reduced-risk products - lausanne, 26 june 2014

8/19/2019 Reduced-Risk Products - Lausanne, 26 June 2014

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Investor Day – Reduced-Risk Products

Lausanne, June 26, 2014

Bertrand BonvinSenior Vice President, Research & Development

Manuel Peitsch

Vice President, Biological Systems Research

Frederic de Wilde

Senior Vice President, Marketing & SalesNote: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harm


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Reduced-Risk Products is a Consumer Category of its Own

Fast-Moving Consumer

Goods for Adult Smokers Su

Electronics

Consumer

Electronics

Reduced-Risk Products

("RRPs")

Platform 1 Platform 2 Platform 3 Platform 4

Heated Tobacco Products Nicotine Containing Products

Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harm. The RRPs depicteddevelopment and therefore the descriptions are illustrative and do not necessarily represent the latest stages of product development


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Leadership in Reduced-Risk Products


Reduced-Risk Products ("RRPs")



RRPs

Regulation

R&D and

Scientific Substantiation

Marke

Commer


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Agenda

● R&D capabilities and assets

● RRPs portfolio● Scientific substantiation

Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harm


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Best-In-Class R&D Capability in the Industry

● PMI’s long experience in RRP

● Since the spin, PMI has significantly enhanced its R&D capabilities● Invested approximately $2 billion

● Hired over 300 scientists with deep expertise in key fields



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PMI R&D Centers and Global Partnerships Network

Technology and Scientific Network (2014)

2 R&D Centers

Major partners and service providers


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Long-Term RRPs Pipeline

● Portfolio of over 500 granted patents worldwide

● Pipeline of around 1,000 pending patent applications

● Basis for long-term RRPs pipeline to address range of adult smokepreferences



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Developing Robust Evidence to Support a Claim of Reduced Risk

● Leading RRPs science

● State-of-the-art product assessment

● Sharing and collaborating with the scientific community and regula

● 80 peer-reviewed scientific publications

● Clinical studies registered on ClinicalTrials.gov



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Platform 1: Precisely Controlled Electrically-Heated

Tobacco System

● Heater maintains tobacco temperature below combustion

● Custom designed HeatStick tobacco stick

● Aerosol delivers volume, flavor and satisfaction

Source: Baker R. R., 1975, High Temp. Sci., 7, 236-247 and PMI Research & Development


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Platform 2: Heat-Not-Burn with Combustible Cigarette Ritual

● Pressed carbon heat source

● Tobacco temperature control by design:

- Physically separated to prevent tobacco combustion

● Proprietary blend & flavor system

● Plan to start clinical studies in 2014

● Manufacturing synergies with Platform 1

● City launch in 2016

Platfo


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E-Vapor Products

● Current e-vapor product challenges:- Satisfaction

- Consistency

- Manual manufacturing

● PMI’s approach:

- Enter e-vapor product category in 2014

- Develop innovative NCP delivery technology addressing current challenges


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Platform 4: Innovative Technology

● Novel aerosolization technology:- Proprietary cartridge-battery combination

- Improved e-liquid

- Automated manufacturing

● Consistency of aerosol delivery

● Nicotine delivery profile superior to existing products

● Pilot city test in H2, 2016


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Platform 3: Effective Delivery of Nicotine Salt Aerosol

● Product development on-going

● Organic acid and nicotine contained in separate sections

● Nicotine salt is formed in a visible aerosol

● Provide nicotine delivery and satisfaction similar to combustible cig

● Initial pre-clinical testing ongoing

Platform 3


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Agenda

● R&D capabilities and assets

● RRPs portfolio

● Scientific substantiation


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● Developing robust evidence packages based on state-of-the-art scbest in class data

