Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (September 2016)
67 slides from Philip Morris International's investor day presentation, Sep 29, 2016
Slide 1: Investor Day – Reduced-Risk Products
Investor Day – Reduced-Risk Products Lausanne, September 29, 2016 Manuel Peitsch Chief Scientific Officer, Reduced-Risk Products Mirek Zielinski President, Reduced-Risk Products Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce indivi
Slide 2: Investor Day – Reduced-Risk Products
Investor Day – Reduced-Risk Products Lausanne, September 29, 2016 Manuel Peitsch Chief Scientific Officer, Reduced-Risk Products Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to sm
Slide 3: Agenda
Agenda ● Reduced-Risk Products (RRPs) Scientific Substantiation Progress ● RRP Regulation ● RRP Portfolio and Commercialization Approach Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparis
Slide 4: Cessation: The "Gold Standard"
Cessation: The "Gold Standard" ● We apply the U.S. Institute of Medicine’s "gold standard" for assessing risk reduction: benchmark against cessation From Epidemiology Point of Intervention Disease Risk Time Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with t
Slide 5: Substantiating Reduced Risk: Totality of Scientific Evidence
Substantiating Reduced Risk: Totality of Scientific Evidence Post-Market Studies and Surveillance Reduced Population Harm Consumer Perception and Behavior Assessment Reduced Exposure & Risk Clinical Trials Systems Toxicology Reduced Risk in Laboratory Models Assessment Standard Toxicology Reduced To
Slide 6: iQOS: Reduced Formation Leads to Reduced Toxicity in vitro
iQOS: Reduced Formation Leads to Reduced Toxicity in vitro Reduced Formation … Leads to … Reduced Toxicity Average reductions in formation of HPHCs for Average reductions in toxicity compared to iQOS compared to levels measured in smoke levels measured for the 3R4F reference from the 3R4F reference
Slide 7: iQOS: Impact on Disease Endpoints in Mouse Model of Disease
iQOS: Impact on Disease Endpoints in Mouse Model of Disease Disease Endpoint for COPD Disease Endpoint for CVD Emphysema Plaque volume Score (mm3) 4 Lung Emphysema 1.5 Atherosclerotic Plaque (After 8 months) (After 8 months) 3 1 2 0.5 1 0 0 3R4F Cessation Switching Air iQOS 3R4F Cessation Switching
Slide 8: iQOS: Three-Month Reduced Exposure Study (Japan)
iQOS: Three-Month Reduced Exposure Study (Japan) % Reduction in Biomarkers of Exposure After Switching for Three Months iQOS vs. Cigarette Cessation vs. Cigarette Total o-tol 1-OHP 3-HPMA NNAL HEMA HMPMA COHb B[a]P 4-ABP CEMA NNN 2-NA S-PMA MHBMA 1-NA 0 (20) (32) (40) (41) (48)(45) (46) (50)(48) (48
Slide 9: iQOS: Three-Month Reduced Exposure Study (U.S.)
iQOS: Three-Month Reduced Exposure Study (U.S.) % Reduction in Biomarkers of Exposure After Switching for Three Months iQOS vs. Cigarette Cessation vs. Cigarette Total o-tol 1-OHP 3-HPMA NNAL HEMA HMPMA COHb B[a]P 4-ABP CEMA NNN 2-NA S-PMA MHBMA 1-NA 0 (20) (34) (40) (42) (48) (48) (50) (50)(52) (53
Slide 10: Clinical Evidence for Reduced Risk (Japan and U.S.)
