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10/27/2022

Altria Enters New Heat-Not-Burn Joint Venture

Philip Morris USA reaches agreement with JT Group subsidiary on reduced-risk products.
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Logos for Altria Group and Japan Tobacco

RICHMOND, Va. — Altria Group Inc. and JT Group have formed a joint venture to market and commercialize heated tobacco sticks (HTS) products in the United States. The strategic partnership includes Ploom-branded devices and Marlboro-branded consumables.

The two tobacco companies also signed a long-term, nonbinding global memorandum of understanding (MOU) to explore commercial opportunities for a wide range of potentially reduced-risk products (RRP).

"We are excited to begin a new partnership with JT Group, a leading international tobacco company," said Billy Gifford, Altria's CEO. "We believe this relationship can accelerate harm reduction for adult smokers across the globe.

"We believe Moving Beyond Smoking in the U.S. requires multiple FDA-authorized products within each smoke-free category to appeal to a diverse range of adult smokers. We believe that our joint venture and pipeline of heated tobacco products position us well to increase adoption of smoke-free products," he added.

According to Altria, the heated tobacco category remains largely undeveloped in the U.S., and the company's U.S. adult smoker research indicates that heated tobacco products can appeal to adult smokers who are seeking satisfying smoke-free products that contain real tobacco.

"We believe that certain adult smokers will prefer the familiar tactile and sensorial experience of a HTS product. We also believe that other adult smokers interested in heated tobacco will prefer a product format that is different from traditional cigarettes, such as a heated tobacco capsule (HTC) product," Altria said in a statement. "As a result of our research, our expanded U.S. heated tobacco portfolio includes a pipeline of differentiated product platforms, including both HTS and HTC formats."

The MOU lays out the companies' commitment toward a greater partnership to accelerate global harm reduction.

"As part of our strategic focus on HTS, we're very enthusiastic to launch our Ploom brand in the U.S., the world's largest RRP market in value, through our partnership with the market leader, Altria. We also look forward to entering into a long-term strategic collaboration with Altria to further explore global commercial opportunities in the RRP category," said Masamichi Terabatake, JT Group CEO and president of the tobacco business. "I strongly believe that this cooperation will increase the global harm reduction possibilities for adult consumers and drive incremental value for the JT Group and Altria."

JV Details

Under the new pact, Altria's subsidiary Philip Morris USA (PM USA) entered into a joint venture (JV) with Tokyo-based JT Group's subsidiary Japan Tobacco International (JTI) for the for the U.S. marketing and commercialization of HTS products.

Japan Tobacco currently sells Ploom HTS products in four countries. It launched its most recent HTS device, Ploom X, in Japan last year. Since its introduction, JT has doubled its share of the Japanese HTS segment.

The JV is structured to exist in perpetuity and establishes Horizon Innovations LLC (Horizon), which is responsible for the U.S. commercialization of current and future HTS products owned by either party. Horizon will commercialize HTS products in the U.S. under the Ploom and Marlboro trademarks.

PM USA holds a 75 percent economic interest in Horizon, with JTI holding the remaining 25 percent. According to Altria, PM USA is responsible for making an initial $150 million in capital contributions to Horizon as charges are incurred. Capital contributions made to Horizon after the initial $150 million will be split according to economic ownership.

JTI and PM USA will both maintain independent ownership of their respective intellectual property (IP), including any IP acquired after the formation of the JV that supports the development of future HTS products, Japan Tobacco added.

The companies expect to combine their scientific and regulatory expertise to jointly prepare Food and Drug Administration (FDA) filings for the latest version of Ploom HTS products, which are not currently commercialized. They currently expect to submit premarket tobacco product applications (PMTA) for these products in the first half of 2025.

Other details include:

  • Upon PMTA authorizations, Horizon will become the exclusive entity through which the parties market and commercialize HTS products in the U.S.
  • JTI will supply the Ploom HTS devices and PM USA will manufacture the Marlboro HTS consumables for U.S. commercialization.
  • Horizon will use Altria's sales and distribution network, which services more than 200,000 U.S. retail stores.
  • The parties have agreed to commercialization milestones for Horizon, which include distribution requirements and minimum levels of cumulative marketing investment.

The JV comes on the heels of Altria's agreement to end its pact with Philip Morris International (PMI) to commercialize IQOS in the U.S. Last week, PMI agreed to pay  $2.7 billion to take control of the commercialization rights as of April 30, 2024, as Convenience Store News reported.

"Given that we agreed to assign our U.S. commercialization rights to the IQOS Tobacco Heating System to Philip Morris International Inc. in April 2024, we do not expect to have U.S. commercialization rights to the IQOS products when Horizon's exclusivity requirements go into effect," Altria said of its JV with JTI.

Altria was advised by Perella Weinberg Partners L.P. as financial advisor and Wachtell, Lipton, Rosen & Katz as legal counsel.

Richmond-based Altria's wholly owned subsidiaries include manufacturers of both combustible and smoke-free products, including Philip Morris USA Inc., John Middleton Co., U.S. Smokeless Tobacco Co. LLC and Helix Innovations LLC.

Additionally, it has an equity investment in Juul Labs Inc. and owns equity investments in Anheuser-Busch InBev SA/NV and Cronos Group Inc., a leading Canadian cannabinoid company.