Tobacco companies embrace innovation and diversification

Regulations on tobacco are becoming increasingly strict worldwide, limiting the development of traditional tobacco markets. Multinational tobacco companies have realized that only by actively promoting innovation and transformation can they achieve sustainable development. Through their "beyond nicotine" strategy, companies such as Philip Morris International and British American Tobacco are planning and laying out strategies outside of combustible tobacco products.

Enhance research and innovation capabilities.

Over the past 20 years, multinational tobacco companies have invested billions of dollars in research and innovation to explore alternatives to combustible tobacco products. They have made significant advancements in applicable fields, incorporating some of their research findings into related products.

In September 2021, British American Tobacco announced plans to establish an innovation center in L'Aquila, Italy. The company will set up an innovation laboratory and digital transformation center, as well as a new tobacco product manufacturing facility and boutique sales store. The center spans approximately 20,000 square meters and features multiple production lines that will primarily manufacture electronic cigarettes like Vuse, modern oral smokeless tobacco Velo, and heated tobacco products like Glo. These products are intended for sale in the European Union and other markets.

According to Kingsley Wheaton, CEO of British American Tobacco (BAT), the company plans to invest €500 million (approximately ¥3.48 billion) in this innovation center over the next five years, which plays a critical role in BAT's transformation. "We chose to build this innovation center in L'Aquila because globally, it has a strong position in science and research," Wheaton said.

Like other tobacco companies, Philip Morris International is also striving for innovation and transformation. In November 2021, the company announced that it would be relocating its headquarters to Stanford, Connecticut in the United States. Here, they plan to build a technologically advanced innovation center to support their "smoke-free future" strategy. The new Philip Morris International headquarters will cover an area of approximately 6,640 square meters and will serve as the workplace for functional departments and employees of the company's subsidiaries in the Americas. The company's operational center will remain in Lausanne, Switzerland.

In addition, one of the world's leading manufacturers of electronic cigarettes and vaping devices, Smoore Technology, has recently established a research institute focused on foundational research. The institute comprises three research centers and has hired senior experts with backgrounds in respiratory medicine. This research institute will conduct relevant testing and data analysis to help establish standards for electronic cigarettes and vaping devices.

Expanding the healthcare sector.

After years of research, multinational tobacco companies discovered the medicinal potential of tobacco crops. In 2008, Phillip Morris International acquired a portion of Canadian biopharmaceutical company Medicago. In 2014, British American Tobacco purchased the Kentucky Bioprocessing Center in the United States. Both Medicago and the Kentucky Bioprocessing Center are involved in vaccine research. In January of this year, Health Canada approved Medicago's production of a COVID-19 vaccine.

British American Tobacco has been conducting clinical trials on a COVID-19 vaccine. Earlier this year, they established a new company called KBio which will focus on research and application of plant protein technology to explore treatments for rare and infectious diseases.

Last summer, Fimo International acquired Denmark's Fidin Pharmaceuticals for $820 million USD.

Fedin Pharmaceuticals focuses on researching, developing, and manufacturing various products such as liquid capsules, solid lozenges, and nicotine pouches. By acquiring Fedin Pharmaceuticals, FIMO International gained their expertise and nearly 200 research and development professionals. Fedin Pharmaceuticals can help FIMO International expand their influence in the nicotine pouch market while also providing expertise in respiratory drug delivery systems and developing scientifically-proven health products using this technology.

Following its acquisition of Fidin Pharmaceuticals, Pharma International has now acquired UK-based respiratory inhaler manufacturer, Vectura, for $1.2 billion. Vectura specializes in producing respiratory medication products, with a portfolio of 13 inhalation products and 11 non-inhalation products. This acquisition brings over 200 scientific experts to Pharma International, who possess knowledge in product formulation, inhalation techniques, device manufacturing and management, and can provide the company with new technology and drug development capabilities.

Pharmo International has announced plans to develop a product line for inhalation therapy and respiratory drug delivery systems. The company has stated that Victhura plays a crucial role in its strategy to go beyond nicotine.

Pharmaceutical company, Phimo International, has recently made another major deal in the industry by acquiring OtiTopic, a US respiratory drug company. OtiTopic has developed an inhalable acetylsalicylic acid medication for the treatment of acute myocardial infarction, which is currently undergoing clinical trials. This product includes a new patented formula of aspirin that is released through a dry powder inhaler, offering faster results compared to orally-administered tablets. According to Phimo International, if the medication is approved by the US Food and Drug Administration, it will meet the needs of the 83 million Americans at risk for myocardial infarction.

Pharmo International's Chief Life Science Officer, Jorge Insusti, has revealed that the company's "Beyond Nicotine" strategy originally focused on respiratory delivery and herbal products aimed at addressing issues such as poor sleep and low energy. Insusti explained in a recent edition of Pharmo's "Science Update" that respiratory drug delivery offers quicker and lessens side-effects compared to traditional tablet form medication, with lower dosages needed. Additionally, the company has accumulated a wealth of technology through its research into plant matrices and aerosols.

Phimo International is ambitious in the field of healthcare product development, receiving support from venture capital firms. Phimo International invested $150 million in innovative companies researching respiratory drug delivery systems and health monitoring technology.

Fimo International plans to generate at least $1 billion in sales revenue through new business ventures by 2025, according to CEO Jack Orzack. Orzack stated that Fimo International will focus on health, science, technology, and sustainable business practices in order to develop innovative products and solutions that enhance people's quality of life while having a positive impact on society.

Developing a new product.

British American Tobacco is looking to develop cannabis products as an opportunity to implement its "Beyond Nicotine" strategy. The company expects sales growth from new products such as cannabidiol. Fortune Business Insights estimates that the global market for cannabidiol is valued at $3.68 billion in 2021, with the potential to increase to $55.79 billion by 2028, with a compound annual growth rate of 47.49%.

British American Tobacco believes that their advantage lies in their understanding of consumers. In early 2020, they launched their first aerosol THC product, Vuse CBD Zone, in Manchester, UK.

In March 2021, British American Tobacco purchased a 19.9% stake in a Canadian cannabis manufacturing company for £126 million (approximately 8.05 RMB per pound). The company grows cannabis and produces derived products. This acquisition provides British American Tobacco with cannabis research and development technology, supporting its further diversification. Additionally, the company will establish a research center in New Brunswick to develop the next generation of cannabis products.

British American Tobacco received support from a venture capital firm during its transformation process. Btomorrow, established in 2020, seeks investments in functional products, sustainable development, and technology, and found common ground with British American Tobacco.

Currently, multinational tobacco companies are in the early stages of a transformation, with a slow but steady pace. Along the way, they will encounter many difficulties and obstacles, including public questioning and resistance from organizations such as the World Health Organization. Recently, the WHO has rejected the COVID-19 vaccine developed by Medicago because the biopharmaceutical company is affiliated with Philip Morris International. It can be said that if multinational tobacco companies successfully achieve this transformation, it will become an important case in the history of corporate development.

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