Altria, Philip Morris International Heat Up 'E-Vapor' Agreements

Will help commercialize electronic cigarettes internationally, more

Philip Morris International Inc. (PMI)

RICHMOND, Va. -- Altria Group Inc. said that it has entered into a series of agreements with Philip Morris International Inc. (PMI) addressing the intellectual property licensing, regulatory engagement and contract manufacturing of electronic cigarettes, as well as other products.

Altria is providing PMI with an exclusive license to commercialize Altria's e-vapor products internationally. PMI is providing Altria, on an exclusive basis, two of PMI's heated tobacco products for commercialization in the United States. Also, they are cooperating on scientific assessment, regulatory engagement and sharing improvements regarding those products.

"These agreements create an important opportunity to commercialize our e-vapor products internationally through a strategic partnership with PMI," said Marty Barrington, Altria's chairman and CEO.

These agreements are "consistent with Altria's ongoing efforts to develop a robust portfolio of innovative products that meet adult tobacco consumers' preferences, including those that have the potential to be authorized by the Food & Drug Administration (FDA) as modified risk tobacco products," he said.

To support bringing these products to market, Altria and PMI will cooperate on regulatory engagement related to heated tobacco products with the FDA and e-vapor products with international regulatory authorities. The companies have also agreed to share improvements to the existing generation of products.

"We believe this could have a significant positive financial impact, particularly for [Altria], since [its] licensing arrangement with PM allows [Altria] to participate in the global e-cig category, which we continue to anticipate will generate substantial growth and profits," said Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo Securities LLC, New York.

"Formalizing this arrangement should help accelerate both companies' reduced-risk businesses and ultimately help catapult growth of the reduced-risk/e-cig category globally. In our mind, the opportunity is huge," she said. "Although PM will be licensing the MarkTen technology internationally, it may use the MarkTen brand name and/or it could choose to brand this technology as something else, including an existing brand such as Marlboro."

Richmond, Va.-based Altria directly or indirectly owns 100% of each of PM USA, U.S. Smokeless Tobacco Co. LLC (USSTC), John Middleton Co. (Middleton), Nu Mark LLC (Nu Mark), Ste. Michelle Wine Estates Ltd. (Ste. Michelle) and PMCC. Altria holds a continuing economic and voting interest in SABMiller plc (SABMiller).

The brand portfolios of Altria's tobacco operating companies include Marlboro, Black & Mild, Copenhagen and Skoal, as well as MarkTen e-cigarettes, in the United States. Ste. Michelle produces and markets wines sold under various labels, including Chateau Ste. Michelle, Columbia Crest, 14 Hands and Stag's Leap Wine Cellars, and it imports and markets Antinori, Champagne Nicolas Feuillatte and Villa Maria Estate products in the United States.