Philip Morris, the nation's leading cigarette maker, said yesterday it intends to launch a ''reduced-risk'' cigarette next year.

If so, it might compete against Advance Lights, a similar cigarette made by Louis-ville's Brown & Wil-liamson that's being tested in Indiana-polis. ''The test is going quite well,'' said Brown & Williamson spokesman Mike Smith. ''It's exceeded our expectations.'' Philip Morris did not disclose details of its new product, which was mentioned in a statement released after a company presen-tation at a Pruden-tial Securities' in-vestors conference in Boston. Philip Morris is one of many companies working on such cigarettes, and its statement said only that ''we are working toward putting a conventional cigarette line ex-tension and a first-generation reduced-risk product into the marketplace in 2003.'' At the conference, Michael Szymanczyk, chief executive of Philip Morris U.S.A., said the company faces increased pressure from deep-discount cigarettes. ''Recently, the competitive en-vironment has become even more challenging, characterized by weak economic conditions, erosion of consumer confidence, a continued influx of cheap pro-ducts and higher prices due to higher state excise taxes and list-price increases,'' he said. He said Philip Morris' retail share declined 0.1 of a percentage point to 50.7 percent in the first quarter of this year, compared with the same period last year, and to 50.2 percent in the second quarter, a 0.7 percentage point decline from the second quarter of 2001. ''The deep-discount products of manufacturers of numerous smallshare brands have grown market share, putting pressure on the industry's premium segment,'' he said. In July, Philip Morris announced plans to invest about $350 million in its premium cigarette brands and retail presence in an effort to boost volume and market share. Szymanczyk said yesterday that the increased promotional efforts will fo-cus on its four main brands -- Marlboro, Parliament, Virginia Slims and Basic -- and that most of the spending will be in the fourth quarter, which starts Oct. 1. Martin Feldman, an analyst with Merrill Lynch, said Philip Morris may face slightly greater pressure than other manufacturers. Despite that, ''earnings growth potential remains enormous,'' he said, projecting profit growth of 9 percent to 10 percent for this fiscal year. Philip Morris stock is down about 17 percent from its 52-week high, and fell on the New York Stock Exchange yesterday by $1.71, or 3.5 percent, to $47.80. Brown & Williamson, meanwhile, began testing Advance Lights in November, and extended the test through the end of this year. ''We're pleased with the results,'' Smith said. ''We're learning a lot about the market and the appeal of this kind of cigarette.'' He wouldn't disclose numbers, but said the new cigarette ''has appealed to both men and women, and to smokers of premium brands as well.'' Brown & Williamson, a subsidiary of British American Tobacco of London, has made no claim that Advance Lights is a safe cigarette, or even that it reduces the health risks of smoking -- but has said it is an important step in the right direction. The cigarette has significantly lower levels of 42 toxins, such as formaldehyde and benzene, but has about the same levels of tar and nicotine as conventional light cigarettes. Attempts to market cigarettes with lower levels of hazardous chemicals are not new. About 25 years ago, Brown & Williamson tried a cigarette with lower carbonmonoxide levels that had no consumer appeal and was withdrawn. In 1988, R.J. Reynolds tried Premier, a cigarette that heated rather than burned the tobacco, but it was a flop. Last November, Vector Group started selling Omni, touted as a reduced-carcinogen cigarette.

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