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Philip Morris has insisted that acquiring Vectura is part of its strategy to move away from tobacco products and become a 'health care and wellness' business.Denis Balibouse/Reuters

A British company that makes inhalers to treat asthma and chronic lung disease has been caught up in a controversial takeover battle featuring an unlikely suitor: tobacco giant Philip Morris International.

Philip Morris has made a £1.02-billion ($1.77-billion) cash offer for Vectura Group Plc, which licenses a range of medical inhalers to pharmaceutical companies, including GlaxoSmithKline Plc, Novartis International AG and Bayer AG. The company, based near Bristol, has also been developing a drug to treat COVID-19.

The cigarette maker is in a bidding war for Vectura with U.S.-based private equity firm the Carlyle Group. Carlyle made its latest offer last week – 155 pence per share – valuing the company at £958-million. Philip Morris countered on Sunday with 165 pence.

The back and forth had become so fraught that Britain’s Panel on Takeovers and Mergers took the rare step this week of ordering an auction for the company in order to provide “an orderly framework” for the bidding. The five-day auction was to begin Wednesday, but late Tuesday Carlyle said it would not increase its offer.

It’s now up to Vectura’s shareholders to decide which bid to accept. But a public backlash against Philip Morris has been building, and there are calls for the British government to prevent the company from acquiring Vectura, which has 510 employees, including roughly 200 research scientists.

Several health organizations in Britain and the United States – including Cancer Research U.K., the British Lung Foundation and the American Lung Association – have asked Business Secretary Kwasi Kwarteng to block Philip Morris’s bid. The groups argue that it would be unethical for a tobacco company to profit from treating lung diseases that its products helped cause.

“It’s ironic that a tobacco company wants to invest in the lung health industry when their products are the biggest preventable cause of cancer, including lung cancer,” said Michelle Mitchell, Cancer Research U.K.’s chief executive. “If PMI really wanted to help, they could stop aggressively promoting and selling their products altogether.”

Philip Morris to stop selling Marlboro cigarettes in Britain within a decade, chief executive says

The European Respiratory Society, which represents scientists and health professionals in 160 countries, warned that if Philip Morris’s takeover bid proved successful, Vectura’s scientists would no longer be able to collaborate with research universities or participate in ERS programs.

“The ERS and other medical institutions have strict rules against the involvement of individuals and companies that are linked to the tobacco industry,” the ERS said. A takeover by Philip Morris “is also likely to be financially detrimental to Vectura as health professionals will avoid prescribing drugs from any company that enriches the tobacco industry due to the ethical implications.”

Mr. Kwarteng has not commented on the takeover bids. However, he has instructed his officials to monitor the process and assess Philip Morris’s plans for Vectura.

Philip Morris has insisted that acquiring Vectura is part of its strategy to move away from tobacco products and become a “health care and wellness” business. The company has already invested heavily in vaping products – including its IQOS heated tobacco device – and earlier this year announced plans to become “a predominantly smoke-free company” by 2025.

Chief executive Jacek Olczak said recently that Vectura would be a key part of the company’s “beyond nicotine” plan, which he said aims to leverage Philip Morris’s “expertise in inhalation and aerosolization into adjacent areas – including respiratory drug delivery and self care wellness.”

Last month Philip Morris bought Danish-based Fertin Pharma, which specializes in nicotine gum, for US$820-million. It also has a stake in Canadian biotechnology firm Medicago Inc., which is developing a COVID-19 vaccine.

Mr. Olczak added that “nothing and nobody will stop us in our transformations to leave smoking behind” and said critics of the proposed deal “are against the transformation of the tobacco industry.”

Carlyle has seized on the discomfort surrounding its rival by highlighting the challenges Vectura would face if it fell into the hands of Philip Morris. In a statement Tuesday, the firm said its offer would “allow the company and its employees to continue to participate in key scientific forums and would provide the resources Vectura needs to accelerate its strategy.” It also cited concerns raised by Vectura’s directors about the “uncertainties relating to the impact on Vectura’s wider stakeholders arising as a result of the possibility of the company being owned by PMI.”

Vectura’s board has vacillated between both sides during the saga.

When Carlyle launched its takeover bid in May with a 136-pence-per-share offer, the directors endorsed it. They switched to backing Philip Morris when it offered 150 pence on July 9. “The [Philip Morris] acquisition will provide our people with the opportunity to form the backbone of an autonomous inhaled therapeutic business unit of PMI, helping develop products to improve patients’ lives and address unmet medical needs,” chairman Bruno Angelici said at the time.

The board switched back to Carlyle when it countered with a 155-pence offer on Aug. 6. Vectura CEO Will Downie said he recognized “the potential benefits to Vectura’s existing strategy and associated stakeholders from being under Carlyle ownership.” When Philip Morris bumped its offer up to 165 pence two days later, the board withdrew its support for Carlyle and pledged neutrality.

A shareholder vote could come as early as Aug. 24.

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