Clinical Evidence for Reduced Risk (Japan and U.S.) Latest Results on Clinical Risk Markers Disease Expected Japan U.S. Direction of Mechanisms Marker Direction of Change THS versus CC THS versus CC Change Lipid Metabolism HDL-C 4.53 mg/dL 1.40 mg/dL Inflammation WBC -0.57 GI/L 0.17 GI/L
Slide 11: Adult Consumer Perception and Behavior Assessment
iQOS: Adult Consumer Perception and Behavior Assessment ● Measuring risk perception, comprehension, intention to use and actual use of iQOS in a pre-market setting ● Summary of U.S. study results: - Less than 5% of adult former smokers and less than 1% of adult never smokers expressed an intention t
Slide 12: U.S. FDA PMTA & MRTPA Filing Status
iQOS: U.S. FDA PMTA & MRTPA Filing Status ● PMI to file applications with the U.S. FDA under FD&C Act sections 910 and 911: - 910 (PMTA) authorization required for products not on the market as of February 2007 - 911 (MRTPA) authorization to market products with modified risk claims ● The totality o
Slide 13: iQOS: Long-Term Clinical Studies
iQOS: Long-Term Clinical Studies ● Smoking Cessation Response Study (12 months): - Measures changes in clinical risk markers in smokers who quit for 12 months - Study conducted in the U.S., the U.K., Poland, Germany and Japan with over 1,100 participants - Top-line results for first 6 months expecte
Slide 14: Reduced Impact on Oral Hygiene
iQOS: Reduced Impact on Oral Hygiene Exposure results after 3 weeks Spectrophotometric Score 28.0 Composite (C) Disks Baseline iQOS 3R4F ● Exposure to iQOS aerosol did not induce clinically 1 significant(a) discoloration 2.6 of the most widely used iQOS 3R4F dental composite in this experimental set
Slide 15: Reduced Impact on Oral Hygiene
iQOS: Reduced Impact on Oral Hygiene Exposure results after 3 weeks Spectrophotometric Score 28.0 Composite (C) Disks Baseline iQOS 3R4F ● Exposure to iQOS aerosol did not induce clinically 1 significant(a) discoloration 2.6 of the most widely used iQOS 3R4F dental composite (C) and Premolar Teeth 2
Slide 16: iQOS: Scientific Substantiation Progress
iQOS: Scientific Substantiation Progress Totality-of-Scientific Evidence Reduced Impact on Improved Supporting Reduced Risk Users and Those Oral Hygiene Potential Around Them ● No combustion ● Less smell ● Better breath ● Reduced HPHC formation ● No ash ● Less unpleasant after ● Reduced toxicity ● N
Slide 17: iQOS: PMI's Post-Market Assessment
iQOS: PMI’s Post-Market Assessment ● Assess the impact of iQOS on population harm reduction ● Surveys and surveillance to: - Understand who uses iQOS and how it is being used - Measure the prevalence of iQOS use - Monitor spontaneous health events (safety surveillance) ● Cohort study initiated in Ja
Slide 18: Population Health Impact: The Harm Reduction Equation
Population Health Impact The Harm Reduction Equation Population Product Harm = Reduced-Risk Products x Adoption and Reduction Usage Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to
Slide 19: Population Health Impact Modelling
Population Health Impact Modelling The Harm Reduction Equation Population Product Harm = Reduced-Risk Products x Adoption and Reduction Usage The Population Health Impact Model(a): Mortality Epidemiological Prevalence Impact Risk Component Component Estimates Simulator (a) Weitkunat R et al., A nove
Slide 20: Platform 2: Reduced Formation Leads to Reduced Toxicity in vitro
Platform 2: Reduced Formation Leads to Reduced Toxicity in vitro Reduced Formation … Leads to … Reduced Toxicity Average reductions in formation of HPHCs for Average reductions in toxicity compared to Platform 2 compared to levels measured in levels measured for the 3R4F reference smoke from the 3R4
Slide 21: Platform 2: Reduced Exposure Study (Poland)
Platform 2: Reduced Exposure Study (Poland) % Reduction in Biomarkers of Exposure After Switching to Platform 2 for Five Days vs. % Reduction in Biomarkers of Exposure After Cessation P2 vs. Cigarette Cessation vs. Cigarette(a) Total 1- Total o-tol OHP 3-HPMA NNAL HEMA HMPMA COHb B[a]P 4-ABP CEMA NN
Slide 22: Platform 2: Reduced Exposure Clinical Study (Poland)
Platform 2: Reduced Exposure Clinical Study (Poland) Nicotine Equivalents and Urge-to-Smoke Index After Switching to Platform 2 for Five days vs. a Cigarette Platform 2 Cigarette Nicotine Equivalents Urge-to-Smoke Index (ng/mg creatinine) (Total score) 16 7 14 6 12 5 10 4 8 3 6 2 4 2 1 0 0 Baseline
