LDN - Business

Philip Morris aims to revive Japan sales with cheaper heat-not-burn tobacco

[October 23, 2018] By Taiga Uranaka and Ritsuko Ando

TOKYO (Reuters) - Philip Morris International Inc released cheaper versions of its IQOS "heat not burn" products in Japan on Tuesday as it tries to revive sales and ward off competition from other alternatives to conventional cigarettes.

As regular e-cigarettes with nicotine-laced liquid are effectively banned in Japan, the country has become the main market for "heat not burn" (HNB) products, which emit less smoke and smell less than conventional cigarettes.

Philip Morris, maker of Marlboro cigarettes, was first to start selling HNB products in Japan in 2014. But after an initial surge in sales last year, it has run into competition from British American Tobacco and Japan Tobacco Inc, and its market share has stopped growing in recent quarters.

The companies slashed prices of their heating devices earlier this year, as competition intensified.

"Clearly IQOS sales have slowed down" since their launch in Japan, Philip Morris CEO Andre Calantzopoulos told reporters on Tuesday.

But he said the increased competition was not necessarily a bad thing in the long run if the increased choice made the products more popular among consumers.

A new "HEETS" line priced at 470 yen ($4.18) a pack would be available from Tuesday, he said. That is cheaper than Philip Morris's current HeatSticks, tobacco rolls used with IQOS devices, which are priced at 500 yen per pack.

"Clearly, for some people, spending 30 yen more, 40 yen more per day is expensive," Calantzopoulos told Reuters in a separate interview.

In mid-November, the company will also release newer versions of its "IQOS 3" and "IQOS 3 MULTI" devices. The existing versions will still be available at current prices.

Philip Morris, the world's largest publicly traded tobacco company, has seen weaker-than-expected growth in IQOS recently, after building a leading position in the global HNB market.

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Philip Morris' IQOS 3 (L) and IQOS 3 MULTI devices are pictured after their launching event in Tokyo, Japan, October 23, 2018. REUTERS/Kim Kyung-Hoon

Japan accounts for about 85 percent of the $6.3 billion HNB market, according to Euromonitor.

Philip Morris says IQOS has a 15.5 percent share in Japan's overall tobacco market, including conventional cigarettes, but market share has stabilized.

"I think it's natural in any category that you have slowdowns," Calantzopoulos said. "We have people who adopted earlier and people who are more conservative."

Philip Morris has also made a marketing application to the FDA for IQOS, which would allow the company to sell it with a claim of reduced risk.

Philip Morris was spun off from Altria Group Inc nearly a decade ago, and Altria will commercialize IQOS in the United States.

Calantzopoulos said permission for commercialization would come hopefully before the end of the year and Altria was "ready to launch".

A Reuters report in December identified shortcomings in the training and professionalism of some of the lead investigators in the clinical trials submitted to the FDA by Philip Morris.

On Monday, Philip Morris drew accusations of hypocrisy after using a four-page newspaper advertisement to urge smokers to quit cigarettes.

(Additional reporting by Ami Miyazaki; Editing by Susan Fenton and Stephen Coates)

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