Altria Grants Exclusive Commercial Rights to IQOS System in the US

Oct.21.2022
Altria Grants Exclusive Commercial Rights to IQOS System in the US
Philip Morris International to pay Altria Group $2.7 billion for exclusive commercial rights to IQOS tobacco heating system in the US.

Starting on April 20, 2024, Philip Morris International will pay approximately $2.7 billion to Altria Group to obtain exclusive commercialization rights for the IQOS tobacco heating system in the United States.


We remain committed to creating long-term value through our vision," said Billy Gifford, CEO of Altria, in a statement. "We believe that this agreement provides us with fair compensation and greater flexibility to allocate resources to smoking cessation.


In 2013, Altria and PMI signed a series of agreements related to innovative tobacco products, which included Altria's subsidiary Phillip Morris International USA obtaining the exclusive commercialization rights to the IQOS system in the United States. The commercialization rights of Phillip Morris International USA were initially set for a five-year period, starting from the authorization of the system by the U.S. Food and Drug Administration in April 2019 and continuing until April 2024.


As part of the 2013 agreement, Phemo International USA has the right to maintain exclusive commercialization privileges in the United States until April 2022, following the achievement of the initial milestone. Upon reaching further milestones, Phemo International USA may choose to extend the deadline for an additional five years until April 2029.


Although Altria believes it has reached the required milestone, Philip Morris International disagrees. The two parties were unable to reach a long-term agreement and have decided to sign a transitional agreement and ultimately terminate their relationship.


After signing the agreement, Altria received $1 billion from Phimol International. According to the terms of the deal, Phimol International is obligated to pay an additional $1.7 billion (plus interest) before July 2023, with a total cash payment of approximately $2.7 billion (pre-tax). Altria anticipates using the cash proceeds for multiple projects, which may include investments to attain their vision, debt repayment, stock buybacks, and general company purposes. Altria stated that the decision to buy back stocks would depend on market conditions and other factors, and would be at the discretion of its board of directors.


Altria is expected to record a before-tax transaction amount of $2.7 billion as deferred revenue on its consolidated balance sheet in the fourth quarter of 2022. This revenue will be recognized in earnings once the company transfers its rights to the IQOS system.


The US International Trade Commission has instructed a ban on importing IQOS and Marlboro HeatSticks into the country, due to patent disputes. As a result, these products cannot currently be sold in the US. Despite this, Philip Morris International remains responsible for producing the IQOS system and Marlboro HeatSticks and plans to resume product supply in the first half of 2023.


By supplying FDA-approved products to Altria before May 2024, Philip Morris International's US subsidiary may choose to reintroduce the IQOS system and Marlboro HeatSticks for sale in the US. Commercial rights for the IQOS system in the US will transition to Philip Morris International, which will not be able to use the Marlboro brand name or other brand assets as the US subsidiary of the company owns the Marlboro trademark in the US.


In a press release announcing the transition to IQOS, Altria stated that it remains committed to achieving its vision of responsibly leading adult smokers towards a smoke-free future. "We believe in a combination approach to reducing tobacco harm and aim to compete in major smoke-free categories. We have reinvested in our internal product development system and expect to complete designs for two smoke-free products, including heated tobacco products, by the end of 2022.


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