Philip Morris International (NYSE: PM) really wants consumers to believe in reducing the damage from their cigarettes. He announced the purchase of UK group Vectura, a manufacturer of respiratory therapy and inhalation drug delivery devices.
The global cigarette giant first declared that the future would be “smoke-free”. Then, it launched its Beyond Nicotine initiative in February, planning to generate more than half of its total net income from smoke-free products by 2025, and at least $ 1 billion in products “beyond that. nicotine”.
Philip Morris made its second acquisition this month, both focused on oral delivery of nicotine alternatives.
A change for the better
Vectura is a UK contract development and manufacturing (CDMO) company for the pharmaceutical industry.
With his device technology and expertise in inhaled product development, he has helped global pharmaceutical giants including Bayer, GlaxoSmithKline, and Novartis, to successfully market 13 inhaled drugs and 11 non-inhaled products.
The acquisition follows Philip Morris International’s announcement on July 1 that it was purchasing Fertin, which manufactures nicotine chewing gum, chewable tablets, lozenges and “powders in sachets” that dissolve quickly. in the mouth.
Both purchases are part of what Philip Morris calls his “natural evolution into a larger health and wellness business.” The challenge will be whether consumers and investors will buy it.
A wolf in sheep’s clothing?
The obvious criticism that Philip Morris will face is that after decades of profiting from cigarette sales, it has now seen the light of day and wants to help people switch from harmful products to less deadly, even healthy ones. Consumer advocates will argue that the company has everything to gain from both inflicting harm and trying to improve it, and since cigarettes still generate the majority of its sales and profits today, it continues to do so. degrade the health of consumers which it claims to now want to help cure.
This isn’t an unreasonable review, but it’s certainly best for Philip Morris to start this journey as soon as possible. In addition, it is essential to its survival that it does so.
A global necessity
Philip Morris considered merging again with Altria Group (NYSE: MO) to create a powerhouse in smokeless products, primarily its heated tobacco product IQOS, but the deal was canceled after Altria’s investment in Juul Labs collapsed.
Juul is a leader in e-cigarettes, but has been accused of contributing to the increase in teen vaping in the United States, and coupled with the Food & Drug Administration’s crackdown on the e-cigarette industry in general, Philip Morris has chosen to maintain the status quo. This would allow Altria to manufacture, market and sell the device in the United States while focusing on expanding its portfolio of smoke-free and reduced-risk products to the rest of the world.
These products now represent about 28% of Philip Morris International’s sales, which means that the goal of making half of its revenue from them within a few years is reasonable.
A huge opportunity
His latest acquisitions, especially of Vectura and ties to the pharmaceutical industry, could lead to a radical change at Philip Morris.
It buys the CDMO for $ 1.2 billion in cash, but Vectura made around $ 245 million last year. The tobacco maker, however, says the market for inhaled therapeutics is large and growing rapidly. Analysts agree; some estimate it could reach up to $ 41 billion worldwide by 2026.
Philip Morris International said that between Fertin, Vectura and its historic business, the trio “can create a pipeline of wholly-owned products across a wide range of industries in the prescription and over-the-counter (OTC) drug categories that will come. complement Vectura’s CDMO with business and service to its existing customers. “
A healthier tobacco business
Tobacco will continue to feature prominently in the company’s profile, but these acquisitions now allow it to branch off in a different direction, which complements its vision rather than thwarting it.
Philip Morris could very well become a force for the good of public health instead of undermining it. This would make it a much better security to invest in, as it would no longer defeat the environmental, social and governance (ESG) goals of many institutions and retail investors.
However, convincing the many critics of the tobacco stock that it is serious to help remains a tall order.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.