cautious approach to heat-not-burn products because it believes that there is a lack of evidence relating to the short- and long-term health effects of using such devices.

This was part of the answer given by the Commission to questions raised by the Belgian MEP, Frédérique Ries.

In a preamble to her questions, Ries said that Philip Morris International had said that it intended to market its new ‘device for smoking’ in the UK, following its initial launch in Japan, Italy and Switzerland.

‘The distinctive feature of this new product, which has been named iQOS, is that it stands on the borderline between traditional cigarettes and electronic cigarettes,’ she said.

‘The major difference between iQOS and electronic cigarettes is that while the latter use a liquid transformed into vapor, IQOS heats the tobacco and keeps it burning [iQOS has been designed so as not to burn the tobacco it contains, only to heat it, as is implied in part of the Commission’s reply], which is very harmful to health.’

Ries asked whether the Commission concurred with health experts who claimed that marketing a hybrid tobacco product of this kind was a ploy to circumvent legislation in force and, in particular, all the requirements laid down in Article 19 of Directive 2014/40/EU concerning novel tobacco products.

‘What steps will the Commission take to thwart the strategies employed by cigarette manufacturers to sell alternative products that are still just as harmful to people’s health?’ she asked.

‘Will the Commission take this opportunity to alter its negative views on electronic cigarettes, which, as a growing number of cancer experts in the EU are now pointing out, do not contain any tobacco or tar and are helping many people to stop smoking?’

In reply, the Commission said it was closely monitoring the developments related to new tobacco products, including “heated not burned” tobacco products.

‘Currently, there is lack of evidence relating to short-term and long-term health effects and use patterns of these products,’ it said. ‘Therefore the Commission is in favour of a cautious approach.

‘At the same time, the Commission would like to underline that with regard to the sale, presentation and manufacturing of these products within the European Union, the relevant provisions of the Tobacco Products Directive apply and should be enforced. This includes the ban on misleading elements foreseen by Article 13 and notably any suggestions that a particular tobacco product is less harmful than others.

The Commission oversees whether member states fully and correctly apply the provisions of the directive.

‘With regard to e-cigarettes, given the lack of conclusive evidence relating to the long-term health effects, use patterns and potential to facilitate smoking cessation, Article  20 of the directive contains their regulation with an emphasis on safety, quality and consumer protection.

‘The rules for e-cigarettes nevertheless allow these products to remain widely available to consumers. A recent Commission report COM (2016) 269 underlines a number of  potential risks to public health relating to the use of ecigarettes, at the same time highlighting the need for further research.’

Philip Morris jolted by Indian proposal to ban foreign tobacco investment

Philip Morris International is fighting to keep a toehold in India’s $11 billion tobacco market, as the government considers further tightening foreign investment rules in the sector, according to documents seen by Reuters.

http://in.reuters.com/article/india-philip-morris-marlboro-cigarette-idINKBN15005S

In previously unreported letters from Philip Morris to the trade minister and an influential government think-tank, the U.S.-based company said the “discriminatory” and “protectionist” proposals would represent a blow to its plans to launch new products and make further investments in India.

The two letters dated May and October last year followed local media reports of a possible change in government policy. While the warnings may be part of the firm’s negotiations, they show the level of concern the proposals are causing.

“The proposed ban will impact our future investments in India and also force a review of our overall operations, including tobacco crop purchases,” Martin G. King, Philip Morris’ Asia president, wrote on Oct. 13 to NITI Aayog, India’s most influential government think-tank that has a say in federal policies, including those related to foreign investments.

India banned foreign investment in cigarette manufacturing in 2010, but it still allowed tobacco companies to invest through technology collaboration and licensing agreements. Investments could also be made by forming a trading company.

Over the past year, the government has been considering whether to stop these, in a bid to safeguard public health interests, according to the documents and a senior government official.

The new proposal was being discussed by the health and trade ministries at least as early as April last year, according to a government memorandum dated June 3. Neither ministry responded to requests for comment.

