PMI Acquires U.S. IQOS Commercialization Rights From Altria
Starting April 20, 2024, Philip Morris International will pay Altria Group about $2.7 billion to obtain the exclusive rights to commercialize IQOS heated tobacco products in the United States. In a statement, Altria CEO Billy Gifford said the company rema
Starting April 20, 2024, Philip Morris International will pay approximately $2.7 billion to Altria Group for exclusive commercialization rights to the IQOS heated tobacco product in the United States.<\/span><\/div>
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“We remain committed to creating long-term value through our vision,” said Altria CEO Billy Gifford in a statement. “We believe this agreement provides us with fair compensation and greater flexibility to allocate resources to the 'smoking cessation' user group.”<\/span><\/div>
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In 2013, Altria entered into a series of agreements with PMI related to innovative tobacco products, including exclusive U.S. commercialization rights for the IQOS system held by Altria's subsidiary, Philip Morris USA. The commercialization rights for PM USA were initially set for five years, starting from when the system received authorization from the U.S. Food and Drug Administration in April 2019, lasting until April 2024.<\/span><\/div>
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As part of the 2013 agreement, PM USA had the right to maintain exclusive commercialization rights in the U.S. until April 2022 after achieving initial milestones. After reaching additional milestones, PM USA could choose to extend the five-year term until April 2029.<\/span><\/div>
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While Altria believes it has met the required milestones, PMI disagrees. The two parties failed to reach a long-term agreement and decided to sign a transitional agreement to ultimately end their relationship.<\/span><\/div>
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Following the agreement, Altria received $1 billion from PMI. Under the terms of the deal, PMI is obligated to pay an additional $1.7 billion (plus interest) by July 2023, bringing the total cash payment to approximately $2.7 billion (pre-tax). Altria expects to use the cash proceeds for various projects, which may include investments to realize its vision, debt repayment, stock buybacks, and general corporate purposes. Altria stated that stock buybacks depend on market conditions and other factors and are at the discretion of its board of directors.<\/span><\/div>
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Altria expects to record the $2.7 billion pre-tax transaction amount as deferred revenue on its consolidated balance sheet in the fourth quarter of 2022. This revenue will be recognized when the company transfers its rights to the IQOS system.<\/span><\/div>
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Due to a U.S. International Trade Commission order prohibiting the importation of IQOS and Marlboro heated sticks into the U.S. related to a patent dispute, IQOS and Marlboro heated sticks are currently not available for sale in the U.S. PMI remains responsible for manufacturing the IQOS system and Marlboro HeatSticks and plans to restore product supply in the first half of 2023. If products authorized by the FDA are supplied to Altria before May 2024, PM USA may choose to reintroduce the IQOS system and Marlboro heated sticks for sale in the U.S. By April 30, 2024, commercialization rights for the IQOS system will transition to PMI. PMI will not be able to use the Marlboro brand name or other brand assets, as PM USA owns the Marlboro trademark in the U.S.<\/span><\/div>
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In the press release announcing the transition of IQOS, Altria stated that it remains committed to responsibly leading adult smokers toward a smoke-free future. “We believe in a combination approach to reducing tobacco harm and hope to compete in major smoke-free categories. We have reinvested in our internal product development system and expect to complete the design of two smoke-free products, including heated tobacco products, by the end of 2022,” the company wrote.<\/span><\/div>
