t _· 29q" Tobacco Strate!t Review Funding of Group Fundamental Research (fnclud!ag Lmpllestiaas al I.J. 6stnolds' Snokclcii Clgatelril All. Beard In 1981 vs decentrallsed RID and integrated CBLDe It Southaplpton into the IIATUIE manogePc~t, The decenrralisation has had the benefit of encouraging interaction between UC centrea and sharing of 860 findlpga~ Boveolt,, there has been no signlficanr increase In resources It the CIC RID cent:es and, overall, we have 10X reduction In staff since 1984, Correspondingly, project activities in the various laboratories reflect local company reguirenenti for the lost part. During 1981·86 only Sourh~PptoP and Brazil and, to anal extent, Canada, were conducting a proportion of their work which was Strictly for Group benc~itl in view of this, in late 1986, the decision was taken with CAC agreement to retain, and thus fund, a small fundamental Research teal at Southampton in order to ensure that a longer term approach was being taken to some key issues (by no means confined to SIB activities). The cost of this work was f2 an (out of a total Group colt of E30 mn) and the TSRT agreed that this should be funded not on a turnover basis bur on a formula that starts with five sc ual coneribuiioni and lakes arbitrary ~dJustmcnti to reflect significant size differences of the CIC companies. In !!arch 1981, we encouraged CAC companies to build up ab initio, their reguirePents for this Fundamental Research teel at Southamptoa, and identified two common themes as a basis for the future prograp~e~ Broad guidelines on effort distribution were also agreed, i. Product Research in relation to SIR Regulatory Issuea (QOX effort) Important Group projects in this area are aimed st significant reduction in nitrosamines, free radicals and other specific components that are significantly above Threshold limit laluea In terms of inhaled saokel The search for improved in vitro biological test methods was idcntified~ Plaally, in Chis area, responses Co Passive Smoking Issues including work on ambient spots monitoring and on new ways of reducing sidestream sloke, were requested. Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·t· 2. Research to hptove product 9uallt) (b0leffort) Smota Ouallty ~PptOV(D1DI is still identified II the main repuireienrl In pundamental terms, projects were'sgreed covering research into tbs ability of filter materials to improve Smo'ka psallty and to research the basis of puallty deterioration during cigarette againgl Another important Project that was identified 1101 to independently control specific IPota sePsory coDponenta · of which nicotine is a key Pcibrr~ Some fundamental Studies on casing penetration and interaction with tobacco were also agreed · following important leads from the Bratilian Tob~cco processing Projectl At rather lover priority, projects aimed at improving cigarette physical properties were agreedl Funding In the redefinition Of rhe Funda1entll Research programme, several project areas (iRcludlng computer modelling of various processes and produe~ lapping) were ter~fPated~ Consequently, the work programme covered hare for 1988 costs the same as in 1987, I,e~ Il mt and It Is recommended that funding should be as last year with a minor change to reduce the Canadian contribution: 1988 1987 I 000's t 000'1 B~V 550 (500) BATCo 550 (rao] BATQ 100 (100) IT1 300 (100) ND 6 80 YLtls 200 (200) This funding recommendation will change If new project ideas ate accepted. New pfojccta Ar the recent Research conference in Couisvllle we concluded that the Group should respond pot only to RJR's smokeless cigarette (the potential succesa of which is difficult to predict) bur to the growing Dope by competitors to develop technological products that ofter to ease pressures oa the ]IOOkOr~ 2ha 11511 product produces effectively no sideatream particulatea (we have no data on invisible aidesrream) and 1 mainstream smoke composed of glycerin, nicotine and tobacco flivour~, rbie product runs the risk of tilling outside of classification as I cigaretta and