IQOS USA: History

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Philip Morris International (PMI) & Altria: On the way to Merger

In 2013, Altria and PMI entered into a series of agreements related to innovative tobacco products, which included the assignment of exclusive US commercialization rights of IQOS to Altria. Accordingly, following the US FDA’s authorization (i.e. marketing order granted to IQOS 2.4 based on the PMTA), PMI assigned the exclusive commercialization rights of IQOS in the USA to Altria for an initial term of five years in April 2019 (i.e. until April 2024).

Altria’s commercialization approach in the USA was to maximize the organic growth potential of IQOS first by focusing on the densely populated metropolitan areas and then by expanding outwards as the IQOS user base grows (similar to PMI’s “key city” approach in the international markets). Altria set up the www.getiqos.com website in August 2019 and officially launched IQOS (2.4 version) in October 2019 in Atlanta, Georgia (first-ever IQOS sales in the USA). As of December 2019, two shopping mall-based IQOS flagship stores, seven mobile stores (generally located in convenience store parking lots) and six pop-up stores (“IQOS Corners”, located inside the c-stores) were opened in and around the city of Atlanta. These stores were equipped with employees who offer guided trials (to smokers only). In addition, Marlboro heatsticks were sold in c-stores, grocery stores and pharmacies.

Following Atlanta, Altria launched IQOS in its hometown, Richmond, Virginia in December 2019. In the two metropolitan areas, more than 100 dedicated salespeople supported the launch and heatsticks were made available in 500 stores. At the 2020 CAGNY Conference (Feburary 2020), Altria stated:

“Our IQOS team is testing a variety of approaches in these markets [Atlanta & Richmond] to learn how to best convert smokers and apply these learnings to efficiently scale our efforts. The key learning from our lead markets is that IQOS is resonating with adult smokers. We’re focused on the consumer journey from awareness to conversion, and we’re encouraged that many smokers have found relevance in the IQOS proposition of real tobacco, less odor and no ash”

Altria also disclosed that

– 60% of the smokers engaged by the IQOS personnel tried the product and more than half of the smokers (55%) who tried IQOS have ultimately purchased the product (i.e. engagement-to-purchase ratio: 1/3)

– IQOS expert network resulted in a greater percent of purchases from competition, especially Newport smokers.

Altria launched IQOS in Charlotte, North Carolina in April 2020 as the third metropolitan area. In December 2020, US FDA granted marketing order to IQOS3 system (IQOS3 Holder & Charger). For further details: IQOS USA: FDA Review. Moreover, Altria introduced new packaging for Marlboro HeatSticks and has renamed the three authorized Marlboro HeatSticks variants as Amber, Blue Menthol and Green Menthol. In March 2021, Altria introduced the new IQOS 3 device for sale.

IQOS reached 1.1% share in Atlanta and 1.0% share in Charlotte by Q1 2021 (in stores with distribution). Altria slowly expanded the distribution of IQOS and Marlboro Heatsticks statewide, across Georgia, Virginia, North Carolina and South Carolina during 2021. In addition to getiqos.com, Altria deployed IQOS content nationwide on Marlboro.com and used Marlboro Rewards program to educate smokers about IQOS. The plan was to reach 25% weighted national distribution by the end of 2021 when the IQOS commercialization abruptly ended as a result of the ITC (International Trade Commission) decision.

On September 29, 2021, ITC imposed an importation ban and issued cease-and-desist orders on IQOS and Marlboro HeatSticks. The decision was the result of a patent case filed by BAT/Reynolds. The trade agency found that IQOS infringed on two of Reynolds’ patents. The importation and sales ban took effect after the 60-day review deadline passed without any action by the Biden Administration to overturn the ITC’s order. Refer to the “IQOS USA: Patent Wars” write-up for further details.

In January 2022, Altria announced that:

– the IQOS system was no longer available for sale in the US

– they don’t expect to have access to IQOS devices or Marlboro HeatSticks in 2022 (for a re-launch)

– based on the performance of IQOS in the Charlotte and Northern Virginia, they achieved the two milestones required to maintain the exclusive license and distribution rights for IQOS in the US and to earn the renewal option for an additional five-year term (until April 2029)

– PMI disagrees with Altria’s position.

PMI vs. Altria: No Merger, No Partnership

PMI and Altria were unable to reach an agreement to renew the IQOS Distribution Agreement for an additional five-year term through April 2029. Consequently, in October 2022, PMI and Altria entered into the IQOS Transition Agreement to conclude their relationship. According to this Agreement, Altria was granted cash payments of ~$2.7Bn (pre-tax) in exchange for assigning the exclusive US commercialization rights of IQOS back to PMI as of April 30, 2024.

Also, in October 2022, Altria and Japan Tobacco (JT) entered into a strategic, global partnership in smoke-free products and established a 75% (Altria) – 25% (JT) Joint Venture (“Horizon Innovations LLC”) for the marketing and commercialization of heated tobacco products (owned by either party) in the USA. The Parties expect to submit PMTA for JT’s Ploom device and heated tobacco sticks in the first half of 2025. Upon PMTA authorization, JT will supply the Ploom devices and Altria will manufacture the Marlboro consumables for the US commercialization. Horizon will use Altria’s sales & distribution network, which services over 200,000 US retail stores. The Parties also agreed to commercialization milestones for Horizon, which include distribution requirements and minimum levels of cumulative marketing investment.

In November 2022, PMI completed the takeover of Swedish Match and, consequently, entered the US market to commercialize IQOS on its own.  

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