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iQOS: A Product Of Innovation Or Necessity For Philip Morris?

Philip Morris aims to garner 10-15% of its sales from its Reduced-Risk Products (RRPs) portfolio within a decade. It is betting on one such product, iQOS, and feels it will become more popular than e-cigarettes sold by other companies.

http://seekingalpha.com/article/4049300-iqos-product-innovation-necessity-philip-morris

Philip Morrris expects its RRPs to approach breakeven Operating Companies Income (OCI) in 2017, and to start contributing positively by 2018. It is targeting 30-50 billion units in incremental volume through RRPs, which would add an additional OCI of $0.7 billion to $1.2 billion by 2020, with an increasing confidence of reaching the upper end of the target range.

Conversion rates of iQOS purchasers who have fully or predominantly moved to the product have grown over time, and stood at approximately 70% at the end of 2016. As of year-end 2016, the company estimates that approximately 1.4 million adult consumers have quit cigarettes and converted to iQOS.

Philip Morris International (NYSE:PM) uses the term Reduced-Risk Products (RRPs) to refer to products with the “potential to reduce individual risk and population harm, in comparison to smoking cigarettes.” The company has a number of products in various stages of development and commercialization, with numerous scientific studies being carried out to determine whether the claims for reduced risks can be substantiated. The firm’s aim is to garner 10-15% of its sales from its RRPs portfolio within a decade.

The company is betting on one such product, iQOS, a black pen-shaped device that heats sticks containing tobacco, and feels it will become more popular than e-cigarettes sold by other companies. Philip Morris has collaborated with Altria (NYSE:MO) for developing its RRP portfolio, which includes joint research, development, and a technology sharing agreement, wherein the e-vapor products developed would be commercialized in the US by Altria and in markets outside the US by PM. The company is also leveraging the popularity of the Marlboro brand by deploying Marlboro heatsticks in iQOS

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