Philip Morris International is a leading international tobacco company, which owns six of the world’s top international 15 brands, spanning more than 180 markets. The company operates and owns 46 production facilities and employs around 81,000 people. Christos Harpantidis is Chairman and Managing Director of Papastratos S.A., an affiliate of Philip Morris International, since August 2015.
The main message on your website is “Designing a smoke-free future”. What does this mean for one of the biggest cigarette companies in the world?
Our industry is going through the most significant transformation in its entire history entering a new post-cigarettes era. We are glad that Philip Morris International is leading this drastic change towards a future, where smokers who do not wish to quit can have a better alternative than to continue smoking cigarettes. It’s known that, by burning the tobacco, thousands of harmful chemicals are released in the smoke and at least a hundred of them have been identified as carcinogenic. The developments of modern technology have helped us develop after more than 10 years of research a fundamentally different product that heats the tobacco instead of burning it. Thus, no smoke and ash are formed and the level of harmful and potentially harmful substances is significantly reduced compared to cigarette smoking. This does not mean that using smokeless tobacco products is risk-free, but that it is likely to present less risk than continued smoking in the long run. We believe in the potential of our smoke-free alternatives to reduce individual and population harm and that is why in the last 10 years we have invested 4,5 billion dollars in their Research and Development capacity and production. More than 430 scientific experts with various profiles are working in our R&D center in Neuchatel, Switzerland, called the Cube, conducting scientific research and assessment of our smoke- free products. All this proves our serious commitment towards our vision – to design a smoke-free world.
To fulfill this mission, we needed to disrupt our successful business and go for a dramatic change. Usually, businesses are disrupted and forced to change from outside. It happens rarely that an industry leader would disrupt from inside its successful business and would decide to stop selling its most profitable product. But we have decided to go into this completely new direction and we believe this is the right thing to do not only for our consumers but also for the whole society.
We are glad to observe that more and more industries and governmental bodies embrace the harm reduction approach and welcome the idea of designing a smoke-free future together. Recently, the creative, media and communications communities supported our commitment to creating a smoke-free world at the International fest for creativity Cannes Lions, while the Thessaloniki International Fair which took place in the beginning of September declared itself as the first-ever Smoke-Free fair.
What are the highlights of your short and mid-term development plans?
Our ambition is that, by 2025, at least 30% of our adult consumers, who would otherwise continue smoking, switch to our better smoke-free alternatives. This is already happening, as to date already 5.6 million adult smokers worldwide have switched to our most developed heating tobacco system IQOS, which is available in more than 40 markets worldwide. This means that 10,000 adult smokers per day decide to stop smoking and choose our heated tobacco products. This gives us the confidence that we are moving in the right direction towards a smoke-free world and that there is huge potential to reduce the harm from tobacco. However, in order to reduce individual and population harm, we need not only to convince consumers to quit or switch to better alternatives but also to involve the whole industry, society and regulators in this change.
We are proud to be the leader in this major transformation, while innovations, science, and technology are driving our company. To date, PMI has more than 3,400 patents granted and over 5,000 pending applications worldwide relating to these innovative technologies. We are proud to be the 5th largest fast moving consumer good patent filer at the European Patent Office, and the only tobacco company in the top-100 of EU Patent filers.
So far, these revolutionary smoke- free products represent approximately 4.4 percent of PMI’s shipment volume and around 13% of our net revenues, excluding excise taxes. At the same time, our resources continue to shift with approximately 40% of our global commercial spending and more than 70% of our R&D expenditure being oriented towards the risk reduced products.
At the same time, we are investing in new production facilities for the tobacco sticks used in IQOS. Such a major investment in our region, of 300 million dollars, was announced last year in Greece and is about to be completed converting the existing factory of Papastratos to a state-of-the-art heat sticks production facility.
Such major investments in innovation and science towards the new direction require also a new way of thinking and of working within the company. Moving into a completely new digital world, we are also hiring different profiles of people with marketing, digital and customer care expertise. At the same time, we continue to develop our smoke-free product portfolio and to improve our customer service based on consumers’ preferences and feedback.
Our smoke-free product portfolio includes four platforms in various stages of development and commercialization: two products that use different innovations to heat rather than burn tobacco, and two e-vapor products that do not contain tobacco but deliver nicotine based on different technologies. We are glad that the first and most developed of these products, the tobacco heating system IQOS, is very well perceived by the adult consumers in our region in South East Europe and the EU as a whole.
