- Apr 2, 2009
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PMI developing three new reduced risk products (Platform 1, Platform 2, and Platform 3) they claim aren't e-cigs, and also planning to enter traditional e-cig market next year.
Philip Morris International presents at 2013 Morgan Stanley Global Consumer Conference
PMI.com Webcast
by Andre Calantzopoulos, CEO, Philip Morris International
(SLIDE 45.)
The single greatest growth opportunity for us lies in the commercialization of Reduced-Risk Products. We will be using this term to include tobacco containing products, such as Platforms 1 and 2, and other nicotine containing products, such as e-cigarettes and our Platform 3, that have the potential to reduce individual risk and population harm.
(SLIDE 46.)
Let me remind you of our strategic objectives with regard to this product category.
Our first objective is the development of a series of Reduced-Risk Products that provide adult smokers with the taste, sensory experience, nicotine delivery profile and ritual characteristics that match as close as possible those of cigarettes.
(SLIDE 47.)
Our second objective in developing Reduced-Risk Products is to substantiate the reduction of risk to the individual adult smoker and the reduction of harm to the population as a whole, based on rigorous scientific evidence. Ideally we would like to demonstrate that switching to our Reduced-Risk Products has a risk profile that is close to cessation. The evidence is being derived from well-established assessment processes similar to those used by the pharmaceutical industry, supplemented by innovative analyses to reliably quantify our products’ ability to reduce the risk of diseases that may take many years to manifest.
(SLIDE 48.)
Our third strategic objective is to advocate, in respect to Reduced-Risk Products, the development of science-based regulatory frameworks for their approval and commercialization, including the communication of substantiated health benefits to adult smokers.
(SLIDE 49.)
We recently carried out a very positive consumer test of Platform 1 in Asia. This was a four-week usage study with a large representative sample of close to 1,000 adult smokers. We found that our product has broad appeal across different adult smoker profiles, be it in terms of their taste or price segment. After an initial one-stick trial, 54% of respondents declared a positive purchase intention, which is far higher than that normally recorded in this market with new cigarettes and more than 80% wanted to participate in the four-week home usage trial. By the end of the test, 30% of those who took part in the home usage trial had adopted the product.
Although this is only one test, the results surpassed our most optimistic expectations, giving us additional confidence regarding our plans to accelerate the roll-out of Platform 1.
(SLIDE 50.)
2014 will be a pivotal year for our Reduced-Risk Product efforts. We will have the results of the eight clinical trials that we started this year and progress with perception and behavioral studies to test our communications and are preparing the packaging, labeling and product for commercialization. We will develop production capacity of 30 billion units in Europe that provides flexibility to manufacture both Platform 1 and 2. Finally, we will bring our commercial plans and organization to launch readiness and finalize the required logistics and after-sales support chains.
Our objective is to start several commercial pilot city tests during the second half of next year and to carry out our first national launch of Platform 1 in 2015, well ahead of our originally announced 2016/17 schedule.
To meet this accelerated schedule, we intend to increase our Reduced-Risk Product-related expenditures in R&D, operations and the commercial organization by more than $100 million. The capital expenditures for the establishment of a 30 billion unit manufacturing capacity are expected to be up to 600 million Euros over the next three years.
(SLIDE 51.)
Let me put the scope of our Reduced-Risk Products into perspective.
We estimate the potential adult user base to be approximately one trillion units at the initial stages. If we assume a conservative 3% to 5% full adoption rate, this implies that Platform 1 has the potential to generate incremental sales equivalent to some 30-50 billion units net of cannibalization.
We do expect higher costs while we scale up and integrate the manufacturing, distribution and marketing of Reduced-Risk Products. However, thereafter we expect to be able to generate unit margins on Platform 1 equivalent to those of conventional products. This implies that Platform 1 could generate additional margins of $720 million to $1.2 billion over time.
We are also making very good progress on the development of Platform 2, our second heat not burn platform, whose ritual is even closer to that of conventional cigarettes. The schedule for Platform 2 is some nine months behind that of Platform 1.
(SLIDE 52.)
In addition to the very positive results from our consumer test, the strong underlying demand for a less harmful alternative to cigarettes is confirmed by adult consumer interest in the e-cigarette category.