A Philip Morris spokesman said the company had “nothing further to add” when asked about the company’s view on foreign investment.

The final decision on the rules, based on recommendations from various ministries, will be taken by Prime Minister Narendra Modi’s cabinet.

BLOW TO PLANS

Philip Morris entered India in the late 1960s by acquiring a majority stake in the London-based parent of Godfrey Phillips India Ltd. It gradually reduced its stake in Godfrey over the years, in part due to regulatory changes.

Ahead of the 2010 ban on investments into cigarette manufacturing, Philip Morris formed a new wholesale trading company with Godfrey and an investment firm.

Under the current arrangement, Godfrey manufactures Marlboros while Philip Morris’ trading firm helps promote them.

That part of its operations would not necessarily be impacted by the foreign investment changes being considered, as such changes usually do not apply to previous arrangements.

However, if the new rules were implemented, Philip Morris’ future investment plans in India would be in jeopardy, as any form of new investment or collaboration would be outlawed.

Those plans, the company says, include the possible launch of its heat-not-burn electronic cigarette called iQOS, an alternative product which Philip Morris sees as a key step towards a smokeless future that could also bring health benefits to India.

Godfrey did not respond to a request for comment.

India is a key market for Philip Morris.

Even before the company contemplates introducing alternative products there, demand is strong for conventional cigarettes that still account for most of the company’s $74 billion in global annual revenues.

The number of male cigarette smokers, aged between 15 and 69 years, almost trebled in India to 40 million between 1998 and 2015, according to BMJ Global Health estimates. Another 48 million smoke traditional hand-rolled cigarettes, called beedis.

Marlboro faces stiff competition from premium brands of India’s largest cigarette maker, ITC Ltd, which is part-owned by British American Tobacco (BAT) as well as several state-run firms.

Still, its market share has doubled between 2012 and 2015 to 1 percent, data from Euromonitor International show.

LOBBYING DRIVE

Outlining the firm’s importance to India’s economy, Philip Morris said in its letters that it spent $460 million on tobacco leaf over the previous five years and more than $200,000 on corporate charities each year.

It says it has employed more than 90 people in its India unit.

The company does not give country-by-country figures for revenues or market share.

Philip Morris’ King wrote to the trade minister in May, saying the reported proposals would “dent India’s credibility as a reliable investment destination.” He also said the move would unfairly favour the domestic industry.

“It is discriminatory in its application since it will provide undue leverage to the domestic industry at the expense of international products,” King wrote.

ITC, which has a market share of almost 80 percent, did not comment on the proposed new policy.

King’s letter was redirected by the trade ministry to the federal health ministry for further comment.

The health ministry rejected the company’s arguments, citing India’s obligations under an international tobacco control treaty and domestic laws.

The health ministry said allowing foreign tobacco money was against public health interests and would only lead to expansion and promotion of the sector.

“There should be a comprehensive ban on foreign collaboration in any form,” the health ministry wrote on July 27, adding wholesale trading in tobacco should be banned as well.

Philip Morris wrote again in October to argue its case, this time to NITI Aayog, the think-tank.

It said an investment ban could “raise significant concerns” about India’s compliance with its obligations under international trade and investment treaties.

(Additional reporting by Manoj Kumar; Editing by Mike Collett-White and Paritosh Bansal)

ACCC proposes to deny authorisation for tobacco companies

The Australian Competition and Consumer Commission has issued a draft determination proposing to deny authorisation to British American Tobacco, Imperial Tobacco, and Philip Morris (the tobacco companies) to jointly stop supply to retailers or wholesalers they believe are supplying illicit tobacco.

http://www.accc.gov.au/media-release/accc-proposes-to-deny-authorisation-for-tobacco-companies

The ACCC considers that having the three dominant tobacco companies working together, sharing information, and making decisions about whether or not to supply particular retailers raises competition concerns.