What are your expectations regarding the development of Bulgaria’s cigarette market? What are the key factors and what are the main challenges? Where do you see untapped potential and how would you describe the regulatory environment?
Bulgaria has a positive regulatory environment for investments and innovations in smoke -free products. The country is a leader in the regulatory framework, as it has transposed entirely the EU Tobacco Products Directive in the national legislation. Bulgarian authorities have also created a separate legislative and fiscal category for the heated tobacco products. A good regulatory environment was also created for providing robust scientific in-formation towards the consumers.
In this sense, Bulgaria created a positive environment that allows the fostering of innovations and science in the smoke-free area. This is very important as the countries in our region have been criticized for their highest smoking prevalence in the EU. Now, thanks to the developments of highest innovations and modern technology together with the good regulatory environment, it is possible to offer a category of fundamentally different smoke-free products that have the potential to reduce the harm of tobacco. With this, Bulgaria, together with the other countries in South East Europe and the EU as a whole, is taking serious steps towards the improvement of public health.
In terms of challenges, undoubtedly, one of the major ones in the last period for us was the regulatory debate in Bulgaria on equalizing the tax on heated tobacco products and that on conventional cigarettes. We are glad that the public debate and dialogue with legislators, in the end, have led to a more balanced outcome to maintain the differentiated tax approach to the new product category that supports investments and innovations in the industry with the aim to reduce the harm of smoking.
In terms of potential, we believe that there is a large opportunity for coun-tries in South East Europe to leverage on science and innovations for all the adult smokers and those around them. Our vision for the world and for the region of South East Europe is that one day all adult smokers who would otherwise continue smoking switch to potentially less harmful smoke-free alternatives. But we can’t fulfill this mission alone, we can only make it happen if we join efforts with the scientific community, regulators and the whole industry.
What are your research and development plans?
In order to demonstrate that heated tobacco is a better alternative to continued cigarette smoking, we have developed a state of the art stepwise scientific approach that is similar to the pharmaceutical industry and in line with international guidelines and best practices. For more than 10 years, PMI is conducting scientific research and development, evaluating the data to build up the totality of evidence for the tobacco heating system IQOS. Our conclusions about IQOS so far are supported by findings from a range of scientific studies, not just a single laboratory test or a single clinical study.
Our approach is designed to provide 5 levels of evidence. First, we verify that the product’s design does not pose any additional risks compared to those already known for cigarettes. Then, we conduct further laboratory, pre-clinical and clinical studies to assess exposure and toxicity vs. cigarettes. We also conduct perception and behavioural studies. Finally, we monitor the long-term impact of IQOS usage once in the marketplace. Until now at each step of our program, the results very encouraging in supporting our messages towards the reduced risk of heat-not-burn products in comparison with conventional cigarettes.
Until now, we have conducted numerous studies, including 8 clinical trials in Japan, adult smokers US and Europe, looking at the results in smokers who continue to smoke cigarettes, who have switched to IQOS and who have stopped smoking. All our scientific data is transparent and publicly available and can be found at www.pmiscience.com and www.clinicaltrials.gov.
What are your sustainability efforts?
We at PMI have taken serious efforts to fundamentally transform our business model by putting smoke-free products at the core of our sustainability efforts to address wider societal challenges, drive operational excellence and manage our social impact. We have set ambitious sustainability targets and we are proud to be ranked among the top fast-moving consumer good companies in terms of progress in reducing our environmental footprint. We have also gained recognition from our stakeholders for the tangible progress in tackling complex socio-economic challenges in the tobacco growing regions.
Through our programs supporting the empowerment of local tobacco -growing communities, we believe that we can make a global impact. The programs we support are based on local needs and include access to quality education, income-generation initiatives, and the promotion of women’s leadership roles in society. We also help address natural or man-made disasters and other emergencies. At the global level, we’re working with strategic partners to fight human trafficking, protect migrant workers, and generate economic opportunity for women. Additionally, we invest huge resources in the fight against illicit trade and related crimes such as corruption, money laundering, and organized crime.
We are proud that one of the best examples for a sustainable social responsibility program is realized in our region, in the Bulgarian tobacco- growing municipalities with the support of Philip Morris Bulgaria. Implemented for a 4th consecutive year, the program “Summer for Joy, Autumn for Care” is the best example of how business and the non-governmental sector can work together for the economic and social development of the local communities.
This interview is supported by Philip Morris Bulgaria.