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Designing a Smoke-Free Future

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Designing a Smoke-Free Future Designing a Smoke-Free future How long will the world’s leading cigarette company be in the cigarette business? We’ve built the world’s most successful cigarette company, with the world’s most popular and iconic brands. Now we’ve made a dramatic decision. We will be far more than the leading cigarette company. We’re building PMI’s future on smoke-free products that are a much better choice than cigarette smoking. Indeed, our vision – for all of us at PMI – is that these products will one day replace cigarettes. Why are we doing this? Because we should... We understand the millions of men and women who smoke cigarettes. They are looking for less harmful, yet satisfying, alternatives to smoking. We will give them that choice. We have a commitment to our employees and our shareholders. We will fulfill that commitment by pursuing this long-term vision for success. Society expects us to act responsibly. And we are doing just that by designing a smoke- free future. ... and because we now can. Success in the cigarette business gives us the resources to pursue our ambitious vision. Thanks to the imagination and perseverance of thousands of people at PMI, we have developed breakthrough products that are smoke-free and enjoyable. And, we are selling them today. Over a million people have already given up smoking and switched to our new products, and this is just the beginning. We’re investing to make these products the Philip Morris icons of the future. A future PMI that’s known for replacing cigarettes with a portfolio of revolutionary products. In changing times you can always choose to do nothing. Instead, we’ve set a new course for the company. We’ve chosen to do something really big. 1 Product Acceptance and Usage of IQOS July 2017 IQOS is a revolutionary tobacco heating system designed to heat, not burn, a specially designed tobacco stick within a precisely-controlled temperature range — well below that required for combustion — to create a nicotine-containing aerosol. Based on guidance from the US Food and vitro and in vivo testing, innovative systems Drug Administration and methods applied toxicology assessments, human clinical trials, by the pharmaceutical industry, Philip as well as pre- and post-market behavioral Morris International (PMI) has designed and assessments. Based on the totality of the implemented a rigorous scientific assessment evidence, PMI has concluded that switching program to confirm that switching completely completely to IQOS is likely to present less risk to IQOS presents less risk of harm than of harm than continued smoking.i continued smoking, as well as the potential impact of IQOS on overall population harm. Tobacco Stick PMI’s studies on IQOS are very advanced A tobacco plug made from and include aerosol chemistry analyses, in tobacco powder. Holder Heats the tobacco using an electronically controlled heating blade. Charger Recharges the holder after each use. Similarly, international public health and tobacco control experts have concluded: “There is no basis at all to make an expert judgement that [heated tobacco products] should be assumed to have similar risk to cigarettes in the absence of any other data.” … “It is our view that a genuinely neutral and objective assessment of the available data could only conclude that heated tobacco products pose substantially lower risks to health than cigarettes.”ii 2 Product Acceptance and Usage of IQOS Assessing who uses IQOS and how is an integral part of PMI’s scientific assessment approach. The data available to date show: Smokers are switching completely December 2016 from cigarettes to IQOS Adult Smoker Conversion Rates (%) Predominant Converted • Since it was first introduced in Japan in (70%–95% IQOS) (≥95% IQOS) late 2014, more than 2.9 million adult 80 smokers around the world have already 78 78 79 stopped smoking and switched to IQOS.v 69 71 66 65 65 72 56 • In key launch markets, 70% or more 54 of IQOS purchasers predominantly or fully switch1 from cigarettes to IQOS. In several markets, that number approaches 80%.iii • In Japan, the national market share of IQOS reached 12.7% at the end of the 15 15 12 13 14 second-quarter of 2017, while in select 8 geographies it was even higher (14.8% Switzerland Russia Italy Romania Portugal Japan in Tokyo and 17.1% in Sendai).iv • Once adult smokers switch to IQOS, they are unlikely to return to cigarettes. PMI data show that only a low-single- IQOS users are almost entirely digit percentage of adult smokers who adult smokers fully convert to IQOS switch back to • PMI’s pre-market testing showed that vi cigarettes. IQOS is not attractive to adult non- • Those who switch to IQOS are not using smokers as evidenced by the low more tobacco. For example, in PMI’s two intention to use the product among adult 90-day clinical trials in