Phillip Morris, one of the world's largest tobacco companies, is gradually entering the thriving marijuana industry. Reports indicate that the tobacco giant is acquiring an Israeli med-tech company called Syqe Medical for an impressive sum of $650 million.
This isn't the first time Philip Morris has invested in Syqe; they previously invested $20 million in the company in 2016. Syqe Medical specializes in a pharma-tech product, a metered-dose inhaler designed for pain reduction treatment using medical marijuana.
Interestingly, this potential acquisition news coincides with Israel'sIsrael's National Insurance Institute (NII) collaborating with Syqe to fully cover medical marijuana treatments involving their metered inhaler for victims of terrorism or criminal violence. While the specific details of the deal have not been disclosed officially, reports suggest that it includes various milestones.
Why did Big Tobacco just buy a scientific medical marijuana inhaler company? Cigarettes sales are declining year over year and Big Tobacco is on a push for "Beyond Nicotine" products that can help them boost revenue and sales. Cannabis, while still federally illegal in the US, is becoming a big seller wordwide as markets open up. Phillip Morris can see the writing on the wall 10 years from now and is investing in the technology and patents that come with measured-dose inhalers. This is a 20 year play to dominate a very nacent market that could be worth billions in the long run.
The Biggest Acquisitions in Isreal's Medical Technologies Sector.
Phillip Morris is planning a strategic investment of $130 million to support Syqe in obtaining FDA approval for its inhaler. Should Syqe successfully secure FDA approval and subsequent positive outcomes in clinical trials, the tobacco giant intends to acquire all of Syqe's shares for $650 million.
The transaction is set to be carried out through Phillip Morris’' subsidiary, Vectura, a UK-based company specializing in inhaler products for medication delivery. The expertise of Vectura is expected to play a crucial role in obtaining the FDA's approval, making Syqe the first-ever company to gain FDA approval for utilizing raw cannabis inflorescence as a medical treatment.
According to reports, this potential acquisition could mark one of the most significant deals in recent years in Israel'sIsrael's medical technologies sector.
Suppose Syqe is sold for approximately $650 million. In that case, it will join the ranks of the top ten largest cannabis companies, such as Tilray Brands Inc, which currently boasts a market capitalization of $1.1 billion, and Aurora Cannabis, with a market cap of CA$250 million ($190 million). This impressive sum of $650 million would significantly surpass the total investments made in Syqe up to this point, which amount to only $80 million.
The forthcoming exit holds significant importance for all of Syqe's investors. The company's founder and CEO, Perry Davidson, possesses a substantial stake of over 10%. Other notable investors include OurCrowd, former Retalix founders Barry Shaked and Brian Cooper, GlenRock, Leon Recanati's investment firm, Shavit Capital, and Bank Discount.
Established in 2011 by Perry Davidson, who continues to serve as the CEO, Syqe has amassed around 120 patents through more than eight years of development. The key innovation of Syqe's inhaler lies in its utilization of raw inflorescence from the cannabis plant rather than processed products and its ability to deliver a precise and measured dose intended for each patient.
Currently, more than 80% of medical cannabis consumers rely on smoking and vaping products, which may lead to potential overdoses. Syqe's inhaler offers relief without causing psychoactive effects from excessive dosing.
Syqe's Inhaler Market Share and Potential
Currently, Syqe's inhaler is accessible in relatively small markets, namely Israel and Australia. The Israeli market, estimated at approximately 100 million shekels (around $27.5 million) annually, caters to about 50,000 medical cannabis patients.
Despite its limited presence in these smaller markets, Syqe's inhaler offers a distinct advantage over the prevailing trend. With over 80% of medical cannabis consumers relying on smoking and vaping products, which may lead to potential overdoses, Syqe's inhaler provides a safer alternative that delivers relief without inducing psychoactive effects from excessive dosing.
Syqe's primary focus lies beyond Israel, with its pivotal goal being the FDA approval process in the United States. This milestone is of utmost importance for the company, and Philip Morris' expertise channeled through Vectura will play a vital role in attaining this approval. Should they succeed, Syqe will make history as the first company worldwide to obtain FDA approval for utilizing raw cannabis inflorescence as a medicine.
Philip Morris, renowned for its Marlboro brand, stands as one of the largest cigarette manufacturers on a global scale, boasting a staggering valuation of $154 billion on Wall Street. In response to the declining popularity of traditional cigarettes, the company aims to reinvent itself, with over a third of its revenue now stemming from smokeless products, including the iQOS electronic cigarette.
Philip Morris launched a "beyond nicotine" strategy a few years ago, broadening its product range to include botanicals like chamomile and fennel and sleep and relaxation aids. Despite recent market shifts, the cannabis business remains a potential growth engine for tobacco corporations.
According to Philip Morris, the medical cannabis business is worth $24 billion and is expected to expand at a 15% yearly rate through 2030. Furthermore, the wellness sector, which includes cannabis-based sedatives and sleep aids, is estimated to be worth an additional $4 billion, with an expected growth rate of 8%. Syqe, on the other hand, declined to comment on the situation.
As the landscape evolves, Philip Morris and Syqe are at the forefront of an evolving market, capitalizing on innovations and shifting consumer preferences.
Conclusion
The potential acquisition of Syqe Medical by Phillip Morris represents a significant strategic move for the tobacco giant, signaling its entry into the flourishing marijuana industry. With an initial investment of $130 million to support Syqe's FDA approval process, followed by a possible $650 million acquisition, this deal can potentially make Syqe one of the largest cannabis companies globally. Moreover, Syqe's innovative inhaler, utilizing raw cannabis inflorescence, could secure FDA approval, positioning the company as a trailblazer in the medical cannabis sector.
For Syqe's investors, including founder and CEO Perry Davidson, this exit holds immense significance, promising substantial returns on their investments. Additionally, Philip Morris' "beyond nicotine" strategy underscores its efforts to adapt to changing market dynamics as it seeks new growth avenues beyond traditional cigarettes.
While Syqe's inhaler operates in relatively small markets like Israel and Australia, its ambition to obtain FDA approval in the United States positions it for exponential growth and international recognition. With such exciting developments in play, the partnership between Philip Morris and Syqe could reshape the cannabis industry and set new standards for medical cannabis treatments worldwide.
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