Billy Gifford
Chief Executive Officer at Altria Group
Thanks, Mac. Good morning, and thank you for joining us. This is an exciting moment on our journey towards moving beyond smoking. Our tobacco businesses remained resilient during the first-nine months of the year and we continue to reward shareholders, while making investments in pursuit of our vision. We have deepened our consumer understanding, enhanced our capability, and built the science to support smoker transition away from cigarettes. The tobacco harm reduction opportunity remains in front of us and we continue to believe Altria is uniquely positioned to responsibly lead adult smokers to a smoke free future. Our remarks this morning will focus on our progress to date and several exciting steps we have recently taken that we believe will accelerate our progress toward harm reduction. I will then turn it over to Sal, who will provide further detail on our business and financial results. Let's begin with the heated tobacco category.
Last week, we entered into an agreement with Philip Morris International under which we will receive $2.7 billion in cash in exchange for our signing our exclusive US commercialization rights to the IQOS system at the end of April, 2024. We believe this agreement provides us with fair compensation and greater flexibility to allocate resources toward moving beyond smoking. The heated tobacco category is still undeveloped in the US and we believe we can lead in this space supported by our robust infrastructure and deep understanding of the US tobacco consumers.
This morning, we announced the pursuit of a global smoke-free partnership with JT Group. We signed a non-binding memorandum of understanding with JT, signifying the commitment of both parties towards further smoke-free collaboration. JT, is a leading international tobacco company committed to investing and growing in reduced risk products. We believe that together, Altria and JT, can accelerate global harm reduction by collaborating on product -- on the product development and global commercialization of smoke free products. We believe this potential collaboration can leverage the strengths and resources of both companies to transition more smokers away from cigarettes.
As a first step-in this partnership, we announced the formation of Horizon Innovations. A joint-venture between Altria and JT for the US commercialization of Heated Tobacco Stick or HTS products. We believe that HTS products can appeal to certain smokers as they provide a more familiar, tactile and sensorial experience to cigarettes. Under the terms of the JV, both parties will combine their scientific and regulatory expertise to jointly prepare PMTA fallings for the latest version of the Ploom HTS products, which are not yet commercially available.
The parties expect to file a PMTA in the first-half of 2025. Upon authorization, Horizon will become the exclusive entity through which the parties market and commercialize stick products in the US. JTI will supply Ploom heated tobacco stick devices and PM USA will manufacture mobile HTS consumables for US commercialization. The parties have agreed to commercialization milestones for Horizon, which include distribution requirements and minimal levels of cumulative marketing investment. Under the financial terms of the JV, PM USA has a 75% economic interest in Horizon with JTI having 25%.
We're excited about the prospect of introducing the latest version of Ploom HTS products to US smokers. JT has demonstrated success innovating in the heated tobacco space. For example, JT launched Ploom X last year in Japan. And since its introduction, JT's doubled its share of the Japanese HTS segment. JT estimates that there are more than one million Ploom X consumers, and according to their research, these consumers perceive Ploom X as a stylish, incredible and unique brand. Consumers also described the product as easy-to-use. We look-forward to bringing the newest version of this exciting product to US smokers.
We have discussed our increased focus and investment on -- in internal wholly-owned heated tobacco product development. Our approach puts the consumer at the center of everything that we do. We're seeing more data on their preferences, purchasing patterns and friction points than we ever have.
Additionally, we embedded a regulatory scientist team early in the process to align our product development efforts with FDA expectations. We believe these efforts are building a promising pipeline of wholly-owned heated tobacco products and intellectual property, consisting of heated tobacco capsule for HTC formats and new-to-market technologies. We believe capsule products can appeal to smokers who are open to novel smoke free products, but I've not yet found a satisfying alternative to cigarettes. This audience includes the millions of US smokers who tried but ultimately rejected e-vapor products.
We expect to finalize the design of our first capsule product by the end of this year, and we expect to file a PMTA by the end of 2024. We also expect to partner with JT to launch this product in an international test market using JT's sales and distribution network. We plan to share more on this product platform once the design is finalized.
We believe moving beyond smoking in the US requires multiple FDA authorized products within each smoke free category to appeal to a diverse range of smokers and help them transition away from cigarettes. We believe that our pipeline of heated tobacco products and partnership with JT, combined with the internal capability as I described earlier, positions us well to increase adoption of smoke free products for the millions of smokers interested in these products.