“The ACCC is concerned about the potential for the sharing of information broadly, and that, for example, the proposed arrangements could be used to selectively target retailers that stock competing brands. This could result in detriment to businesses that may be wrongly or mistakenly subject to a joint decision of the applicants to cease supply, without any opportunity for independent review of that decision,” ACCC Chairman Rod Sims said.

These three tobacco companies are the major suppliers of legal tobacco products in Australia. They have proposed the arrangements to reduce the supply of illicit tobacco in Australia.

“While we agree that reducing illicit tobacco sales is in the public interest, we are not satisfied these proposed arrangements would reduce trade in illicit tobacco sufficiently to offset the likely detriments,” Mr Sims said.

The ACCC expects to release its final decision in February 2017.

Further information about the application for authorisation is available on the ACCC Authorisations Register.

Philip Morris (PM) Seeks FDA Approval for IQOS Products

http://www.nasdaq.com/article/philip-morris-pm-seeks-fda-approval-for-iqos-products-cm718365

Tobacco giant Philip Morris International Inc. PM has filed an application with the US Food and Drug Administration (FDA) for its IQOS products (heatsticks that heat tobacco instead of burning it).

Once the Modified Risk Tobacco Product (MRTP) claim is approved by FDA, the company will be able to enjoy a significant marketing advantage over other reduced risk tobacco products that are being sold currently. The regulatory authority is expected to take a minimum of 60 days for completing an administrative review of the application.

The heatsticks are already available in several test markets. Philip Morris launched these products in fiscal 2015 in Japan and Italy where it became very popular. Further, there is a steady increase in the number of iQOS purchasers who have predominantly or fully converted to these reduced risk products.

Once these products get a go ahead from the FDA, Altria Group Inc. MO will also be able to sell these products in the U.S.

Altria and Philip Morris have been working on reduced risk tobacco products for quite some time. In 2015, the two companies had entered into a strategic agreement under which Philip Morris markets Altria’s MarkTen e-cigarettes internationally. Altria in turn distributes two of Philip Morris’ heated tobacco products in the U.S.

Further, the companies have decided to partner on a regulatory engagement related to the products. The joint venture has made excellent progress on branding and go-to-market strategies for non-conventional cigarettes in the U.S. market. Additionally, the two companies were working together on the above mentioned modified-risk tobacco product claim.

 

Doubt cast on ‘safer’ tobacco vaporiser

Advocacy groups are casting doubt over claims a new kind of cigarette called Iqos is less harmful than traditional tobacco products.

http://www.independent.ie/irish-news/health/doubt-cast-on-safer-tobacco-vaporiser-35261612.html

Big tobacco company Philip Morris has reportedly invested US$3bn (€2.8bn) on developing the technology.

It works like a vaporiser, by heating tobacco without burning it. The company claims the vapour still contains nicotine, but has 10pc less harmful ingredients.

But the Asthma Society of Ireland has pointed to claims made in the past by the tobacco industry, to raise concerns over these claims.

“Tobacco companies lied for years about the link between smoking and cancer.

“Now Marlboro manufacturer Philip Morris is making fresh health claims. We would be crazy to believe them without independent proof,” CEO of the organisation Averil Power said.

“Tobacco companies will do and say anything to sell their products,” she added.

Donal Buggy, head of services and advocacy at the Irish Cancer Society, backed the scepticism.

“There is no such thing as a safe cigarette. The only safe level of consumption of cigarettes is none whatsoever,” he said.

Irish Independent

Big Tobacco Gets Into Retail Storefronts

British American Tobacco and Philip Morris International have both opened stores to educate consumers on how to vape.

http://www.nacsonline.com/Media/Daily/Pages/ND1202162.aspx

Big tobacco firms are getting into the retail business more directly than in past years. British American Tobacco (BAT) has opened a store in Milan to sell Vype, its e-cig product, while Philip Morris International has stores in England, Italy, Japan and Switzerland to promote its heat-not-burn product iQOS, the Wall Street Journal reports.