the US and Japan, former smokers and adults that have those in the IQOS study arm used about never smoked. The data show that less the same number of HeatSticks per day than 5% of former smokers and 1% of as cigarettes smoked by those in the never-smokers were interested in IQOS.viii vii cigarette arm of the study. Post-market • PMI’s post-market cross-sectional studies studies show similar results. in Japan, where IQOS commercialization is most advanced, show similar trends. Nearly all IQOS users surveyed (more than 98%) smoked cigarettes or used some other form of tobacco or nicotine-containing product before 1. “Predominant” means the estimated number of Legal Age ix (minimum 18-year-old) IQOS users that used HeatSticks/HEETS they used IQOS. heated tobacco units for between 70% and 94.9% of their daily tobacco consumption over the past seven days. “Fully Only 1.9% of IQOS users started switch” or “Converted” means the estimated number of Legal using tobacco products with IQOS.x Age (minimum 18-year-old) IQOS users that used HeatSticks/ HEETS heated tobacco units for 95% or more of their daily tobacco consumption over the past seven days. 3 Product Acceptance and Usage of IQOS Similarly, only 1.9% of those who The success of IQOS does not appear to have had quit smoking cigarettes and impacted the long-term decline in tobacco sales: later relapsed did so with IQOS. The • Total industry volume (cigarettes and overwhelming majority of those who heated tobacco products) declines since relapsed went back to cigarettes.xi the introduction of IQOS of roughly • While PMI has not conducted research 3% are in-line with the long-term on youth use of IQOS, our data suggest decline in cigarette volumes prior to the that IQOS is most appealing to smokers introduction of IQOS.xiv aged 30 and above. For example, data from Japan show that 88% of IQOS users are at least 30 years old, and the average IQOS user is 41 years old.xii PMI’s evidence, including large cross- sectional studies, panels of IQOS users, and independent tobacco sales data in Japan shows that significant numbers of adult IQOS is replacing cigarettes smokers are stopping smoking and switching In Japan, the introduction of IQOS and other to IQOS. At the same time, non-smokers are smoke-free products has accompanied the generally not interested in or using IQOS, fastest decline in cigarette sales in recent years: and the popularity of IQOS and other heated tobacco products in Japan has not resulted in • In 2015, total industry cigarette sales increased tobacco use. declined by 2.1%. In 2016, the decline accelerated to 4.6%.xiii Learn more at PMIScience.com. i. Smith, et al., The Science Behind the Tobacco Heating System, A Summary of Published Scientific Articles, Philip Morris International, April 2017, available at https://www.pmiscience.com/system/files/publications/pmi_science_ths_executive_summary_0.pdf ii. Clive Bates et al., Letter to the Israeli Minister of Health, Policy on taxation of tobacco and nicotine products – relative risk of heated tobacco products compared to smoking, 21 June 2017, available atmhttps://clivebates.com/documents/IsraelHealthLetterJune2017.pdf. iii. PMI, Annual Shareholder Meeting presentation, 3 May 2017, available at https://www.pmi.com/investor-relations/press-releases-and- events/2017-annual-meeting/?eventId=5246135. iv. PMI 2017 Second-Quarter Results, 20 July 2017, available at http://phx.corporate-ir.net/External. File?t=1&item=VHlwZT0yfFBhcmVudElEPTUyNDYxNDN8Q2hpbGRJRD02NzU2MTc=. v. Philip Morris International, Annual Shareholder Meeting presentation, 3 May 2017, available at https://www.pmi.com/investor-relations/press- releases-and-events/2017-annual-meeting/?eventId=5246135. vi. PMI IQOS user panel data. vii. TPD Notification (p 87) viii. Smith, et al., The Science Behind the Tobacco Heating System, A Summary of Published Scientific Articles, Philip Morris International, April 2017, available at https://www.pmiscience.com/system/files/publications/pmi_science_ths_executive_summary_0.pdf ix. PMI Study P1-PMX-01-JP, Japan Post-Market Cross-Sectional Study. x. PMI Study P1-PMX-01-JP, Japan Post-Market Cross-Sectional Study. xi. PMI Study P1-PMX-01-JP, Japan Post-Market Cross-Sectional Study. xii. PMI IQOS user panel data. xiii. Tobacco Institute of Japan data. xiv. PMI 2017 Second-Quarter Results, 20 July 2017, available at http://phx.corporate-ir.net/External. File?t=1&item=VHlwZT0yfFBhcmVudElEPTUyNDYxNDN8Q2hpbGRJRD02NzU2MTc=. IQOS Acceptance and Usage – Global 20170725 Products With Reduced-Risk Potential: 1 An innovative way to address the harm caused by smoking? The Problem Cigarette smoking is one of the leading preventable causes of death and illness in the world. The best way for people to eliminate the adverse health An approach for these smokers is the consequences of smoking is to never start, and, for smokers, development of non-combustible products to stop.
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