The Food and Drug Administration (FDA) is trying to pull one of the biggest and most popular e-cigarettes off the market, paving the way for its rival to become the unassailable leader of smoking alternatives.
Although the regulatory agency dealt what appeared to be a fatal blow to Juul Labs by rejecting its application to market the Juul device and forcing it to remove all of its products from store shelves, Juul was granted a reprieve. temporary appeals court, which stayed the order. until he can rule on the merits of the case.
Juul is partly owned by the tobacco giant Altria (MO 2.09%), which acquired a 34% stake in the e-cig maker in 2018 for $12.8 billion. If Juul fails to convince a court that the FDA’s decision is “arbitrary and capricious and lacks substantial evidence,” as it claims in its filing with the United States Court of Appeals for the DC Circuit, it will be a punch for what was at one time the dominant e-cig that may ultimately lead to bankruptcy.
It would be an inglorious ending for this one-time thief who saw his fortunes wane while under FDA scrutiny for increased e-cig use among teens, but would open the doors to the rival of Altria. British American Tobacco (RTC 3.34%) to virtually own the market with his Vuse e-cig.
Hail to the new king
Juul was the undisputed leader in e-cigs with a nearly 80% market share, but the FDA hammered the company over its design, marketing and ingredients, which it says prompted teens to take up vaping.
The agency has cracked down hard on the e-cig industry, including retailers, targeting illegal sales to underage users. The FDA also banned all flavored e-cigs, despite their popularity with adults, because teens loved them too.
Juul responded by launching a $30 million marketing campaign against teen vaping and speaking out in favor of raising the legal age to purchase tobacco, but the drumbeat of negative press surrounding the device hurt sales. Juul’s market share evaporated and Vuse overtook Juul for the first time earlier this year.
The latest data from Nielsen puts Vuse’s share at 35.1% compared to Juul’s 33.1%. NJOY, third, is far behind the leaders with a relatively microscopic share of 3.1%. While NJOY and other e-cig makers will no doubt attract a few Juul users after the device is banned, it’s British brand Vuse that will almost certainly be crowned the indomitable king of e-cigs.
Defeat all comers
British American Tobacco is on the rise. Last year, he got a ruling from the U.S. International Trade Commission that Philip Morris Internationalit is (PM 1.80%) The IQOS heated tobacco device infringed its patents, and this device was banned from importation and sale in the United States
Altria had partnered with Philip Morris, the world leader in e-cigs, to market and distribute IQOS in the United States. It had already introduced it in three states and planned to roll out the device nationwide by the end of last year, but the ITC decision put the kibosh on those plans.
Because Altria had also previously shelved its own brand of e-cigs MarkTen in favor of an alliance with Philip Morris, it is the only major tobacco company not to sell its own e-cig device. and the FDA all but wiped out the rest of its investment in Juul. At the end of the first quarter, Altria reduced the fair value of its Juul position to just $1.6 billion.
If the FDA succeeds in killing off Juul, British American Tobacco will have virtually no obstacles in its path to market dominance.
A profitable business
Vuse became profitable in the United States for British American in the second half of last year, and it was able to increase its share as it reduced the device and consumables to attract users. Earlier this month, he said he was now ready to raise prices for both, which, with a major competitor pulled out of the market, should give the tobacco stock a big boost in profits.
Vapor’s revenue rose 59% last year to £927m, while its own heated tobacco products, marketed under the glo brand, saw a 46% rise in sales to £853m of pounds sterling. While British American still generates 85% of its revenue from cigarettes and other combustible products, the smoking alternatives segment is its fastest growing business.
Now that the FDA has crowned it king of e-cigarettes, look to vapor and heated tobacco sales to create a deep competitive gap that few rivals might be able to bridge.
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