By Taco Tuinstra, Global Editor-in-Chief of 2Firsts
The views expressed in this article are solely those of the author.
The global nicotine business again faced significant challenges and opportunities in 2024, driven by technological innovation, stricter rules and, in many markets, persistent competition from illicit products. On Jan. 9, 2Firsts released a list of last year’s most impactful NGP news items . Prominent among them: the 10-year anniversary of IQOS, Philip Morris International’s iconic tobacco-heating system. In this article, we reflect on this remarkable milestone as IQOS prepares to (re)enter the world’s most profitable nicotine market.
Having enjoyed significant success with its IQOS tobacco-heating system in many countries, Philip Morris International has now set its sights on the biggest prize of all—the United States of America. The U.S. of course is a notoriously difficult destination for nicotine products, but those who get it right stand to reap considerable benefits. Will the multinational succeed on its second attempt to bring IQOS to consumers in the world’s most lucrative tobacco market?
The preparations for a U.S. launch come at a salient time. In 2024, the iconic tobacco heating product celebrated its 10th anniversary. The launch of this smoke-free innovation not only represented a breakthrough in terms of technology but also accelerated the transition of smokers from deadly combustible cigarettes to a less harmful method of nicotine consumption.
In Japan—the first market where IQOS was launched—cigarette smoking prevalence plunged from 19.6 percent of all adults in 2014 to 10.6 percent in 2022, according to a survey conducted by the Ministry of Health, Labor and Welfare. While cigarette sales in Japan had already been slowing, a 2019 study by researchers at the American Cancer Society showed that cigarette sales decreased five times faster after IQOS’ introduction in that country.
Japan continues to have the world’s highest number of heated-tobacco-product users, but IQOS has caught on in many other markets, as well. A decade after it was launched in Japan, IQOS is available in about 80 countries. Since its debut, the product has helped more than 22 million people worldwide make the switch from cigarettes, according to PMI.
In addition to contributing to tobacco harm reduction, the product has also boosted PMI’s bottom line. IQOS now generates more than $10 billion of the company’s annual net revenues, surpassing those of the company’s flagship Marlboro cigarette brand. In 2024, London-based Brand Finance ranked IQOS the world’s fourth most valuable tobacco trademark, ahead of famous legacy cigarettes such as Winston and Camel. According to the Financial Times, tobacco heating products have enjoyed steady worldwide growth. The category’s global retail market value for IQOS and similar products was expected to reach $38.9 billion in 2024.
While no doubt pleased with the performance of IQOS in prominent markets such as Japan, Italy and Germany, PMI is eager to reintroduce the product in the U.S. after it was forced to abort its initial launch some time ago. The Food and Drug Administration first authorized the marketing of an IQOS system in 2019. A year later, PMI also obtained permission to market IQOS as a “modified risk tobacco product,” allowing the company to tell consumers, among other things, that heating rather than burning tobacco significantly reduces the production of harmful and potentially harmful chemicals.
At the time, IQOS was gradually introduced in several Southeastern test markets by Philip Morris’s then-partner Altria Group. While the pilots showed initial promise, a patent-infringement case brought by R.J. Reynolds forced IQOS to leave the U.S. after just two years.
PMI and Reynolds subsequently resolved their dispute, clearing the way for renewed IQOS sales in the U.S. Bullish about its prospects, PMI on October 2022 reclaimed the U.S. commercialization rights to IQOS, saying Altria had failed to meet certain milestones stipulated in their agreement.
In November 2024, PMI held several events in Austin, Texas, to mark the upcoming reintroduction of IQOS in the U.S. In anticipation of launch, current nicotine users who were over the age of 21 and lived in designated areas of Austin were given the opportunity to join a wait list to be among the first to try IQOS once the product becomes available.
According to PMI Chief Financial Officer Emmanuel Babeau, a large-scale launch of IQOS will take place only after the Food and Drug Administration has authorized PMI’s most recent model, IQOS Iluma, which the company expects to happen in the second half of 2025. Compared with previous IQOS iterations, Iluma features various upgrades, including a slightly different heating technology and distinctive tobacco sticks. Outside of the U.S., IQOS Iluma is already available in over two dozen markets.
PMI submitted premarket tobacco product applications and modified-risk tobacco product applications for Iluma in October 2023. Until Iluma’s FDA marketing authorization, Babeau said during a call with investors, the company will sell its IQOS3 model in only a few U.S. cities, primarily to fine-tune its approach in anticipation of the nationwide introduction of IQOS Iluma.
Once it has secured FDA approval for Iluma, PMI will apply the IQOS marketing strategy that has been successful internationally, with some tweaks for the U.S. market. Among other things, this will involve engaging with consumers to explain the product, creating a dedicated sales force and setting up its own points of sale. While most U.S. nicotine users are familiar with vapes, tobacco heating products are new to most of them, which means they will face a bit of a learning curve. Pricing will be an important factor too, as combustible cigarettes in the U.S. remain inexpensive compared with those in other developed markets, due in part to lower levels of taxation.
The reintroduction of tobacco-heating products into the U.S. has been eagerly awaited by investors and tobacco harm reduction advocates, with the first group betting on solid financial returns and the second hoping the product will help transition smokers from combustible cigarettes to less-harmful heating products. If IQOS succeeds in the U.S. on its second attempt, it will not only boost the company’s revenues but also provide yet another option for American nicotine users to eliminate their exposure to deadly tobacco smoke.
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2Firsts Annual Review: Top 10 Global NGP Industry News of 2024
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