Post-Market Studies

& Surveillance

Consumer Perception and

Behavior Assessment

Substantiating Reduced Risk

Reduced Risk in Laboratory Mod

Reduced Exposure & Risk

Reduced Population Harm

Reduced Toxicity in Laboratory M

Reduced Formation of HPHCs

Clinical Trials

Systems Toxicology

AssessmentStandard Toxicology

Assessment

Aerosol Chemistry and

Physics

Product Design and

Control Principles

Note: HPHCs stands for Harmful or Potentially Harmful Constituents


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Physics

Standard Toxicology

Assessment

Clinical Trials

Systems Toxicology

Assessment


Behavior Assessment

Post-Market Studies

& Surveillance

Reduced Risk in Laboratory Models



Reduced Toxicity in Laboratory Models

Reduced Formation of HPHCsProduct Design and

Control Principles


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Product Design and

Control Principles


Physics

Standard Toxicology

Assessment

Clinical Trials

Systems Toxicology

Assessment


Behavior Assessment

Post-Market Studies

& Surveillance







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Product Design and

Control Principles


Physics

Standard Toxicology

Assessment

Clinical Trials

Systems Toxicology

Assessment


Behavior Assessment

Post-Market Studies

& Surveillance







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Product Design and

Control Principles


Physics

Standard Toxicology

Assessment

Clinical Trials

Systems Toxicology

Assessment


Behavior Assessment

Post-Market Studies

& Surveillance







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Product Design and

Control Principles


Physics

Standard Toxicology

Assessment

Clinical Trials

Systems Toxicology

Assessment


Behavior Assessment

Post-Market Studies

& Surveillance







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Product Design and

Control Principles


Physics

Standard Toxicology

Assessment

Clinical Trials

Systems Toxicology

Assessment


Behavior Assessment

Post-Market Studies

& Surveillance







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Cessation: The "Gold Standard"

● We apply the US Institute of Medicine’s "gold standard" for assess

reduction: comparability to cessation

Time

D i s e a s e R i s k

Point of Intervention

FromEpidemiology

Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harm. The descriptions in purposes onlySource: IOM (Institute of Medicine), 2012, Scientific Standards for Studies on Modified Risk Tobacco Products. Washington, DC: The National Academies Press


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Manuel Peitsch

Vice President, Biological Systems Research



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Evidence Package

Product Design and

Control Principles


Physics

Standard Toxicology

Assessment

Clinical Trials

Systems Toxicology

Assessment


Behavior Assessment

Post-Market Studies

& Surveillance







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010

20

30

40

50

60

70

8090

100

Aerosol Composition(a): Relative Amounts Reported on a Nicotine Basis Compared to a3R4F Reference Cigarette (%) La

Co

La

Platform 1 Platform 2

Combustible Reference Cigarette

(a) Aerosol collection with Intense Health Canada’s Smoking Regime (55 mL puff volume, 2 second puff duration, 30 second interval puff )(b) < LOQ in Platform 1(c) < LOQ in Platform 1 and Platform 2(d) < LOQ in PlatformNote: These data alone do not represent a claim of reduced exposure or reduced risk. LOQ refers to the Limit of QuantificationSource: PMI Research and Development

Reduction of HPHCs in Platform 1 and Platform 2 Aerosols


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Evidence Package

Product Design and

Control Principles


Physics

Standard Toxicology

Assessment

Clinical Trials

Systems Toxicology

Assessment


Behavior Assessment

Post-Market Studies

& Surveillance







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Source: PMI Research and Development

Systems Toxicology-Based Risk Assessment

● Integrated large scale molecular measurements with advanced comodels of disease mechanisms

● Ability to quantify the perturbation of the core mechanisms leading

Cigarette Smoke

InflammationCell

ProliferationCell Stress ApoptosisDNA Damage Necropto Autophagy

Biological Networks

Month 1 2 3 5Start

Compare Heat-not-Burn Platforms with Continued Smoking and


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Note: CC is a 3R4F reference combustible cigarette


p g

Cessation in Mouse Model: Impact on Disease Mechanisms

Platform 2 Prototype

CC

Platform 2 PrototypeCC

Air CC

Air

Combustible Cigarette

Cessation

Switching

Platform 2 Prototype

Reference: Air

Month 2Start

Group Exposure



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p g


Platform 2 Use

1

Time (months)

2 3 5

Note: These data alone do not represent a claim of reduced exposure or reduced risk. Prototype of Platform 2


Combustible CigaretteCessation

Combustible Cigarette Use



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p g


Platform 2 Use

1

Time (months)

2 3 5

Note: These data alone do not represent a claim of reduced exposure or reduced risk. Prototype of Platform 2




Combustible CigarettePlatform 2 Prototype (Switching)



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Note: These data alone do not represent a claim of reducedexposure or reduced risk. Prototype of Platform 2


p g




Combustible CigarettePlatform 2 Prototype (Switching)

Platform 2 Prototype Use

1

Time (months)

2 3 5



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0

10

20

30

CC Cess. Switch. Air P2

Cell Changes:Inflammation

Total Cells(x105)

0

1

2

3

4

CC Cess. Switch. Air P2

EmphysemaIndex

CC Cess.

