Business / Corporate

Philip Morris CEO expects countries to overturn e-cigarette bans

by Lisa Du and Ayaka Maki

Bloomberg

Philip Morris International Inc. expects regulators to gradually become more open to alternatives to cigarettes even after more than 27 governments have prohibited next-generation smokeless devices.

“Eventually, countries will reverse gear,” Chief Executive Officer Andre Calantzopoulos said in an interview in Tokyo. “I don’t think it’s reasonable to essentially condemn your population to only smoke cigarettes when there are vastly different alternatives.”

Facing global pressure on its traditional business, the Marlboro maker is banking on a shift to non-cigarette products such as its iQOS tobacco-heating device, which gives users a nicotine buzz without combustion.

Philip Morris’s CEO said he expects regulators to heed the example of Japan, a market where an upsurge in smoking alternatives has accompanied a 20 percent reduction in cigarette consumption in the past three years.

“Japan should be very proud that was achieved,” he said. Traditional restrictions on smoking would have taken 15 to 20 years to have a similar effect, he said.

Calantzopoulos said he still expects the U.S. Food and Drug Administration to give the go-ahead to sell iQOS, which is different from the category of e-cigarettes, in that country this year. The United Kingdom and New Zealand are among other countries that have been adopting more accommodating positions to cigarette alternatives.

Many countries have gone the opposite way amid an outcry by anti-smoking groups, which say that Big Tobacco is trying to get people hooked on a new type of addiction. Earlier this month, Hong Kong announced a ban on electronic cigarettes as well as “heat-not-burn” devices like iQOS, joining markets such as Australia.

As Philip Morris conducts clinical trials to try to prove iQOS poses fewer health risks than smoking, almost 6 million people have already switched to the device. Shipments of the sticks of tobacco used in iQOS will more than double to 100 billion by 2021, the Marlboro maker forecast last month.

In the U.S., the FDA recently clamped down on e-cigarette makers for selling to underage consumers. Calantzopoulos said he doesn’t expect that to hurt the chances of iQOS getting approval, saying that the reason for the underage e-cigarette crackdown is that the FDA lacked the authority to regulate the electronic devices before they went on sale.

“It’s actually a positive thing that the FDA is acting,” the CEO said.

Philip Morris is also requesting the FDA to allow it to sell iQOS with a label saying it poses a reduced-risk designation, which would be the first of its kind. Calantzopoulos said that decision will take longer than getting approval for sale, which he expects to get this year.

Calantzopoulos made the comments as he visited Tokyo to launch two new iQOS devices. The battle in the alternative-device category has centered on Japan, where more than half of the world’s iQOS users reside.

But after a period of vertiginous growth, sales have slowed as competitors such as Japan Tobacco Inc. and British American Tobacco introduced cheaper products and it became harder to convince smokers to switch. The U.K.’s Imperial Brands also said last month it will enter the market.

About 15 percent of the tobacco consumed in Japan consists of iQOS heat sticks, a success that Philip Morris has so far failed to replicate elsewhere, even though it sells the device in more than 40 other markets.

Calantzopoulos said he thinks the growth lag elsewhere is due to differences in culture, regulatory regimes and scale of the operations in each market. Japan tightly regulates nicotine-laced liquids, effectively banning sales of electronic cigarettes in the country.

South Korea and Greece have the biggest potential to become the largest iQOS markets after Japan, the CEO said.

“If you don’t make this product available to people who smoke, what is their alternative? They continue smoking,” Calantzopoulos said. “We assume that in an ideal world they will quit, but reality is they don’t.”