British American Tobacco plans to test its new Eclipse tobacco heating device in the United States this year, allowing it to pull ahead of Philip Morris in the world's biggest vaping market.
Its shares rose 5 percent as BAT, the world's second-biggest international tobacco company by revenue, also reported better-than-expected first-half profit, helped by its recent takeover of Reynolds American.
BAT said it received a "substantial equivalence" clearance from the U.S. Food and Drug Administration for an improved version of its carbon-tipped tobacco heating product called Eclipse, a major regulatory hurdle that clears the way for a market launch.
"We are delighted to be the first tobacco company to be able to launch a THP (tobacco heating product) proposition in the United States," Chief Executive Nicandro Durante said.
He told Reuters the plan was to test Eclipse — a disposable device that looks like a cigarette but only heats, rather than burns, tobacco — in a small U.S. area by the end of 2018. The full market launch would probably then occur in 2019, he said.
The test, whose location has yet to be decided, will help the company understand how it should be priced and sold.
"It remains to be seen how popular heated tobacco will be in the U.S. but being first ... positions (BAT) well," Jefferies analyst Owen Bennett said.
Around the world, Philip Morris is currently leading the tobacco heating market with its IQOS device. The companies say these devices may be more satisfying to smokers than traditional e-cigarettes because they are made with tobacco rather than nicotine-laced liquid.
Philip Morris has also made a marketing application to the FDA for IQOS, one that if passed would allow the company to sell it with a claim of reduced risk.
BAT is not seeking a reduced risk application for Eclipse.
BAT said another application for its Glo device, filed in February, has passed into scientific review.
In addition, the company said it expects a scientific hearing regarding its Camel Snus to take place in September.
The maker of Lucky Strike and Dunhill cigarettes said it remains confident of exceeding 1 billion pounds of reported revenue from next generation products this year, as new launches should bolster growth in the back half of the year following a slowdown in some key markets such as Japan and Korea.
In the first half of the year, BAT reported sales of 11.64 billion pounds ($15.36 billion), roughly in line with analysts' average estimate according to Thomson Reuters data.
Adjusted earnings per share were 137.2 pence, ahead of expectations. Its shares were up 5.4 percent at 1036 GMT.
BAT said foreign exchange rates were a headwind of 8 percent in the first half of the year and are estimated to hurt sales by 5 to 6 percent for the full year, during which it anticipates another good year of adjusted earnings growth at constant rates of exchange.