Philip Morris (PM) Gains on IQOS, Beyond Nicotine Expansion
Philip Morris (PM) is gaining from rising popularity of IQOS devices. The company is also progressing with the expansion of Beyond Nicotine products t...
Amid consumers’ rising health concerns and stringent regulatory hurdles surrounding cigarette manufacturing and sales, several tobacco companies are venturing into smoke-free alternatives. Philip Morris International Inc. PM is one such company that has been acclaimed for pioneering the shift from traditional cigarette to other low-risk alternatives. Toward this end, the company’s IQOS — a heat-not-burn device — is among the leading RRPs in the industry. It has also been making radical progress in the respiratory drug delivery platform, as part of its ‘Beyond Nicotine’ strategy announced earlier this year. Apart from these, pricing power has been a key catalyst for the company’s top-line growth.
Shares of the company have gained 6.5% in the past three months compared with the industry’s rise of 2.5%. That said, let’s delve into some of the aspects that are impacting the performance of this Zacks Rank #3 (Hold) company.
Prudent Efforts to Boost RRPs & Beyond Nicotine Products
RRPs, considered to be the next-generation tobacco products, have been gaining popularity owing to their less detrimental impacts on health. In fact, consumers are inclining toward RRPs in a bid to quit cigarettes. Philip Morris’ IQOS was launched in the United States in 2019, through a commercial deal with Altria Group, Inc. MO that was approved by the FDA. Since then, the company has been expanding the brand by introducing new versions and 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.
The company expects its heated tobacco category to keep gaining from the growing acceptance of IQOS devices. As part of its transformation efforts, the company is committed toward expanding these products to more markets. It has started commercializing IQOS VEEV, which is its new e-vapor product. It is also on track with the expansion of the newly-launched IQOS ILUMA. Such efforts keep the company well placed for transforming into 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.
Philip Morris has been firm on its ambitious plans to expand Beyond Nicotine products. In February 2021, the company revealed plans of generating at least $1 billion in annual net revenues from the Beyond Nicotine business by 2025. As part of this initiative, the company has been striving to develop products focused on inhaled therapeutics for medical and wellness applications. It recently announced the acquisition of 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.
In prior efforts, Philip Morris entered into an agreement to acquire 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. The company has also made an offer to acquire Vectura Group plc, a provider of innovative inhaled drug delivery solutions for treating diseases related to smoking.
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Strong Pricing Aids Revenues
Strong pricing for tobacco products has been a significant upside for Philip Morris. This has been boosting revenues and adjusted operating income despite unfavorable tax environment and declining cigarette volumes. Though higher pricing might lead to possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing 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. Consistent pricing power is likely to keep supporting the company’s performance in the forthcoming periods.
Clearly, Philip Morris is undertaking every effort to transform itself into a company that puts health and wellbeing in the forefront and have a positive impact on the society. Its efforts to expand IQOS and the Beyond Nicotine portfolio are praiseworthy. Such efforts as well as gains from pricing are likely to continue supporting the company and keep it poised for growth.
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