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Philip Morris enters a bidding war for Vectura while British American Tobacco continues to develop Covid vaccine
Thursday 15 Jul 2021 Author: Martin Gamble

Just one day before putting a takeover offer from private equity firm Carlyle to a shareholder vote, inhalation specialist Vectura (VEC) received a higher all-cash offer from tobacco company Philip Morris, which the board has recommended shareholders accept.

The shares closed higher than the new 150p offer on 9 July at 154.6p, suggesting the tobacco giant hasn’t secured the prize just yet. Indeed, Carlyle urged Vectura’s shareholders to do nothing while it considered its options, implying it could come back with a higher offer.

At first glance, it might sound a little counter-intuitive for a tobacco company to want to own an inhalation specialist, given that its core  products can cause lung problems. However, Philip Morris is on a mission to clean up its act and has promised to disrupt its own traditional cigarette business by implementing the biggest transformation in its history.

Philip Morris has committed substantial financial and human resources to developing and commercialising innovative technologies to improve lives and phase out cigarettes altogether, spending over $8 billion since 2008.

The company wants to generate more than half of its revenues from smoke-free products by 2025, up from a quarter in 2020. In addition, the firm aims to generate over $1 billion in net revenues from products outside tobacco and nicotine in a bid to become a health and wellness company.

The logic of the proposed deal is that combining Vectura’s expertise in inhalation and respiratory drug delivery with Philip Morris’ in-house scientific expertise and clinical manufacturing will create the backbone of an inhaled therapeutics business.

The pounce on Vectura follows an $820 million deal on 1 July to buy Fertin Pharma, a leader in the oral delivery of selfcare wellness products.

Philip Morris isn’t the only tobacco company pivoting into the healthcare and wellness space. FTSE 100 listed British American Tobacco (BATS) has been working on a Covid-19 vaccine through its US biotech business KBC.

British American Tobacco is exploring partnerships with government agencies to bring its vaccine candidate into clinical studies. What’s interesting about the potential vaccine is that it is based on the company’s tobacco technology.

The vaccine is inserted into tobacco plants specifically cultivated for the purpose and transformed into ‘biomanufacturing factories’ that efficiently produce the required protein.

KBC says it can grow, harvest and process as many as 3 million protein-producing tobacco plants in a six-week cycle, a big advantage compared with the many months required for traditional biomanufacturing methods.

Historically some fund managers have steered clear of tobacco because of its perceived harm, so it will be interesting to see if that changes as tobacco firms push towards health and wellness.

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