therefore of falling under the IDA regulation, (A summary of points related to the RJR produce is appended,) Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 within the Group we have been considering slternstivi product concepts, In view of the IDA issue and of the iaportaoce of retaining nany of the traditional eleoants of the cigarette albeit heavily Podified, our preferred approach is to design a product at the extreme of cigarette evolution, i~cl with DiniPal tar and optimal nicotine, Southompton pip has ideas based on a 1 OB tar, O,I Ig nicotine cigarettel 91nce tobacco cDDbUsted will be very low, sidestreai yield should be proportionately low, If the product has poor smoking puallty, teinforceplent either with flapoura or even aeroaol booaters auch sa glycetin to increase I~o~e texture, oat be needed, 'lhis is highly innovative research calling for ePoltr fhr~l~trg backed by ingenious materials technology; special sheet or even extruded materials way be reguiredl we believe that a team should be dedicated to this project, based in Southampton, and with a project Iaoaget who Ist well not be a scienti~t~ inputs from other funcrioos (marl(eting, legal, public affairs, will be vitil)~ As purely an indication of likely resource, we believe that the project would take 3·4 felts costing EO,S In in the first lear, E0,8 In in the second and rising to E1.5 an for year 3 or 4 as engineering reaources are committed, ID addition, we feel that It would be wrong at this stage not to develop a product close to the Reyoolda specification but outside of their patents (the probability that one of their patents will issue is rated as high), in a lapse, this is the pete difficult challenge since performanca is specified and roon for Panoeuvte is low, Tiieacale could be short, particularly If Re!nolds launch in 1989, Again, we conclude that a dedicated core reap should be assigned to this Project, thia tiPa ceotred on IbV, but drawing oz expertise particularly fro~ SOUthllPPtOD and BaPburg~ Costs at this stage would be very aimilat to the previous project, although the fun expenditure rate with engineering resources committed could come much sooner, Together, therefore we ate tcgucstiPg agreement to two additional projects calling for new staff nod eguipnant tour Current staff resources some 10X down OR 1986 are heavily coPiitied to shorter term activity), Ihese profects are for the Group and should therefore be funded by CAC companies, No doubt, the projects will be highly interactive, and as the positiou surrounding the RJR or others initiatives unfold, we cao expect to alter emphasis and perhaps eliminate one approach, Ar this stage, we should look or moxiPun resources raquirePent, The funding issues are suPnatised in the following tabla:- Clil; PDF -!::!!::!!::!.f3 StlC.i: 0111 Group ID Expenditure (inct lev Projects) 1987 1988 1989 1990 1991 Current 2 1 2 Z Z Fundamental Research Projects at Soutbampton BAT *preferred' I O~i j 018 j 1,I 111 neo product "IUR" copy 1 o., i I.I j ,.i 1,0 Balance of 28 I " 28 1 28 !8 Group IBO expense TOiU 30 1 31~0 ,,,,,., 32,5 (E millions quoted in 1987 terms) Increased Group Fundamental Ileseareh - Basis for toed funding Proposed future costlcontr:butions 1987 19BB 1989 1990 : 1991 Goat Southampton 2,0 2,5 218 312 3,5 USA 2~0 I 0,5 1.01.5 1 1,0 Proposed Contributions USh 0,55 30 0l90 1.14 1.11 1,35 U~R 0,55 25 0,75 0.95 1,18 1113 Germany 0,4 19 0,57 0.72 O~B9 0,86 Cavda 0,3 19 0,57 0.72 0,89 0~86 Australia 0.2 1 0,21 0.27 0.33 0,30 a Suggested 2 division of coat arbftarily reflecting turnover sad relative site of company R60 effort, Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 I ~_ APoendix hates on IJR Saol;clrll eigarerte in Pid·Scp~cobtr BtJ, Retoolds announced its intention to test oir~at, during 1988, 1 product that would be *the world's claanest cigarette' · producing little #o~c, no tar, no ash and no snell, So far, apart from a video clip from the press Release, no one in SAT appears to have seen this product, however, broad details were disclosed at the presa