Slide 23: Platform 3: Clinical Assessment
Platform 3: Clinical Assessment ● Pharmacokinetic study Nicotine Pharmacokinetic Profile completed in New Zealand 16 at the end of Q2, 2016 N ic o t in e p la s m a c o n c e n t r a tio n P la tfo rm 3 14 C ig a re tte ● Pharmacodynamics study ( n g /m L 9 5 % C I) 12 ongoing in the U.S., results
Slide 24: Platform 4: Assessment Program and Progress
Platform 4: Assessment Program and Progress Current E-vapor Product Portfolio ● Pre-clinical assessments completed: - Aerosol chemistry - Aerosol toxicity in vitro and in vivo ● Indoor air quality assessment completed Next Generation E-vapor Products ● Clinical Assessments planned: − Pharmacokinetic
Slide 25: RRPs: Independent Verification of PMI's Results
RRPs: Independent Verification of PMI’s Results (Strategy) Independent Studies Studies conducted by independent scientists Crowd-Sourced Verification of methods and results using Verification crowd-sourcing (sbvIMPROVER.com) Expert Reports Verification of specific datasets Publish Study Results Peer
Slide 26: RRPs: Scientific Substantiation Summary
RRPs: Scientific Substantiation Summary ● Totality-of-the-Scientific-Evidence on iQOS demonstrates the risk reduction potential to individual adult smokers and the potential to reduce population harm compared to cigarette smoking ● On track to file MRTPA with the U.S. FDA for iQOS by the end of 2016
Slide 27: Investor Day – Reduced-Risk Products
Investor Day – Reduced-Risk Products Lausanne, September 29, 2016 Mirek Zielinski President, Reduced-Risk Products Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarett
Slide 28: Agenda
Agenda ● Reduced-Risk Products (RRPs) Scientific Substantiation Progress ● RRP Regulation ● RRP Portfolio and Commercialization Approach Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparis
Slide 29: RRPs Regulation: Positive Developments
RRPs Regulation: Positive Developments ● Growing understanding of harm reduction and potential of RRPs driven by science and adult smoker switching ● Positive developments include: - Consultation on regulation of e-cigarettes in New Zealand - Reversal of pharma-only approach to e-cigarettes in sever
Slide 30: RRPs Regulation: Landscape is Evolving
RRPs Regulation: Landscape is Evolving ● Step by step: evolution as markets move towards harm reduction ● Concerns/opposition continues: Skepticism, stakeholder vested interests, and legitimate public health questions ● PMI and others are taking steps to address concerns: - Pre- and post-market rese
Slide 31: RRPs Regulation: Objectives
RRPs Regulation: Objectives PMI advocates for: ● Product standards for market access: - Initial positive standards already in place through EU TPD notification requirements ● Differential marketing, labelling, product and public use regulation: - Public Health England recommendations around public u
Slide 32: RRPs Regulation: Taxation
RRPs Regulation: Taxation ● PMI advocates for a sensible approach to novel products with groundbreaking potential ● Unique product characteristics of heat-not-burn (non-cigarette): - Design characteristics (construction and content) - Scientific studies (PMI and third party experts): absence of comb
Slide 33: RRPs Portfolio: Our Approach
RRPs Portfolio: Our Approach 2014 2015 2016 2017 iQOS City Tests National Geographic Expansion (Platform 1) Final Phase of Platform 2 Clinical Trials City Test Development Platform 3 Product Development City Test Platform 4 Nicocigs Acquisition Commercialization in Selected Geographies (current gene
Slide 34: Commercialization Approach Optimization
iQOS: Commercialization Approach Optimization ● Optimize route-to-adult consumer strategies: - Focus on full conversion - Understanding of the offer and commitment to convert - Conversion support - Product and category benefits communication - Retail experience - Digital marketing and communication
Slide 35: iQOS: Conversion in Japan
iQOS: Conversion in Japan Converted Users and Cost per New Converted User Index First Tried iQOS With a Friend Converted Users (in thousands) 36% Cost per Converted New User Index 861 100 17% 31 13 9 18 Q3 Q4 Q1 Q2 August Q3 Q2 2015 2016 2015 2016 Note: Reduced-Risk Products ("RRPs") is the term the
Slide 36: iQOS: Device Penetration Ratio Performance