Physiological CLung F

Relative Loss of Lung Function

Tissue Changes:Lung Emphysema

After 7 months After 7 months

Note: These data alone do not represent a claim of reduced exposure or reduced risk. Cess. is Cessation, Switch. is Switching and P2 is Platform 2 (Prototype)



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Evidence Package

Product Design and

Control Principles


Physics

Standard Toxicology

Assessment

Clinical Trials

Systems Toxicology

Assessment


Behavior Assessment

Post-Market Studies

& Surveillance







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PMI’s Approach to Clinical Assessment

Clinical Assessment

Reduced ExposurePharmacokinetics /

PharmacodynamicsExposure

Measures:

Nicotine Uptake

Subjective Effects

Measures:

Biomarkers of Exposure

Clinical Risk Endpoints

Meas

Clinical Ris

Produ

1 2

1 week in a clinic1 week in a clinic

3 months at home6-12 mont

Platform 1 Clinical Assessment: Pharmacokinetic


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Preliminary Results

Platform 1

Combustible

Cigarette

0

2

4

6

8

10

12

14

16

18

0 10 20 30 40 50 60 70 80 90 100

N i c

o t i n e ( n g / m L )

Time (min)

Nicotine Pharmacokinetic Profile

Note: These data alone do not represent a claim of reduced exposure or reduced risk

Source: PMI Research & Development

Platform 1 Clinical Assessment: Reduced Exposure


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Preliminary Results

3-HPMA levelsGeometric Mean 3-HPMA (ng/mg creat, [95%CI)

MHBMA lGeometric Mean MHBMA (p

Acro lein 1,3-Butad

COHb levelsGeometric Mean (%; [95%CI])

Carbon Monoxide

S-PMA leGeometric Mean S-PMA (p

Benzen

M o n o h y d r o x y b u t e n y l m

e r c a p t u r i c

a c i d ( p g / m g c r e a t )

0

500

1000

1500

2000

2500

3000

3500

4000

Baseline Day 1 Day 2 D0

1

2

3

4

5

6

Baseline Day 1 Day 2 Day 3 Day 4 Day 5

0

200

400

600

800

1000

1200

Baseline Day 1 Day 2 Day 3 Day 4 Day 5

0

500

1000

1500

2000

2500

3000

3500

Baseline Day 1 Day 2 Da

C a r b o x y

h e m o g l o b i n ( % )

S - p h e n y l m e r c a p t u r i c a c i d

( p g

/ m g c r e a t )

3 - h y d r o x y p r o p y l m e r c a p

t u r i c a c i d

( n g / m g c r e a t )

Switched to

Platform 1

Continued smoking

Quit during study

Note: These data alone do not represent a claim of reduced exposure or reduced risk


Platform 1 Clinical Assessment: Reduced Exposure: Ambulatory

d E R St d


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● 160 adult smokers

● Confined & Ambulatory

● Exposure to harmful and potentially harmful

constituents, product use

● Multiple countries and ethnicities

and Exposure Response Study

● Primary endpoints: 5 biomarkers of exposure

● Secondary endpoints: additional biomarkers

of exposure and clinical risk endpoints

Reduced Exposure Studies

(3-month Ambulatory)

● Primary endpoints: 8 clinical r

● Secondary endpoints: additio

of exposure and clinical risk e

● 950 adult smokers

● Ambulatory

● Changes in clinical risk endpo

health markers and blood che

use

● Multiple ethnicities

Exposure Response S


E id P k


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Evidence Package

Product Design and

Control Principles


Physics

Standard Toxicology

Assessment

Clinical Trials

Systems Toxicology

Assessment


Behavior Assessment

Post-Market Studies

& Surveillance






C P ti d B h i A t


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Consumer Perception and Behavior Assessment

● Based on FDA guidance

● Designed to assess consumer perception and understanding of RR

● Assess label, labeling and marketing material● Assess intent to use among adult consumer groups

● Progressing according to plan


PMI’s Post Market Assessment


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PMI’s Post-Market Assessment

● Surveys and surveillance to:- Understand how product is used

- Monitor spontaneous health events (safety surveillance)

● Under development; to be initiated as of pilot market launch

Evidence Package


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Evidence Package

Product Design andControl Principles

Aerosol Chemistry andPhysics

Standard Toxicology Assessment

Clinical Trials

Systems Toxicology Assessment

Consumer Perception andBehavior Assessment

Post-Market Studies& Surveillance






Reduced Risk Products: R&D


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Reduced-Risk Products: R&D

R&D and Scientific Substantiation

• Ready for RRPs era

• Strong product portfolio and innovation pipeline

• Industry-leading risk assessment capabilitiesRRPs

RegulationMa

Comm


Reduced Risk Products: Regulation


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Reduced-Risk Products: Regulation

Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harm. The RRPs depicted

development and therefore the descriptions are illustrative and do not necessarily represent the latest stages of product development

RRPs

Regulation

R&D and


Marke

Commer






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● Advocating rigorous regulatory standards, which can provide:- Assurance to regulators and the public

- Confidence for consumers- Clarity for the marketplace

● Momentum for evidence based RRPs regulation


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Reduced-Risk Products: R&D


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Reduced Risk Products: R&D

RRPs Regulation

• Uncharted territory

• Can provide assurance toregulators, public andconsumers

• Clarity for marketplace

• PMI well-positioned

R&D and ScientificSubstantiation MarkeComme



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Frederic de Wilde

Senior Vice President, Marketing & Sales


Reduced-Risk Products: Commercialization


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Reduced Risk Products: Commercialization


RRPs

Regulation

R&D and


Marke

Commer




Commercialization of RRPs


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C

● Evolution of E-Vapor Product market

● PMI’s RRPs portfolio

● PMI’s Platform 1 commercialization● PMI’s Platform 4 commercialization


Evolution of E-Vapor Products Market


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p

● Changing the dynamics of the industry

● Classified as medicinal or prohibited product in more than half of O

markets● Growth driven by adult smokers’ desire for Reduced-Risk Products

by:

- Lower price particularly for e-liquid products

- Convenience, less smell, no ash


Evolution of E-Vapor Products Market


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p

● Some markets dominated by e-liquid products – rechargeable "tannicotine containing liquids – whilst in others "cartomizer" products

● Wide range of penetration levels in various markets● High interest but potential of the category currently limited by:

- Lack of taste and sensory satisfaction

"Cartomizer" Products "Tank" Systems / E-li

Maturity Levels of E-Vapor Markets


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y p

● Mature markets:- UK (7.8% adult smokers used an e-vapor in the past 7 days), Poland (4.9%)

● Developing markets:- France (11.9%), Spain (2.0%), Denmark (7.6%), Netherlands (3.8%)

● Low penetration markets:

- Germany (0.4%), Austria (1.2%)

Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harmSource: PMI RRP Market Research (% of adult smokers using e-vapor products in the past 7 days)

Italy: Adoption of E-Vapor Products


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5

15

3

0

16

79

96

70

100

13

39

10

40(

e

(% of adult smokers)

(

Oct Nov Dec Jan Feb Mar Apr May Jun Sept Oct Nov Dec

20132012

Note: n ~ 2,300 for each waveSource: PMI RRP Market Research (3 months moving, no fieldwork in July and August)

E-Vapor Market: Conclusions


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● E-vapor is a product category which is here to stay

● The category will continue to grow at different rates depending on

specificities and product improvements● Excise taxation will probably be implemented

● E-vapor products do not fully respond to evolving preferences of a

● Innovation will be a key driver for the evolution of the e-vapor prodcategory

A portfolio approach with different product options is requ

address emerging preferences of adult smokers

RRPs Commercialization


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PMI’s RRPs Portfolio Addresses Adult Smokers Preferences andMarket Opportunities


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Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harm. The RRPs depicteddevelopment and therefore the descriptions are illustrative and do not necessarily represent the latest stages of product developmentSource: PMI RRP Market Research

Importance of satisfaction

P4 like

Openness to departure from cigarette flavor and ritual



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Importance of satisfactionImportance of satisfaction

P1 like

P4 like

Openness to departure from cigarette flavor and ritualNote: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harm. The RRPs depicteddevelopment and therefore the descriptions are illustrative and do not necessarily represent the latest stages of product developmentSource: PMI RRP Market Research



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P 2 l i k e


P1 like

P4 like




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P3 like

P 2 l i k e

P1 like


P4 like


Italy: Adoption of E-Vapor Products


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100% 95%

36%

17%

9.18.7

3.3

1.5

AdultSmokers

Awareness of E-vapor Products

Trial(past 12 months)

Purchase(past 12 months)

(million adult smokers)

(a) Includes all users of tobacco products in the past 7 daysNote: Number of adult smokers: Italy n ~ 2,300Source: PMI RRP Market Research (3 months-moving average, February 2014 – April 2014)

