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Philip Morris scours China start-ups for technology to replicate IQOS system in medical field

Georgina Lee georgina.lee@scmp.com

Philip Morris, the maker of Marlboro cigarettes and the IQOS tobacco heating system, is scouring China's start-up scene for inhalation technology that can be developed for the medical field as the tobacco giant seeks new paths outside its traditional consumer products business.

The effort is spearheaded by PM Equity Partner, a US$150 million Swiss-based venture fund seeded by its parent, with a focus on building stakes in healthier environmental, human and fast-moving consumer goods.

Philip Morris has said its long-term plan is to stop selling cigarettes eventually by converting its customers to the IQOS system.

Such investments could be the springboard into "new industries" related to the tobacco giant's traditional business, according to investment manager Jason Gao.

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That would follow in the step of IQOS, which uses electronic heating to induce nicotine vapour for inhalation, without burning the tobacco.

"IQOS shares the same inhalation technology as those currently deployed in medical delivery system," Gao said in an interview in Hong Kong.

"We have already made one of our most successful investments in a Middle East inhalation tech start-up that focuses on delivering botanical matter into the human body through the lungs."

The push into new industries underscores the challenges in its traditional business amid tightening regulations and anti-smoking drives by governments.

Cigarette-free alternatives have had varied success and their fair share of bad press globally over health concerns.

Gao said PM Equity Partner has spent US$100 million in 10 companies globally outside Asia. That portfolio includes Biovotion, Bow Group, Softhale and Biognosys, according to its website.

Inhalation technology, which is considered a fast, effective and non-invasive way of delivering medication to the lungs, has already been used in treating ailments such as asthma. The Middle East venture, he said, has the potential to be the "anchor asset" for the group's move into a new industry.

The start-up has also completed a prototype of a product that could be potentially used in the pharmaceutical sector, while a joint effort between Philip Morris and the start-up is also working to develop a new generation of tobacco products, he said.

"The botanical form of medicine could be interesting," he said. "Delivering botanical matter into the human body is a very Asian practice, which today has not yet been well explored in western research."

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IQOS is sold only in four Asian markets, namely Japan, South Korea, New Zealand and Malaysia. The product is banned in Singapore, while Hong Kong is seeking to apply a blanket ban on e-cigarettes and heated tobacco products. IQOS was introduced in the US last quarter, the only heat-not-burn system approved by authorities there.

Gao said Philip Morris is currently not looking at expanding into the medical sector, and that consumer products are still its core business.

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This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.