For BAT, the strategy to having an actual store extends beyond selling electronic cigarettes. The firm wants to use the location as another way to promote new products, such as Pebble, a Vype-branded vaping device that debuted yesterday. “If we’re going to massify the market—inject life into it—we have to come up with these innovative, groundbreaking products,” said Kingsley Wheaton, who heads BAT’s next-generation products.

This increased emphasis on connecting with customers on the ground comes as sales of cigarettes continue to soften. Philip Morris even said this week that the company could stop selling traditional cigarettes one day and is focusing on developing tobacco alternatives.

BAT CEO Nicandro Durante has a long-term view in mind when it comes to e-cigs and other vaping devices, which have experienced slow growth. Wheaton predicted that next-generation products will reach $18.7 billion within five years, but he doesn’t see cigarettes disappearing altogether.

BAT Bets on Vaping as Tobacco Makers Do Battle With New Devices

http://www.swissinfo.ch/eng/bat-bets-on-vaping-as-tobacco-makers-do-battle-with-new-devices/42723034

Trailing Philip Morris International Inc. in the contest to move smoking alternatives beyond e-cigarettes is just fine with British American Tobacco Plc.

According to Kingsley Wheaton, head of BAT’s next-generation products, longer-established electronic products hold more promise than the heat-not-burn technology pioneered by its main rival. The high acceptance of Philip Morris’s iQOS tobacco device in its debut market of Japan won’t be easy to replicate elsewhere, he said in an interview Thursday.

“Are we behind Philip Morris on the tobacco-heating journey? The answer is yes,” Wheaton said. “But we have a different take. Vapor is going to be a bigger category worldwide.”

More than 1 million smokers have switched to Philip Morris’s iQOS since it first went on sale in 2014. Demand has proven strongest so far in Japan, where Philip Morris has had a two-year headstart on BAT. While analysts at Exane BNP Paribas and Wells Fargo say the Marlboro maker has invented the most promising smoking substitute, BAT contends that heat-not-burn will only become dominant in a few countries, and that Japan alone may represent as much as half of the potential demand.

“Japanese consumers are very tech-savvy and vapor is banned,” Wheaton said. “The consumer is highly socially considerate and really worried about their hygiene impact on others. When you put all that together, you create a real melting pot of reasons why tobacco heating will work in Japan.”

Companies Divided

Tobacco companies are divided on where the future of their $770 billion industry lies. Philip Morris Chief Executive Officer Andre Calantzopoulos has said his company may one day stop making traditional cigarettes as the market for alternative products takes hold. His non-combustible iQOS devices have taken a 5 percent share of the Japanese market.

While BAT plans to compete against its rival with a heat-not-burn product called Glo, Wheaton said the bulk of his company’s efforts will remain in the vapor market.

In the second half of next year, BAT will start selling a new product called Vype Raptor. The device gets nicotine into the bloodstream faster and more closely mimics the sensation of smoking because the vapor particles are larger, according to BAT.

The company is also opening a store in a fashionable neighborhood of Milan as well as pop-up shops in London to sell Vype-branded vapor products. And it will introduce a 17.99-pound ($23) brightly-colored plastic device called Pebble that delivers nicotine infused with flavors such as wild berry and smooth vanilla.

BAT aims to sell vapor products in more than 15 markets by the end of next year, according to next-generation marketing director Frederico Monteiro. It currently has a presence in 10 and plans to be in 30 to 40 markets by 2020.

CEO of Philip Morris, world’s largest tobacco company, says he may phase out cigarettes

https://mic.com/articles/160767/ceo-of-philip-morris-world-s-largest-tobacco-company-says-he-may-phase-out-cigarettes#.8BMja44a1

Sick of hearing about how cool vaping is? Better get used to it, because the CEO of Philip Morris International recently mused that vapes will one day replace cigarettes — ideally, one day soon. The company has launched its IQOS “smokeless cigarette” in the United Kingdom, Reuters reported Wednesday, a step toward its potentially smokeless future.