Let's now move to the e-vapor category. In the third-quarter, total estimated e-vapor volumes declined by 4% versus a year-ago and were flat sequentially. We believe the regulatory uncertainty related to JUUL caused market disruptions in the quarter, and we observed a reduction in JUUL purchases throughout the supply-chain. We previously disclosed that we have exercised our option to be released from our non-compete obligations related to our JUUL investment. While we retain our 35% economic stake in JUUL, we're exploring all options to build an FDA authorized portfolio of e-vapor products that will help smokers transition away from cigarettes. For example, our teams are conducting consumer research, performing external scans and evaluating internal product development options. We're excited about the opportunity to increase our participation in the largest smoke free category in the US.
Turning to our oral tobacco. We remain encouraged by the growth of novel oral tobacco products, which grew its share of the total oral tobacco category for the 18th consecutive quarter. The category grew 6.5 share points year-over-year and now represents approximately 23% of the overall oral tobacco category. In the third-quarter, On reported shipment volume increased nearly 70% to 21 million cans. And on retail share, increased three-tenths sequentially, reaching 5.2 share points of the oral tobacco category in the third-quarter. We believe these strong results were driven by increased brand awareness and adoption of On supported by continued equity and promotional investments.
Building on its second-quarter launch of the carry-on brand equity campaign, Helix recently introduced On Rewards, a digital program that enables On consumers to track their rewards balanced online and redeem their points for coupons or other items. We're excited about On's continued momentum, increasing brand loyalty and the opportunity for future growth.
Let's now turn to our view of the regulatory environment. We continue to believe that more should be done to advance harm reduction in the US, and that the FDA should move more deliberately toward creating a market of authorized smoke free products to help accelerate smoker transition away from cigarettes. The fact remains that today only a small percentage of e-vapor volume has been authorized and no Oral Nicotine Pouch products have received market authorization. We believe collaboration and accountability from all stakeholders are required for this market transition to take place. We also believe that smoke free products should serve as an offering for smokers, not an on-ramp for youth users. We remain encouraged that youth smoking rates in the US are at the lowest levels ever recorded. In fact, the latest Monitoring the Future study estimated that in 2021, the combined past 30-day smoking rates among 8th, 10th and 12th graders was 2.3%, a nearly 92% reduction from its 1997 peak.
Additionally, data from the 2022 National Youth Tobacco Survey indicate that while e-vapor usage remains high among middle and high schoolers, the levels were significantly lower than the peak observed in 2019. Per the 2022 NYTS survey, 50% of the middle and high-school current e-vapor users indicated that they most often used disposable e-cigarettes such as Puff Bar.
Moving forward, we hope to see timely science and evidence-based determinations on pending PMTA applications across all smoke free categories. And further enforcement on noncompliant manufacturers. Our journey towards responsibly moving beyond smoking continues and we are optimistic that the actions we've taken to date have strengthened our portfolio in the three major smoke free categories. We have built a compelling portfolio in the heated tobacco, enhanced our ability to compete in e-vapor, and continue to strengthen On's position in the old tobacco category. And we believe that we are able to maximize the value of these actions by leveraging our existing scale and infrastructure, such as our manufacturing sellers and sales force.
For example, our flagship Richmond manufacturing center began production of oral nicotine pouches in 2020. We now expect to add production of Heated Tobacco Sticks for our new JV. Our sales and distribution system, driven by our world-class sales force, gives us the ability to responsibly market products in over 200,000 stores. And we have decades of experience navigating dynamic US regulatory and political environments through the strength of our regulatory and government affairs organizations. These functions, together with our many other talented employees, gives me confidence that we can achieve our vision.
Before I conclude, I'd like to thank Leo Kiely for his distinguished service to Altria's Board. Leo has served on the Board since 2011 and will retire at the completion of his term early next year. I'd also like to welcome Jase Hernandez to our Board of Directors, effective November 1. Jase brings a significant and deep understanding of the tobacco landscape following his years as an investment analyst covering the tobacco industry. Jase will serve on the finance and innovation committees.
I'll now turn it over to Sal to provide more detail on the business environment and our results.
