Juul boss exits in vaping crisis
The chief executive of e-cigarette maker Juul stepped down on Wednesday as merger talks between its biggest investor Altria Group Inc. and Philip Morris International Inc. collapsed in the face of a regulatory backlash against vaping that could reshape the industry.
Juul Labs, in which tobacco giant Altria Group owns a 35-per-cent stake, is facing intense scrutiny in its home market as teen use of e-cigarettes surges. The company, which faces a U. S. ban on some products, said on Wednesday that it would suspend all advertising in the country.
Marlboro makers Philip Morris International and Altria, announcing the end of their US$ 187- billion merger talks, said they would instead focus on the joint launch of tobacco- heating product IQOS in the U.S.
“It appears to us the talks fell apart over Juul,” Wells Fargo analyst Bonnie Herzog wrote in a note, adding she was not surprised, given the litany of negative health headlines. Philip Morris and Altria did not mention the e-cigarette firm, however.
Vaping devices such as Juul’s, which vaporize liquid containing nicotine, have borne the brunt of the regulatory crackdown globally.
The IQOS, which heats but does not burn tobacco, has been authorized by the U. S. FDA.
When the talks were announced last month, the potential for Juul and IQOS to dominate vaping markets globally was seen as central to the logic of a deal. It would have seen the tobacco firms reunite a decade after their split and created an industry heavyweight with a combined market value of US$187 billion, triple its closest rival British American Tobacco.
However, some investors were skeptical of the synergies the deal would generate and a steady rise in number of vaping- related deaths and illnesses reported in the United States may also have changed the companies’ thinking.
“After much deliberation, the companies have agreed to focus on launching IQOS in the U. S. as part of their mutual interest to achieve a smoke- free future,” Philip Morris CEO André Calantzopoulos said.
The Trump administration in the United States has announced plans to remove all flavoured e- cigarettes from store shelves due to the rising appeal among teens.
The share of high school students using e- cigarettes has more than doubled over the past two years, with 27.5 per cent reporting they had tried an e- cigarette in the past month, according to preliminary federal data released this month.
U. S. health officials are also investigating an outbreak of hundreds of severe lung illnesses and nine deaths linked to vaping.
In its announcements on Wednesday, Juul also said it would not lobby the administration over the proposed ban on flavoured products.
The FDA earlier this month warned the company about marketing its products as safer than traditional cigarettes and requested more documents and information within 30 days.
Federal prosecutors in California are conducting a criminal probe into e- cigarette maker Juul, The Wall Street Journal reported on Tuesday, though the focus of the probe was unclear.
Elsewhere in the world, South Korea and India last week became the latest countries after Brazil and Thailand to ban or warn about the sale of e-cigarettes.
Stifel analyst Christopher Growe said Altria, which holds the license to sell IQOS in the U.S., would embark on a “full-force” effort to launch the product, taking advantage of being the only tobacco-heating product approved for sale. The company is expected to launch the product in Atlanta “imminently” and then quickly broaden distribution, he said. Philip Morris will sell IQOS in all other markets.
Juul said it was replacing CEO Burns with K. C. Crosthwaite, a Philip Morris USA veteran and most recently chief strategy officer of Altria, a sign of Altria’s growing influence over Juul after its US$ 12.8- billion investment in the e- cigarette maker last December.