“I believe there will come a moment in time where I would say we have sufficient adoption of these alternative products … to start envisaging, together with governments, a phase-out period for cigarettes,” André Calantzopoulos told BBC Radio 4. He added that he hoped that moment would arrive “soon.”

Calantzopoulos heads the world’s largest international tobacco company, its 53 production centers in 33 countries making upwards of 870 billion cigarettes annually.

According to the World Health Organization, tobacco kills some 6 million people globally each year. During his interview with BBC, Calantzopoulos acknowledged the danger.

The CEO believes the IQOS — which is already available in Japan, Switzerland, Italy and a handful of other countries — is a safer alternative to cigarettes because it heats tobacco rather than burning it.

“We produce a product that causes disease and I think the primary responsibility that we have once the technology is available — and today the technology is available — is to develop products like these and to commercialize them as soon as possible,” he said.

Asked if Philip Morris wasn’t motivated by “concern for future business,” rather than concern for consumers, Calantzopoulos noted that PMI didn’t invent cigarettes and that, by 2025, the world will still be home to more than 1 billion smokers.

“I think, for us, [the responsibility] is to offer consumers the best product we can in a category that we all know is addictive and causes harm,” he said.

The IQOS isn’t a typical electronic cigarette running on nicotine juice. Rather, it’s an electronic holder in which consumers can insert mini-cigarettes. According to BBC, a pack of 20 will cost roughly $9.99. The device itself, which comes with a charger, resembles “a small, dumpy mobile phone,” to borrow BBC’s phrasing, and will run consumers around $56.

PMI hopes the IQOS will appeal more to cigarette smokers than e-cigs have. And while such alternatives appear to be far safer than traditional cigarettes, as Deborah Arnott, chief executive of Action on Smoking and Health, told BBC Radio 4, “We still need to be very cautious about what the industry’s up to.” Tobacco companies’ foremost interest is in selling tobacco.

“If Philip Morris really wants to see the end of smoking, then they have to stop promoting smoking to new young smokers around the world,” she said. “If these products can help adult smokers quit, then all well and good, but they still need regulating as tobacco products.”

For his part, Calantzopoulos vowed that Philip Morris will do “everything we can to convince them [smokers] to switch to this product.”

CAN PHILIP MORRIS KICK THE CIGARETTE-SELLING HABIT?

http://www.newsweek.com/can-philip-morris-kick-cigarette-selling-habit-522400

Don’t expect Philip Morris International to quit smoking cold turkey, but the global tobacco giant says it’s moving toward the day when it becomes cigarette-free.

For a company that’s generated more than $26 billion in trailing revenues from cigarette sales around the world, kicking the habit sounds like a pretty tall order, particularly when global governments are throwing roadblocks in its path to do so, but it is launching new products that may help make smoking cessation possible.

It’s no secret that cigarette sales are in decline. Philip Morris said third-quarter cigarette shipment volumes fell 5.4 percent to 207.1 billion units, while they’re down 3.9 percent year to date. Volumes were down sharply in its Asia market, falling 9 percent in the quarter, as well as in Eastern Europe, Middle East and Africa, where they were off 8 percent.

Although British American Tobacco had slightly better results—quarterly volumes were flat while year-to-date volumes were up 0.9 percent—the industry remains in contraction even as legal risks remain an ever-present threat to the financial health of the cigarette companies.

Decade-old agreements with the European Union to fight cigarette smuggling have expired or are poised to, and the smoking regulators on the continent may soon pursue litigation against the tobacco companies. Although Philip Morris, British American, Imperial Tobacco and Japan Tobacco have paid out almost $2 billion since the agreements were signed and smuggling has been dramatically reduced, anti-smoking activists contend it was a low-cost way to insulate themselves from lawsuits. As the deals expire over the new few years, litigation costs could rise dramatically.

Kicking the habit

So having a goal to get out of the cigarette business isn’t such a bad idea, as far-fetched as it sounds. But to do so, Philip Morris is investing heavily in smoking alternatives such as electronic cigarettes, specifically its iQOS device that’s being sold as HeatSticks under the Marlboro brand name.

