Disrupting its own model

In the business world, innovation is categorised under a framework known as the three horizons. Each horizon describes the type and risk level of innovation, beginning with incremental improvements on something (H1) to bold, transformative innovation (H3) that disrupts entire industries. Philip Morris International (PMI) has made no secret of its ambition to reach H3 innovation and be a disruptive force to themselves and the tobacco industry.

This journey began some years ago. Profits were invested heavily in human capital, research facilities and emerging technologies. The purpose was (and is) to phase out traditional cigarettes and replace them with less harmful, innovative alternative tobacco and/or nicotine products for adult smokers who would otherwise continue to smoke.

Along the way, PMI’s scientists, product engineers and startup experts began exploring new technologies and applications. In 2021, the company filed 410 applications with the European Patent Office for research related to its alternative smoke-free products but also for novel technologies and science, unrelated to tobacco.

Respiratory technologies and in-vitro test models

Assessing and scientifically substantiating novel products like electronically heated tobacco systems and e-cigarettes meant developing new methods and solutions, such as new respiratory models, or improving and refining existing solutions, such as organ-on-chip technologies.

The developed inhalation and respiratory models allow for a more comprehensive and improved simulation of the respiratory tract and aerosol dynamics, enabling more reliable readouts on how substances may or may not affect the respiratory tract. The models and the years of development and testing by the research team in Neuchâtel in Switzerland, can be leveraged, among others, by companies seeking ways to test biopharmaceuticals via the respiratory tract.

The Vitro Fluid, a multi-organ chip platform that simulates multiple organs of a human body is another technology PMI wants to leverage in adjacent areas. The new, in vitro chip better mimics the complexities of the human body and results in more accurate safety and efficacy testing. This is a technology that could also be used to test various drug candidates.

Based on knowledge in these research areas, especially the company's understanding of inhalable delivery, respiratory drug delivery poses one of the promising avenues to explore. However, PMI does not plan to become a pharma company.

“We want to stay at the center of our clinical and delivery capabilities and then partner, outsource and orchestrate an ecosystem that has the skills that we don’t have”, André Calantzopoulos, former CEO and Executive Chairman of the Philip Morris board, told investors at a recent shareholder event.

External investments boost innovation

Like many companies focused on horizon three innovation, PMI is also looking beyond its own walls for ideas and adjacent growth areas. Whether it’s partnering with the MassChallenge Switzerland Startup Program or building a dedicated corporate venture fund - PM Equity Partner - responsible for scouting external technologies and innovations, PMI is not leaving anything to chance.

Alexander Stoeckel, Head of PM Equity Partner, joined PMI in 2019 to accelerate PMIs startup-related initiatives. He believes having a multi-layered and diversified approach to innovation can increase the chance of success.

“We focus on four innovation areas: life sciences, consumer engagement technologies, product development and industrial technologies. Our mission is to find new ideas that can complement what we do at PMI now, but also help us transform for the future,” said Mr Stoeckel.

PMI has, for instance, invested into BOW Group, a fast growing company specialising in consumer accessories and wearables. Stoeckel says that BOW group’s expertise in designing, manufacturing and selling elegant accessories and wearables is something that PMI can learn to do better, and that the company is therefore interested in working with BOW’s team.

“Beyond tobacco, we’re looking at other product ideas where we can leverage our expertise e.g. in botanicals. PMI’s transformation is fundamental and allows us to really think out of the box and explore a diversity of innovations and new concepts.”

A smoke-free company

These examples are the beginning phases of an organisation shifting to a majority smoke-free multi-national, and beyond. Expertise in life science, inhalation technology, natural ingredients, supply chain management and consumer behaviour is opening up diverse growth areas, unlocking potential substantial revenues too.

“We want to make sure we build on the capacity that we’ve been putting together in botanicals and respiratory drug delivery. By leveraging partnerships, creating new business models and tapping into our large customer base, we believe that it is reasonable to target at least US $1 billion in net revenue by 2025 from our Beyond Nicotine ambition,” said Mr Calantzopoulos.

The end of nicotine

Whilst the corporate structure for how the new applications in life science and technology will work is yet to be determined, it’s not stopping the company from creating new value, commercialising ideas and pushing the innovation boundaries from H1 to H3. How far will the transformation go at PMI? Time will tell.