Italy: Size of the Opportunity


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e-vapor product users

Platform 4

0.4

# of AdultSmokers(millions)

• Current generatisatisfaction

• Electronics• Convenience, les• Price advantageNote: The RRPs depicted are subject to ongoing development and therefore the descriptions are

illustrative and do not necessarily represent the latest stages of product development. Number of adult smokers: Italy n ~ 2300Source: PMI RRP Market Research (3 months-moving average, February 2014 – April 2014)



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Tried and rejectede-vapor products


Platform 1

Platform 4

3.0

0.4


• Taste satisfaction• Convenience, les• Electronics






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Aware of but did nottry e-vapor products



55.0%

Platform 1

Platform 4

5.4

3.0

0.4








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Aware of but did nottry e-vapor products

• Taste satisfaction• Convenience, les• Cigarette-like ritu

Platform 2



Platform 1



• Electronics• Convenience, les• Price advantage

Platform 4

55.0% 5.4

3.0

0.4


Note: The RRPs depicted are subject to ongoing development and therefore the descriptions areillustrative and do not necessarily represent the latest stages of product development. Number of adult smokers: Italy n ~ 2300Source: PMI RRP Market Research (3 months-moving average, February 2014 – April 2014)



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Aware of but did nottry e-vapor products 5.4

• Taste satisfaction• Convenience, les• Cigarette-like ritu

Tried and rejectede-vapor products 3.0


e-vapor product users 0.4


55.0%

Platform 2

Platform 1

Platform 4

Platform 3Next Gen. Platform 4

• Improved taste s• Electronics• Convenience, les




RRPs Commercialization


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(Approximately 45-second video)




Video

Introducing The System


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Note: Reference images only

Kit Packaging


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Kit Packaging Components


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Components Line-Up


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Device Color Customization


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Marlbor o HeatStick : Tobacco Sticks Specially Designed for


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Marlbor o HeatStick : Tobacco Sticks Specially Designed for


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Communication and Commercialization


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● campaign

● Leverage current infrastructure

● New capabilities and channels


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Visual Not Shown


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Visual Not Shown


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Visual Not Shown


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Visual Not Shown


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Visual Not Shown

Communication and Commercialization

i


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● campaign

● Leverage current infrastructure

● New capabilities and channels

Leverage Current Infrastructure

E d t il bilit i C t d l t d


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● Ensure product availability in C-stores and general trade

● Traditional media to boost awareness

● Leverage existing touch points● Develop engagement activities to enable longer interaction


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Visual Not Shown


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Visual Not Shown


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Visual Not Shown

New Capabilities and Channels

● Digital Platform:E-Commerce


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● Digital Platform:- 24/7 online platform providing end

• Integrated e-commerce platform for ad

• Video tutorials, hotline, troubleshootin• Testimonials

● Customer Care:● Personalized, multi-channel custome

● Electronics:● Logistic and distribution infrastructure

E-Commerce

Mobile App


: Launch Plan

● shows high potential to address the emerging preferences


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● shows high potential to address the emerging preferencessmokers

● The system and Marlboro HeatSticks tobacco sticks manu

has started

● will be introduced in two test cities in Q4 2014, one in Japin Italy

● National expansion starting in 2015 and launch in other markets pl

● Commercialization toolbox developed for all relevant channels


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Platform 4

Platform 4: Commercialization Plan

● Agreement with Altria to commercialize their products


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● Agreement with Altria to commercialize their products

● Invest in the development of second generation products for globa

● Enter the category starting in the second half of 2014

● Explore acquisition opportunities that could accelerate the achievesignificant presence in certain markets

Nicocigs: Company Information

● Founded in 2008 based in Birmingham


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Source: Company websites, PMI estimates and Nielsen

● Founded in 2008, based in Birmingham

● Strong market position in the UK & Ireland

● Excellent supply chain capability

● Skilled and well trained marketing & sales teams

● Nicolites: company’s main brand:

- 26% YTD April Retail SoM

- Present in more than 20,000 POS

Reduced-Risk Products: Marketing and Commercialization


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Regulation

Marketing and Commercializa

• A strong RRPs portfolio to address all adupreferences

• New city launches in Q4, 2014

• Entered e-vapor in 2014 / Nicocigs acquis

R&D andScientific

Substantiation


Reduced-Risk Products: Conclusions



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RRPsRegulation

R&D andScientific Substantiation

MarkeCommer





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Questions & Answers



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Reconciliation of non-GAAP measures included in this presto the most comparable GAAP measures are provided on owebsite at: www.pmi.com/2014InvestorDay/RecSlides

Glossary of Terms: www.pmi.com/2014InvestorDay/Glossa

reduced-risk products - lausanne, 26 june 2014

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