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Philip Morris: Tobacco Saves Life [1053]

To strengthen its mission, the company has invested heavily for a 40% stake in the Canadian biotech company Medicago Inc., helping the latter to develop influenza vaccines. Incidentally and interestingly, the vaccine for flu is being developed using tobacco leaves.

Philip Morris’ relation with Medicago dates back to 2007, through a small research contract of $500,000. In November 2008, the tobacco major invested $15 million in Medicago and in April last year, Philip Morris bought more than $9 million worth of shares in Medicago, which gave it 9.86% of Medicago's issued and outstanding shares.

After that, Philip Morris increased its stake in the company in phases. Finally in October, 2011, it entered into a subscription agreement with Medicago to complete a private placement of $22.5 million through the issuance of an aggregate of 34,550,000 common shares at a price of 65 cents per common share in two tranches.

Before the first tranche, Philip Morris held 30.2% of the outstanding common shares of Medicago. The first tranche gave Philip Morris control over 35.5% of the common shares, and following the second tranche the percentage of common shares held by the retail giant went up to 40%.

Proceeds from the private placement were used for clinical development, manufacture of the plant-based VLP vaccines, general corporate and working capital purposes.

Medicago started functioning in 1999, and it was trying to develop vaccines for flu from the herb Alfalfa. However, since it was taking a long time to develop products from Alfalfa, Medicago decided to shift its focus to tobacco.

As per Medicago, it expects to bring the vaccine to the market and get it licensed by 2014.

Philip Morris has always been keen on using product innovation through research and development to make tobacco smoking more user-friendly and reduce the harmful effects of puffing. In May 2011, it bought the patent and global rights to an aerosol nicotine-delivery system developed by Jed Rose, director of Duke’s Center for Nicotine and Smoking Cessation Research. The new technology delivers nicotine to users' lungs but doesn't involve smoking.

This technology will help the smokers to get the nicotine straight from the cigarette without generating the accompanied smoke and the toxic substances. This endeavor resonates the company’s effort to reduce death and diseases associated with smoking.

Philip Morris currently holds a Zacks #2 Rank, which implies a short-term Buy rating. On a long-term basis, we have a Neutral recommendation on the stock.

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