Philip Morris International Inc. PM has inked a deal with Parallax, in an attempt to move ahead with its strategy of expanding in the smoke-free products space. Canada-based Parallax, owned by leading pioneers in pulmonary research and medicine, provides low risk alternatives of tobacco.
Both the companies will work towards reduction of harmful tobacco products by developing an effective nicotine-delivery system including e- cigarettes, pipe tobacco, cigars and hookah that leverages the most advanced technologies in pulmonary medicine. Prior to this, the company has invested more than $4.5 million since 2008 to develop, substantiate and build manufacturing capacity for a wide range of smoke-free products.
Phillip Morris has long been focused on strengthening its reduced risk products (RRPs) category owing to consumers’ rising health consciousness, along with government’s strict regulations on tobacco products.
Markedly, the U.S. Food and Drug Administration (FDA) made it mandatory for tobacco companies to use precautionary labels on cigarette packets to encourage customers quit smoking. Also, the FDA is bent on drastically reducing nicotine in cigarettes to minimally addictive levels. Apart from these, the FDA had earlier announced that tobacco makers must seek marketing authorization for any tobacco product introduced after Feb 15, 2007. In fact, these hurdles also remain threats to other tobacco players like Altria Group MO, Vector Group VGR and British American Tobacco BTI ,
Serious health hazards due to cigarette smoking have pushed consumers toward low-risk, RRP’s. In this regard, Phillip Morris has been undertaking plant conversions and transforming them from cigarette to RRPs manufacturing facilities. This was witnessed in the company’s Papastratos factory in Greece, for the production of HEETS, a unit used with IQOS. IQOS, a smokeless cigarette, is counted as one of the leading RRPs in the industry.
Also, Phillip Morris’ revenues from RRPs doubled (on a constant-currency basis) to $1,127 million, largely driven by increased sales of IQOS devices in the first quarter of 2018. Notably, RRP revenues during the first quarter represented 16.3% of the company’s overall net revenues.
We believe these upsides can help this Zacks Rank #3 (Hold) company counter the challenges it is facing in the tobacco space and revive the stock that has plunged 30.5% as compared to the industry’s decline of 27.9%.
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