Altria, Philip Morris Partnering on Alternative Tobacco Products

RICHMOND, Va. -- Altria Group Inc. and Philip Morris International Inc. (PMI) are pairing up to establish a framework to commercialize reduced-risk products and electronic cigarettes.

Subsidiaries of the two tobacco companies entered into a series of agreements to address intellectual property licensing, regulatory engagement and contract manufacturing. Specifically:

• Altria is providing PMI with an exclusive license to commercialize Altria's e-vapor products internationally.
• PMI is providing Altria, on an exclusive basis, two of PMI's heated tobacco products for commercialization in the United States.
• The companies are cooperating on scientific assessment, regulatory engagement and sharing improvements regarding those products.

"These agreements create an important opportunity to commercialize our e-vapor products internationally through a strategic partnership with PMI," said Marty Barrington, Altria's chairman and CEO. "In addition, through subsidiaries, PMI is granting Altria an exclusive license to sell in the United States heated tobacco products that PMI is developing. This is consistent with Altria's ongoing efforts to develop a robust portfolio of innovative products that meet adult tobacco consumers' preferences, including those that have the potential to be authorized by the Food and Drug Administration (FDA) as modified risk tobacco products."

To support bringing these products to market, Richmond-based Altria and PMI will cooperate on regulatory engagement related to heated tobacco products with the FDA, and e-vapor products with international regulatory authorities. The companies have also agreed to share improvements to the existing generation of products.

"PMI firmly believes that reduced-risk tobacco products, as well as e-cigarettes, represent an important step toward achieving the public health goal of harm reduction, a potential paradigm shift for the industry and a significant growth opportunity for the company," said PMI CEO André Calantzopoulos. "Further to our plans for international test market introduction of our candidate reduced-risk products as of the second half of 2014, this agreement establishes a roadmap for commercialization in the U.S., subject to FDA authorization. At the same time, it provides us with a platform to accelerate our entry into international e-cigarette markets while we continue to develop future versions."

Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC, expressed that the move is positive. "We believe this could have a significant positive financial impact, particularly for Altria, since Altria's licensing arrangement with PMI allows Altria to participate in the global e-cig category, which we continue to anticipate will generate substantial growth and profits," said Herzog.

She also stated that the strategic alliance gives the two companies a competitive advantage.