Philip Morris International is quietly developing a next-generation cancer stick that could replicate the traditional smoking experience, while killing fewer customers. An exclusive peek inside
As hubs of innovation go, the area around Switzer- land’s Lake Geneva histor- ically trumps pretty much any region in the world, save the 30-mile radius around Dave Packard’s old garage. It’s where pharmacist Henri Nestlé perfected the concoction of milk, flour and sugar that spawned the world’s largest food conglomerate, the first quartz wristwatch was developed and Tim Berners-Lee invented the World Wide Web. Expand an hour or so further and you’ll find the birthplace of everything from the theory of relativity to LSD.
Which brings us today to the shore of Lake Neuchatel, where I watch hundreds of scientists and technicians, recruited from pharmaceutical giants like Novartis and Roche, scurry around a $150 million glass cube that could easily be mistaken for Google’s European headquarters. Researchers sit in the centre atrium, swapping ideas, while in the buildings on either side robotic machines churn out prototypes for a product that could have the biggest impact on human health since the introduction of antibiotics: A safer cigarette.
Cigarette smoking kills an estimated 5.4 million people a year worldwide, a figure that’s risen 30 percent over the past 20 years. You can plaster pictures of skull-and-crossbones or dying cancer victims on the wrappers and tax them until a pack costs more than dinner for two, but recent history has demonstrated that people, especially in Eastern Europe and Asia, still figure out a way to get their fix.
So what Philip Morris International (PMI) is doing from its Swiss headquarters is trying to help the world’s smokers get that fix in a way that a) doesn’t eventually kill half of them, and b) replicates the aspects of smoking that got a lot of them hooked in the first place.
It’s an ambitious plan that PMI has put $650 million into so far, with the current expenditure ramping up past $200 million a year. While many of the technical details of its products remain secret, PMI is sharing the results of its clinical research with the public and in academic journals—posters at the Lake Neuchatel lab testify to the regular tours offered visiting scientists—in an effort to reverse the well-deserved reputation for evasion and duplicity that the cigarette industry earned through most of its history. It opened its doors to Forbes and made its chief executive available for a rare interview in order to explain the strategy that may save the company in an industry that’s changing.
The first new model is an electronic device that looks like an old-fashioned cigarette holder, which heats tobacco to just below the burning point to release the nicotine and flavour of tobacco with fewer harmful combustion by-products like benzene and tar. It will hit the market in an undisclosed country sometime next year. Three more prototypes are in the works, including one that can be lit like a conventional cig.
Tobacco-based prototypes sit in direct contrast to the biggest disruptor in the cigarette business: Ecigarettes. Simple devices that combine a tiny lithium battery with a heating element to vapourise pure nicotine fluid, they deliver the drug that hooks cigarette smokers but without the taste. Competitor Lorillard is all-in on ecigarettes, having purchased Blu, now one of the largest US brands, for $135 million in 2012, and PMI’s former US parent, Altria, is test-marketing its MarkTen ecigs.
As with almost everything in the nicotine delivery business, there’s a moral quandary to all this innovation: If PMI proves successful, the new products will surely save the lives of tens of thousands of their customers. But they could also make smoking less scary to those who don’t smoke, creat- ing new nicotine addicts. PMI is shep- herding the new products through the Food & Drug Administration approval process on behalf of its former parent, which spun it out in 2008. Altria would then market the product here—assuming the FDA plays ball, which, given its reticence to green-light any product that could encourage cigarette use, is far from a sure thing.
Financially, the stakes are huge. Six trillion cigarettes are sold globally each year; if PMI’s tobacco heater attracts even a 5 percent share, that would boost profits, already a hefty $8.6 billion, by more than $1 billion a year—and still more if a kinder, gentler cigarette is taxed less aggressively. And that’s just the starting point: Bonnie Herzog, the tobacco analyst at Wells Fargo, believes that consumption of ecigs and other delivery devices deemed safer could eclipse conventional cigarettes by 2030. “We believe the market continues to underestimate the growth opportunities for the tobacco industry,” she says.
Safer cigarettes promise a path out of the dismal long-term outlook for traditional smokes, where even PMI, with its dominant Marlboro brand, saw unit sales fall by 5 percent last year. But they also introduce uncertainty to a business that for most of Calantzopoulos’ 29-year career has been as predictable as the deaths it generated.
(This story appears in the 27 June, 2014 issue of Forbes India. To visit our Archives, click here.)