No Lighter Needed: IQOS Could Disrupt the U.S. Market
PMI has submitted IQOS to the FDA as a modified-risk tobacco product. If approved, Altria would gain exclusive rights to sell it in the U.S., where heated tobacco could become a major market disruptor.
On December 5 last year, Philip Morris International submitted a Modified Risk Tobacco Product application to the FDA for its heat-not-burn tobacco product IQOS. If the application is approved, Altria Group will obtain the exclusive right to sell these products in the United States.
IQOS was a major success when it first launched in Japan
In recent years, major international tobacco companies have invested heavily in the R&D and production of reduced-risk tobacco products, and Philip Morris is no exception. In November 2014, it first launched its heat-not-burn cigarette product IQOS in Japan. Powered by electricity, it has no open flame, no ash, and produces no smoke when not in use; even during use, the aerosol and odor are minimal.
According to 2016 data, IQOS expanded its distribution in Japan and reached 60% of the adult smoking population in the second quarter. In the third quarter, HeatSticks market share rose to 3.5%, up 1.3 percentage points from the second quarter; in September, its share in Tokyo reached 4.3%. According to the latest data provided by the company, weekly market share increased to 4.9% in October. In addition, internal product cannibalization declined from 40% in the earlier period to 35% in the second quarter.
The product was subsequently launched in countries and regions such as Italy and Switzerland, where it quickly captured local market share. As Philip Morris International's IQOS products gained momentum, other global tobacco giants also began developing similar products.
However, due to legal issues, the product had not been launched in the U.S. market. At the same time, facing pressure from other tobacco companies, Philip Morris took the lead in submitting its application to the FDA. The FDA will have a 60-day administrative review period. Once the application is approved, Philip Morris will gain the right to sell IQOS in the United States, which could reshape the U.S. market landscape.
At present, the vast majority of cigarette alternatives on the market are liquid-based e-cigarette products that produce vapor but contain no tobacco. Because IQOS uses tobacco, it may attract some users, and given that Philip Morris could become the first major company in the industry to receive FDA approval, this would bring significant benefits to its parent company, Altria.