Coaference and 1JR have detailed patents aurroundlng this di~closurel Technical i, The product has a conventional cigarette appearance but works quite differentllr. A Blowing carbon heac sourer st the lighting end provides heat (thtough metallic contact) to a capsule containing flavoura and glpcerin, The capsule ia surrounded by tobacco in a compartient ab~ttiog a conventional filter, 2, The heat source causes Polatilisation of 1 Blfcerlo aerosol containing nicotine and flavours · no tobacco is combusted. This aerosor is Inhaled and rapidly dissipates on Ixhalirionl 3, Apart from a tow emission of sidestream It light-up, no sfdestreae particulates are formed · we do nor know whether sldestream gases are formed, Parent position 1, There are three BJR European patent Applications (with OS counterparts) that are relevant to this new prQdUCtl The applications are vert wide with a nultiplicitJ of claims, 2, Appllcatione have been filed for 111 the important European countries, as well as a wide range of Pan-European states (at least 20 filings for each pateor)~ 31 This is indicative of a serious background to this project, Oe have also heard from BLV chat a tobacco art examiner at the VS patent Office received I delegation from RfR including an ia·house attorac~, outside counsel, litigation counsel and the inventor~ This is abnorPall Ve believe that one of the 8S Applications pt least, will be grsntedl 5. Tha BAl Invention known II Project Ariel, patents on which have all expired, relate to the B~R patents and have been cited as prior art of general technical background st~~ui~ We Intend to attempt to raise its categorl in order to restrict BJR's patent coveOl Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111 ·2- bI Ya have also found other prior art which we intend to bring to the Ixaniner'a attention, t, The Group hee three Ietent Ipplic~~ioai relevint to the eree of eltarnatlva products · the Hicotine Delivsrt filter, the AcrDiol Device I oodi[ting feature to the FAVOR devicel 8~ on rhe broad front of elternetfve or ~~Pul~~cd Elgerettee, there ii a large bodg of p~ten~ literature which ia being anslJaed (thla procesa will be wore purposeful when we have decided on our litel~ route), HarketinglPublfc Atfalrs 1~ The initial snoounceieot precipltstcd " variety of reactions iron ~he media, reBUldlOly bodies, industtt officials end so 2, The isplicatiops will be dr~vn that ordinary cigarettes that burn tobacco are unhealthy, RJR have pot handled this well to datel 3~ 'I1 ImoH~g too far gone os soclellt uneeccptible to be revived by such a product", is a view that has been ooiccd~ 4, The sPdkef has hlstoricallg proved reluctant to trade-off traditional attributes, particularly if asked to do so for non-scoters' bencfits~ Bow well the product peets his cxpcc~arioni is by no Peaoa predictable, 5~ Ibi product is cleerll Pot through 111 the testing protocols, including biological - the use of gl~cerio requires clearance for fnhalatioo, RJ8 ea~ that all their test wort will be lolilsbll for review by the scientific eooPunitJ, This constitutes quite I strong public affairs plo~, 6. There L~e alreodt been runblloga that sloce robicco is not corpbuated, this product is pot a cigarette, If this view is upheld, the product, dispensing nicPtiPe II it dcci, uill fall under FDA regulation, SumParl R~R appeir Lo hive reicted nrher dt~Pi~ie~llg end puickl~ to the paislPa sioilng issue with this product. Testing is iPeoiplire end the ~lrv~ of the lu~horitiei could he nelitlPr, It is clilied thsr RJR were forced to elirlf~ their ten wor\(, videl! rumoured to be vert aignificant, following I lest, in I1 view the Icil could be intentiontl - e nope to get the issues 'on the table" and clarified before ~uch highit developPent costs are generated in RJR. if this initiative clarifies, far instance, the definition of " cigarette or clears the use of gllcerin in Inhslation, the eigerette busincsi nill enter e new era - uitl s strong technological basis. ALRIDET 27th October 1987 B Clit; PDF -!::!!::!!::!.f3 StlC.i: 0111