PMI should forget wellness and focus on smokers who want to quit

In the summer of 2021, public health experts, policymakers and some UK columnists worked themselves into a frenzy over a takeover battle. 

Philip Morris International, the maker of Marlboro cigarettes, triumphed in tit-for-tat bidding against private equity group Carlyle to buy Vectura, a UK-listed maker of inhaled medicines, including treatments for smoking-related illnesses.

PMI is at the forefront of the tobacco sector’s efforts to shift away from cigarettes, pledging to phase out combustibles and make a majority of net revenues in smoke-free businesses by 2025. On the one hand, why shouldn’t the company, which last month said it was charting a path to become an ESG stock, be able to transform by moving away from a product that is the leading cause of preventable death globally?

On the other, some (yours truly) argued that the furious reaction from scientists and health professionals to the £1.1bn deal suggested — to quote one letter to the board — that it “could significantly hamper Vectura as a viable, research-orientated business”. This wasn’t ethics so much as a practical consideration that could negatively impact staff, customers and potential patients and that the board should weigh up alongside price.

Thus it has proved so far. PMI chief executive Jacek Olczak told the Financial Times that Vectura’s sales had suffered because of the reluctance of pharmaceutical partners to work with the company. Its key target in moving “beyond nicotine”, to generate $1bn in revenues from its wellness and healthcare division by 2025, is “questionable”, he admitted. 

Vectura’s figures aren’t disclosed. But the two largest businesses in PMI’s wellness unit, Vectura and Fertin Pharma, both purchased in 2021, had combined revenues of about $400mn in 2020. The division produced $271mn last year.

The board’s justification for its recommendation — that “wider stakeholders” would benefit — still looks questionable too. The reality is, corporate purpose and values be damned, they just took a slightly higher offer. 

When acquired, in fairness, Vectura was reshaping its business to become a contract development and manufacturing organisation, using its expertise on behalf of other pharma companies. That was something PMI said it wanted to continue — and should be showing growth by now, according to analyst estimates at the time. 

But PMI was also clear that it wanted to develop new products, like inhaled painkillers. Vectura, which is run separately, has been investing in R&D, plans a new “inhalation centre of excellence” in Bristol, and hired a new boss from Novartis when its chief executive and finance director left last year.

This remains minuscule in its overall bid to change. Just as oil and gas companies are pushing into renewables and biofuels (not wildfire or flood mitigation), the group is trying to reinvent itself with less harmful alternatives to cigarettes, like vapes, heated tobacco sticks, and its $15.7bn purchase of nicotine pouch maker Swedish Match last year. It is increasingly starving the combustibles business of spending. Its smoke-free revenues have gone from basically zilch in 2015 to a third of the total. (Wellness is a rounding error at less than 1 per cent). It supports tougher public policy to stop smoking. 

For a company that seems to like picking fights, PMI is on stronger ground when arguing that regulation and bans in some markets on reduced-risk alternatives, motivated in part by suspicion of the tobacco sector, are prolonging cigarette smoking. 

Olczak last month pointed to the success of countries like Japan and Sweden in switching smokers from cigarettes to alternatives. Reduced- harm options are controversial but present fewer health risks. A systematic review of the evidence has found that vapes are more effective at helping smokers quit than nicotine patches or gum, something that has informed UK government policy (while rightly cracking down on their use by children). The tobacco sector, or at least parts of it, can justifiably claim expertise in developing products that smokers will actually use and getting them to try them.

That is the debate that needs winning in PMI’s overhaul, rather than rebirth as a wellness group. The group this year sold its stake in vaccines maker Medicago amid suggestions that its involvement was holding back the company’s progress. The business of corporate transformation can’t be rushed.

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