iQOS: Device Penetration Ratio Performance Device Cumulative Weekly Offtake Penetration Ratio (2016) 10% 9.5 Japan 8% 7.0 6% Capacity constraints / Supply cap 3.7 4.5 Switzerland 4% 1.4 Lisbon 2% 1.3 Italy 0.7 0.3 1.2 Bucharest 0.6 Moscow 0% January March June September Note: Reduced-Risk Products (
Slide 37: iQOS: Conversion Performance
iQOS: Conversion Performance Converted and Predominant User Share (July 2016) Converted 52% 49% 58% 54% 65% 53% (≥95% iQOS) Predominant 16% 17% 13% 14% 14% (70%-95% iQOS) 8% Japan Italy Switzerland Romania (a) Russia Portugal (a) Data relates to August User Panel Note: Reduced-Risk Products ("RRPs")
Slide 38: iQOS: HeatSticks Offtake Volume Performance
iQOS: HeatSticks Offtake Volume Performance (Index) Weekly Indexed Offtake Volume Performance (2016) (4-week moving average) 863 Japan 800 771 Lisbon 578 600 454 Italy 400 354 383 Moscow 290 227 168 213 Switzerland 200 207 Bucharest 146 0 January March June September Note: Reduced-Risk Products ("RR
Slide 39: iQOS: Performance in Japan
iQOS: Performance in Japan HeatSticks Offtake and IMS Shares and iQOS Offtake Penetration Ratio Offtake SoM (National) IMS Weekly SoM (National) Penetration Ratio (National) 10.00% 9.5% 0.1 9.00% 0.09 8.00% 0.08 7.0% 7.00% 0.07 6.00% 0.06 5.00% 4.1% 0.05 4.00% 3.2% 0.04 2.7% 3.00% 0.03 2.00% 1.6% 4.
Slide 40: iQOS: Performance in Italy and Switzerland
iQOS: Performance in Italy and Switzerland HeatSticks Offtake Share and iQOS Offtake Penetration Ratio Offtake SoM (Launch Area) Offtake SoM (National) Penetration Ratio (Launch Area) Penetration Ratio (National) Italy Switzerland 4.5% 3.7% 1.3% 2.6% 1.1% 0.9% 0.7% 1.8% 0.7% 1.6% 0.6% 0.5% 1.3% 0.4%
Slide 41: iQOS: Performance in Moscow and Bucharest
iQOS: Performance in Moscow and Bucharest HeatSticks Offtake Share and iQOS Offtake Penetration Ratio HeatSticks Offtake SoM iQOS Offtake Penetration Ratio Moscow Bucharest 1.2% 0.6% 0.7% 0.3% 0.2% 0.4% 0.2% 0.3% 0.1% 0.2% 0.1% 0.1% 0.1% 0.1% Q4 Q1 Q2 QTD Sept Q4 Q1 Q2 QTD Sept 2015 2016 2015 2016 N
Slide 42: iQOS: Performance in Lisbon and Monaco
iQOS: Performance in Lisbon and Monaco HeatSticks Offtake Share and iQOS Offtake Penetration Ratio HeatSticks Offtake SoM iQOS Offtake Penetration Ratio 1.40% Lisbon 1.4% 0.50% Monaco 5.0% 0.05 5.0% 1.20% 0.40% 1.00% 0.3% 0.04 3.8% 4.0% 0.7% 0.30% 0.80% 0.03 3.0% 2.0% 0.60% 0.2% 0.5% 0.20% 0.02 2.0%
Slide 43: iQOS: Performance in Frankfurt
iQOS: Performance in Frankfurt HeatSticks Offtake Share and iQOS Offtake Penetration Ratio HeatSticks Offtake SoM iQOS Offtake Penetration Ratio 0.012 Frankfurt 0.008 0.007 0.01 0.006 0.008 0.7% 0.005 0.006 0.004 0.003 0.004 0.002 0.1% 0.002 0.001 0 0 Q4 Q1 Q2 QTD Sept 2015 2016 Note: Reduced-Risk P
Slide 44: Product and Category Benefits Communication
iQOS: Product and Category Benefits Communication ● Substantiated and prioritized messages will be deployed in line with local laws and regulations ● Examples of current messages deployed: - Real tobacco taste & satisfaction (all markets) - Convenience (no ash, less smell, no risk of fire) (all mark
Slide 45: Retail Experience
iQOS: Retail Experience ● Flagship Store: - iQOS brand expression - Location for guided trial & product experiences - Adult consumer engagement, community space and events - Customer care infrastructure ● Scalable formats with consistent global look and feel: - Flagship stores, boutiques and pop-ups
Slide 46: iQOS: Digital Communication and Marketing
iQOS: Digital Communication and Marketing Digital tools to support awareness, conversion and sharing: ● Mobile App: - Accompany adult smokers through conversion from cigarettes to iQOS and HEETS - Q4, 2016 test in Japan and Switzerland ● iQOS global website under development: - Full integration of e
Slide 47: New Device
iQOS: New Device ● Product Improvements: - Aesthetics iQOS 2.4Plus - Improved User Interface - Faster Charging - Bluetooth Connectivity - Mobile App iQOS 2.4 Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and popula
Slide 48: New Device and Accessories
iQOS: New Device and Accessories ● Accessories Soft Leather Pouches Colored Caps Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes 48
Slide 49: RRPs: Portfolio Brand Architecture
RRPs: Portfolio Brand Architecture "iQOS HeatControl Technology THE SCIENCE THIS CHANGES EVERYTHING" BRAND PLATFORMS 1 2 3 4 TM TM TM TM CONSUMABLES Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm
Slide 50: Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products
Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes 50
Slide 51: iQOS: Mobility Kit
iQOS: Mobility Kit Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Visual execution is for illustrative purposes only 51
Slide 52: HEETS Line-Up
HEETS Line-Up Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Pack designs are for illustrative purposes only 52
Slide 53: Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products
Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Visual execution is for illustrative purposes only 53
Slide 54: Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products
Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Visual execution is for illustrative purposes only 54
Slide 55: Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products
Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Visual execution is for illustrative purposes only 55
Slide 56: Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products
Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Visual execution is for illustrative purposes only 56
Slide 57: Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products
Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Visual execution is for illustrative purposes only 57
Slide 58: Platform 2: TEEPS
Platform 2: TEEPS ● Four-week whole offer test conducted in Romania at the end 2015: - Better-than-expected adult smoker feedback ● 60% predominant use ● City test in 2017 ● Relevant accessories for lighting and extinguishing developed Note: Reduced-Risk Products ("RRPs") is the term the company use
Slide 59: Platform 4: MESH Technology
Platform 4: MESH Technology ● MESH vaporization technology: MESH PRE-FILLED CAPSULE - HeatControl Technology - Consistent vapor delivery - Low liquid detection - Puff activation - "Closed" system - Manufacturing automation ACTIVATION BUTTON BATTERY Note: Reduced-Risk Products ("RRPs") is the term th
Slide 60: Platform 4: MESH Technology City Test
Platform 4: MESH Technology City Test ● Q4, 2016 U.K. city test of the new technology and product offer through Nicocigs Ltd. ● MESH: brand name chosen for city test ● 4 new unique and complex flavor offers being tested ● Learnings will help refine product offer for national roll-outs Note: Reduced-
Slide 61: RRPs: Capacity Outlook
RRPs: Capacity Outlook ● In support of our commercial launches, we are scaling up capacity for iQOS devices and HeatSticks as well as customer care infrastructure ● The construction of our first dedicated RRP Greenfield factory in Bologna, Italy, has been completed ● As the commercialization of our
Slide 62: Video (not shown on webcast)
Investor Day – Reduced-Risk Products Lausanne, September 29, 2016 Video (not shown on webcast) Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes
Slide 63: RRPs: PMI Published Patents
RRPs: PMI Published Patents ● Rapidly increasing RRP IP portfolio of PMI RRP Published Patents Worldwide(a) granted patents and pending applications Granted Pending 4,000 ● Extensive coverage protecting a broad 3,500 range of inventions, from tobacco 3,000 substrate to aerosol generation and control
Slide 64: RRPs: Summary
RRPs: Summary ● PMI with market-leading RRP portfolio: - Strong iQOS performance momentum - City test of Platform 2 in 2017 - City test of Platform 3 in 2017 - City test of our new Mesh heating technology in the U.K. by end of 2016 ● Performance from optimized iQOS marketing and commercialization mo
Slide 65: RRPs: Program Outlook
RRPs: Program Outlook ● Increase geographical coverage of iQOS in existing launch markets ● iQOS present in key cities in more than 30 markets by end 2017, representing an industry volume in excess of 1 trillion units ● Target 3% to 5% share of markets in scope, net of cannibalization ● Expect to be
Slide 66: Video (not shown on webcast)
Investor Day – Reduced-Risk Products Lausanne, September 29, 2016 Video (not shown on webcast) Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes
Slide 67: Questions & Answers
Investor Day – Reduced-Risk Products Lausanne, September 29, 2016 Questions & Answers Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes 67
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