Joint venture will produce heated-tobacco devices for global market
Kate Andrews //October 27, 2022//
Joint venture will produce heated-tobacco devices for global market
Kate Andrews// October 27, 2022//
Altria Group Inc., the Henrico County-based tobacco giant, announced Thursday it is partnering with Japan Tobacco Group to sell heated tobacco products in the U.S. and worldwide, placing Altria in direct competition with Juul Labs Inc. and Philip Morris International Inc.
The $150 million deal, in which Altria subsidiary Philip Morris USA has a 75% economic interest in the Horizon Innovations LLC joint venture and Japan Tobacco International has 25%, will include marketing of heated tobacco products in the United States and Japan.
The partnership comes after Altria sank $12.8 billion into a 35% stake in Juul, at the time the nation’s leader in the e-cigarette market. However, Juul soon faced major legal woes, including numerous lawsuits claiming the company had illegally marketed its products to teens. Having settled some lawsuits, Juul is facing possible bankruptcy, and the federal government has said it wishes to ban all Juul products from being sold in the U.S.
In September, Altria opted to end its noncompete deal with Juul, after its $12.8 billion investment was valued at $450 million as of June 30. In August, the company said it had not yet decided to end the agreement. “At this time, we continue to believe that these investment rights are beneficial to us,” Altria spokesperson Jennifer Kelly said at the time. “Therefore, we have not opted to be released from our noncompete obligations at this time, but we retain the option to do so in the future.”
Meanwhile, former subsidiary Philip Morris International and Altria attempted to reunite, but that agreement collapsed in November 2021, and PMI has received the European Union’s approval for its $16 billion purchase of Swedish Match AB, another competitor in the smokeless tobacco space.
Altria officials have long maintained that e-cigarettes and other nontraditional tobacco products are important products to help adult smokers wean off cigarettes, although much of the opposition to vaping products arose from their use by underage smokers. In subsequent years, the federal government has banned fruit and candy flavors in smoke-free products, limiting their appeal to teens.
“We are excited to begin a new partnership with JT Group, a leading international tobacco company,” Altria CEO Billy Gifford said in a statement Thursday. “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.”
Altria’s third-quarter earnings fell short of expectations, with $5.41 billion in revenue, down from $5.59 billion expected by Wall Street and a 2% decline from the same period last year. The Japan Tobacco announcement preceded the earnings release today. As of 12:50 p.m. Thursday, shares of Altria’s stock were down 0.93% at $45.96 per share.
According to Altria’s announcement, the deal with Japan Tobacco will produce two products that will reach the U.S. market by the first half of 2025: JTS’ Ploom heated tobacco device, which is similar to the IQOS product removed from U.S. markets last year in a patent dispute with R.J. Reynolds Tobacco Co., and Marlboro heated tobacco consumables, which Philip Morris USA will produce. Altria says that the Marlboro product is “a consumable that meets the definition of a cigarette under the U.S. Federal Cigarette Labeling and Advertising Act.”
Earlier this month PMI agreed to pay Altria Group $2.7 billion for U.S. commercialization rights starting April 30, 2024, and Altria’s announcement Thursday says the company does not expect to have commercialization rights when Horizon’s exclusivity requirements go into effect. The company also expects to partner with Japan Tobacco to launch a new heated tobacco capsule product in an international test market in late 2024 or early 2025, as well as starting work on a proposal to the U.S. Food and Drug Administration by the end of 2024.
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