Throughout most of its history, Philip Morris International (NYSE:PM) has relied solely on traditional cigarettes and tobacco products for its revenue and profits. Yet amid worldwide examination of the health impacts of cigarette smoking, Philip Morris International responded with a game-changing strategic move toward alternatives to cigarettes.

Favorable early signs for Philip Morris' iQOS heated-tobacco platform in early test markets like Japan have led to dramatic shifts away from cigarettes toward the reduced-risk products, and the company has hoped to make the product available to American consumers by getting approval from the U.S. Food and Drug Administration (FDA) as a modified-risk tobacco product. That would not only open up a lucrative market in the U.S. through Philip Morris' agreement with Altria (NYSE:MO), but also be a useful bargaining chip in the company's future discussions with other regulators across the globe.

However, those efforts just got dealt what could be a crushing blow. An advisory panel at the FDA reviewed the information that Philip Morris had submitted. In its decision earlier this week, that panel remained skeptical about the tobacco giant's claims that iQOS leads to lower chances of diseases connected to tobacco use.

iQOS product packaging, featuring box, heated-tobacco units, and plugs and other accessories.

Image source: Philip Morris International.

What Philip Morris hoped to prove

Philip Morris has argued all along that the iQOS heated-tobacco system offered advantages to users over traditional cigarettes. By heating the tobacco to form a vapor rather than burning it, the company has said that iQOS offers a roughly 95% reduction in the amount of toxic chemicals that are present in cigarette smoke. By reducing the amount of toxins introduced to the body, iQOS could, in turn, cut the chances of users getting smoking-related diseases from the product.

In Japan, Philip Morris has already seen the potential of offering iQOS as an alternative to its traditional cigarette lines. The company said that if just 15% of Americans who smoke on a daily basis switch to iQOS, that would work out to about 6 million people making the shift over the next seven to 10 years. Company officials have put estimates on the number of lives that could have been saved by switching from regular cigarettes to iQOS, with one figure suggesting that 90,000 people might not have died over a 20-year period if they'd had iQOS as an option.

How the FDA panel responded

Unfortunately for Philip Morris, the advisory panel wasn't convinced by the company's arguments. The panel voted 8-0 in support of the assertion that Philip Morris hadn't proven that switching to iQOS cuts the risk of users contracting diseases related to tobacco use. By a narrower 5-4 vote, the panel also found that Philip Morris hadn't demonstrated a tangible reduction in harm compared to cigarette smoking.

The session wasn't a complete loss for Philip Morris. The FDA panel agreed with the company's findings that exposure to harmful chemicals was lower with iQOS than with traditional cigarettes by an 8-1 vote. Nevertheless, FDA panel members suggested that Philip Morris needed to produce more empirical evidence in support of its assertions in order to convince the broader scientific community.

What's next for iQOS?

Philip Morris remains optimistic about iQOS' chances for eventual adoption. For one thing, the FDA isn't bound by the recommendations of its advisory panel, and if the full regulatory body considers the Philip Morris application, it can come to a completely different decision. The tobacco giant also believes that it can come back to the panel with answers to the issues that panel members raised in an effort to resolve open issues and provide convincing scientific evidence in support of iQOS.

Nevertheless, shareholders are worried about the potential implications of a negative decision from U.S. regulators, and Philip Morris stock suffered a quick and substantial decline Thursday afternoon, before bouncing back on Friday, after the panel announced its decision. With so much on the line for Philip Morris' future, investors will have to watch the FDA closely to see what future developments say about the prospects for iQOS in the U.S. market.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.