We estimate that the retail sales value of the eight largest e-cigarette markets worldwide is around $2.5 billion, with a little under half this value outside the USA and China. The annual growth rate of the six most important international markets is estimated to have been around 25% over the last two years.
The expansion has taken place in an environment unimpeded by any category-specific regulation or taxation, which are bound to come. Therefore, in the future, we can expect not only constraints on growth but also a gradual consolidation within the category.
(SLIDE 53.)
In fact, taking into consideration the high awareness levels, widespread distribution, often much lower prices, adult consumer understanding of potential reduced-risk benefits, the lack of regulation and significant marketing freedoms, e-cigarette repeat purchases remain surprisingly low.
While reports suggest that some regular users may be able to obtain nicotine deliveries comparable to conventional cigarettes, the current generation of e-cigarettes generally has a much slower delivery profile than conventional cigarettes which, together with a weaker taste, explains limited user satisfaction and reduced adoption rates.
(SLIDE 54.)
We intend to enter the e-cigarette category during 2014 with a current generation technology product but with an improved taste. We are doing this to develop a first-hand understanding of the category dynamics, help shape the regulatory debate and create a business base from which to build further once we have developed the next generation e-cigarette technology. We believe that we should be able to overcome the technological limitations over time and that future e-cigarettes should be an attractive category for adult consumers assuming they are not subject to excessive regulation or excise taxation. We believe, nevertheless, that Platforms 1 and 2 have a higher potential than e-cigarettes for rapid adoption by adult cigarette smokers.
We are also continuing the development of Platform 3. This product uses a chemical reaction to generate a nicotine-containing aerosol, replicates the feel and ritual of smoking, and has an excellent nicotine absorption profile.
Some news stories generated by this PMI presentation
Philip Morris International to begin marketing e-cigs late next year
Philip Morris to Tap E-Cigarette Market Next Year - WSJ.com
Philip Morris Int'l to Enter E-Cigarette Market - ABC News
Marlboro maker to enter e-cigarette market - Times LIVE
http://business.financialpost.com/2...s-to-launch-e-cigarettes-with-improved-taste/
Philip Morris International presents at 2013 Morgan Stanley Global Consumer Conference
PMI.com Webcast
by Andre Calantzopoulos, CEO, Philip Morris International
(SLIDE 45.)
The single greatest growth opportunity for us lies in the commercialization of Reduced-Risk Products. We will be using this term to include tobacco containing products, such as Platforms 1 and 2, and other nicotine containing products, such as e-cigarettes and our Platform 3, that have the potential to reduce individual risk and population harm.
(SLIDE 46.)
Let me remind you of our strategic objectives with regard to this product category.
Our first objective is the development of a series of Reduced-Risk Products that provide adult smokers with the taste, sensory experience, nicotine delivery profile and ritual characteristics that match as close as possible those of cigarettes.
(SLIDE 47.)
Our second objective in developing Reduced-Risk Products is to substantiate the reduction of risk to the individual adult smoker and the reduction of harm to the population as a whole, based on rigorous scientific evidence. Ideally we would like to demonstrate that switching to our Reduced-Risk Products has a risk profile that is close to cessation. The evidence is being derived from well-established assessment processes similar to those used by the pharmaceutical industry, supplemented by innovative analyses to reliably quantify our products’ ability to reduce the risk of diseases that may take many years to manifest.
(SLIDE 48.)
Our third strategic objective is to advocate, in respect to Reduced-Risk Products, the development of science-based regulatory frameworks for their approval and commercialization, including the communication of substantiated health benefits to adult smokers.
(SLIDE 49.)
We recently carried out a very positive consumer test of Platform 1 in Asia. This was a four-week usage study with a large representative sample of close to 1,000 adult smokers. We found that our product has broad appeal across different adult smoker profiles, be it in terms of their taste or price segment. After an initial one-stick trial, 54% of respondents declared a positive purchase intention, which is far higher than that normally recorded in this market with new cigarettes and more than 80% wanted to participate in the four-week home usage trial. By the end of the test, 30% of those who took part in the home usage trial had adopted the product.
