Altria & Philip Morris International Agree to End U.S. IQOS Pact
RICHMOND, Va. — Altria Group Inc. is selling the U.S. rights to IQOS to Philip Morris International (PMI).
Under a new agreement, PMI will pay Altria approximately $2.7 billion in exchange for the exclusive U.S. commercialization rights to the IQOS system effective April 30, 2024.
"We remain committed to creating long-term value through our vision," said Billy Gifford, Altria's CEO. "We believe that this agreement provides us with fair compensation and greater flexibility to allocate resources toward Moving Beyond Smoking."
In late 2013, PMI and Altria teamed up to establish a framework to commercialize reduced-risk products and electronic cigarettes, as Convenience Store News previously reported.
Subsidiaries of the two tobacco companies entered into a series of agreements to address intellectual property licensing, regulatory engagement and contract manufacturing. In July 2015, the two tobacco leaders expanded that pact to include a joint research, development and technology-sharing agreement.
In 2019, the Food and Drug Administration (FDA) approved the sale of IQOS in the United States and Altria's Philip Morris USA (PM USA) subsidiary officially launched IQOS and the accompanying Marlboro HeatSticks in the U.S. in October 2019.
Following IQOS's authorization in 2019, the pact between the two tobacco companies covered an initial five-year commercialization term for the product through April 2024, with potential for renewal — subject to certain performance milestones — covering a second five-year term through April 2029.
In July 2020, the FDA approved PMI's Modified Risk Tobacco Product application for IQOS. In doing so, the agency found that an IQOS exposure modification order is appropriate to promote the public health. The decision included the IQOS device, Marlboro Heatsticks, Marlboro Smooth Menthol Heatsticks, and Marlboro Fresh Menthol Heatsticks.
Altria's IQOS expansion plans were put on hold in the fall of 2021 when the U.S. International Trade Commission (ITC) ruled PMI and Altria must step selling and importing the heat-not-burn tobacco product. The ruling followed a finding that IQOS infringes on two patents by British America Tobacco Group.
Transition Process
"Today marks another historic milestone in our journey towards a smoke-free future," said Jacek Olczak, CEO of PMI. "This agreement gives PMI full U.S. commercialization rights to IQOS within approximately 18 months and provides a clear path to fulfilling the product's full potential in the world's largest smoke-free market, leveraging PMI's full strategic and financial commitment to IQOS's success. The agreement also avoids what could have been an uncertain and protracted legal process that would have severely hindered the fast deployment of IQOS in the U.S."
Altria received $1 billion from PMI upon entering in the recent agreement and PMI is obligated to make an additional payment of $1.7 billion (plus interest) by July 2023 for a total cash payment of approximately $2.7 billion.
Altria company expects to use the cash proceeds for several items, which may include investments in pursuit of its vision to move beyond smoking, debt repayment, share repurchases and general corporate purposes.
According to Altria, PMI remains responsible for manufacturing the IQOS system and Marlboro HeatSticks and targets resumption of product supply in the first half of 2023. If supply of IQOS is available to before May 2024, PM USA has the option to reintroduce the IQOS system and Marlboro HeatSticks for sale in the U.S.
On April 30, 2024, U.S. commercialization rights to the IQOS system will transition to PMI. PMI will not have access to the Marlboro brand name or other brand assets, as PM USA owns the Marlboro trademark in the U.S., Altria added.
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 Jull Labs Inc. and owns equity investments in Anheuser-Busch InBev SA/NV and Cronos Group Inc., a leading Canadian cannabinoid company.