Rather than burning tobacco like regular combustible cigarettes, or even heating up a nicotine-flavored e-liquid as do traditional e-cigs, the iQOS device heats actual tobacco to produce a tobacco-flavored vapor. Since it’s the burning of the tobacco that creates all the toxic chemicals associated with smoking, e-cigs, whether old or new, are thought of as a healthier alternative, though clinical studies have yet to be conducted to prove that, and e-cig companies don’t market their products as such.

The benefit of the iQOS, as well as other similar devices such as the iFuse from British American, which heats up an e-liquid but then draws it through tobacco leaves for flavor, is that they address one of the main complaints users had about e-cigs—their taste. With these next-gen devices, users get real tobacco flavor, which may help more smokers to switch to them.

While that would seemingly be something regulators would promote, considering the societal costs associated with smoking, governments are still erecting barriers.

In the U.S., the FDA’s so-called “deeming regulations” are expected to devastate the nascent electronic cigarette and vaping markets. So onerous and costly are the regulations—Philip Morris’ application to the FDA for a reduced-risk label for the iQOS runs to 2 million pages—that only the biggest, best-financed companies will be able to comply. Smaller manufacturers will probably be wiped out, as third-party estimates put the cost of compliance somewhere between $3 million and $20 million per application.

Elsewhere, e-cig users are being treated just like regular smokers, segregated to special areas where they can use their devices, or being banned altogether from using the devices in public places, just like with cigarettes.

A brave new world

Philip Morris, of course, is big enough that it can afford complying with the new rules, but even it recognizes the changeover to a smoke-free future won’t be easy, or quick. Bloomberg News quotes CEO Andre Calantzopolous as saying the tobacco company can’t stop selling cigarettes immediately, as “decades of history are not going to be changed in one afternoon.”

And though critics might be wary of any pronouncement a tobacco company makes, any increase in the number of people quitting smoking has to be a benefit. Many people will just find it odd that it’s Philip Morris International that may be leading the way forward.

Philip Morris: 4 Headwinds To Watch Out For

Summary

Philip Morris has taken a beating in recent days, down nearly 10% after the surprise election results.

The strong dollar and rising interest rates are major headwinds for the tobacco giant.

However, the 5% yield makes Philip Morris a hold in my book.

http://seekingalpha.com/article/4024964-philip-morris-4-headwinds-watch

Philip Morris (NYSE:PM) has had an up and down year so far in 2016. The company has lagged the markets over the past few years and this year will likely be more of the same. While the dividend yield is nice at nearly 5%, long-term investors in the stock should still keep an eye on some of the headwinds facing it.

1) Strong dollar woes

You can pretty much predict most of Philip Morris’ price action by using the dollar index. If the greenback rises, then Philip Morris declines. This inverse relationship tells a painful story since 2013, i.e. basically flat. The reason for this is simple. Philip Morris makes most of its revenues overseas, and a strong dollar means these foreign currencies translated into less profits.

pm-stock

As can be seen in the chart above, the dollar went on a big rally soon after the election and the surprise victory for Trump. As a result, Philip Morris’ stock also fell around 10%.

2) Rising interest rates

On a related note, interest rates have also risen; the 10-year is up 40 basis points to over 2.2%, lessening the appeal of Philip Morris 4.7% dividend yield. This may also impact Philip Morris’ profitability down the road as it refinances its $30 billion debt load and sees higher interest expense. The company has benefited in the past from low interest rates in order to issue debt and buy back a lot of stock.

3) Volume declines in key markets

Another concern for Philip Morris is falling cigarette volumes. Q3 volumes fell 5.4% year over year, and year to date the decline has been 3.9%. This is above the 1-3% declines seen in the US. Philip Morris is seeing weakness mostly in Asian markets, specifically from Indonesia, the Philippines and Thailand, due to various factors such as excise tax increases and the illicit trade, in Argentina due to a big tax increase which has crushed demand, and in Japan due to a shrinking market.