Although this is only one test, the results surpassed our most optimistic expectations, giving us additional confidence regarding our plans to accelerate the roll-out of Platform 1.
(SLIDE 50.)
2014 will be a pivotal year for our Reduced-Risk Product efforts. We will have the results of the eight clinical trials that we started this year and progress with perception and behavioral studies to test our communications and are preparing the packaging, labeling and product for commercialization. We will develop production capacity of 30 billion units in Europe that provides flexibility to manufacture both Platform 1 and 2. Finally, we will bring our commercial plans and organization to launch readiness and finalize the required logistics and after-sales support chains.
Our objective is to start several commercial pilot city tests during the second half of next year and to carry out our first national launch of Platform 1 in 2015, well ahead of our originally announced 2016/17 schedule.
To meet this accelerated schedule, we intend to increase our Reduced-Risk Product-related expenditures in R&D, operations and the commercial organization by more than $100 million. The capital expenditures for the establishment of a 30 billion unit manufacturing capacity are expected to be up to 600 million Euros over the next three years.
(SLIDE 51.)
Let me put the scope of our Reduced-Risk Products into perspective.
We estimate the potential adult user base to be approximately one trillion units at the initial stages. If we assume a conservative 3% to 5% full adoption rate, this implies that Platform 1 has the potential to generate incremental sales equivalent to some 30-50 billion units net of cannibalization.
We do expect higher costs while we scale up and integrate the manufacturing, distribution and marketing of Reduced-Risk Products. However, thereafter we expect to be able to generate unit margins on Platform 1 equivalent to those of conventional products. This implies that Platform 1 could generate additional margins of $720 million to $1.2 billion over time.
We are also making very good progress on the development of Platform 2, our second heat not burn platform, whose ritual is even closer to that of conventional cigarettes. The schedule for Platform 2 is some nine months behind that of Platform 1.
(SLIDE 52.)
In addition to the very positive results from our consumer test, the strong underlying demand for a less harmful alternative to cigarettes is confirmed by adult consumer interest in the e-cigarette category.
We estimate that the retail sales value of the eight largest e-cigarette markets worldwide is around $2.5 billion, with a little under half this value outside the USA and China. The annual growth rate of the six most important international markets is estimated to have been around 25% over the last two years.
The expansion has taken place in an environment unimpeded by any category-specific regulation or taxation, which are bound to come. Therefore, in the future, we can expect not only constraints on growth but also a gradual consolidation within the category.
(SLIDE 53.)
In fact, taking into consideration the high awareness levels, widespread distribution, often much lower prices, adult consumer understanding of potential reduced-risk benefits, the lack of regulation and significant marketing freedoms, e-cigarette repeat purchases remain surprisingly low.
While reports suggest that some regular users may be able to obtain nicotine deliveries comparable to conventional cigarettes, the current generation of e-cigarettes generally has a much slower delivery profile than conventional cigarettes which, together with a weaker taste, explains limited user satisfaction and reduced adoption rates.
(SLIDE 54.)
We intend to enter the e-cigarette category during 2014 with a current generation technology product but with an improved taste. We are doing this to develop a first-hand understanding of the category dynamics, help shape the regulatory debate and create a business base from which to build further once we have developed the next generation e-cigarette technology. We believe that we should be able to overcome the technological limitations over time and that future e-cigarettes should be an attractive category for adult consumers assuming they are not subject to excessive regulation or excise taxation. We believe, nevertheless, that Platforms 1 and 2 have a higher potential than e-cigarettes for rapid adoption by adult cigarette smokers.
We are also continuing the development of Platform 3. This product uses a chemical reaction to generate a nicotine-containing aerosol, replicates the feel and ritual of smoking, and has an excellent nicotine absorption profile.
Some news stories generated by this PMI presentation
Philip Morris International to begin marketing e-cigs late next year
Philip Morris to Tap E-Cigarette Market Next Year - WSJ.com
Philip Morris Int'l to Enter E-Cigarette Market - ABC News
Marlboro maker to enter e-cigarette market - Times LIVE
http://business.financialpost.com/2...s-to-launch-e-cigarettes-with-improved-taste/
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