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PM Philip Morris International Inc

91.62
-0.61 (-0.66%)
29 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type
Philip Morris International Inc NYSE:PM NYSE Common Stock
  Price Change % Change Share Price High Price Low Price Open Price Shares Traded Last Trade
  -0.61 -0.66% 91.62 92.70 91.55 92.53 5,348,378 00:00:00

Juul CEO Steps Down As Vaping Crisis Grows -- WSJ

26/09/2019 8:02am

Dow Jones News


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By Jennifer Maloney and Cara Lombardo 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 26, 2019).

The chief executive of e-cigarette startup Juul Labs Inc. abruptly stepped down on Wednesday, as U.S. efforts to combat underage vaping threaten to upend the trendy alternative to smoking.

Questions around the future of Juul and vaping regulations also prompted two tobacco giants, Altria Group Inc. and Philip Morris International Inc., to call off talks about a potential merger.

Juul, which is the target of several federal investigations, replaced Chief Executive Kevin Burns with an executive at Altria, which owns a 35% stake in the e-cigarette maker. Juul also said it wouldn't fight a proposed U.S. ban on most e-cigarettes.

At an all-hands meeting Wednesday at Juul's San Francisco offices, the newly anointed boss, Altria veteran K.C. Crosthwaite, told employees his appointment wasn't a sign that the Marlboro maker was taking over, a person familiar with the matter said.

Juul faces a potentially crippling U.S. ban on most of its products and cited the need to focus on regulatory matters for the leadership shift. The fast-growing company said it would suspend all broadcast, print and digital advertising on its U.S. products.

Merger discussions between Altria and Philip Morris, which split apart a decade ago, were spurred in part by the threat Juul posed to their traditional businesses as some smokers switched away from cigarettes.

The two sides had been negotiating for weeks but the Philip Morris board became increasingly uncomfortable with the deal amid the shifting U.S. regulatory environment, according to people familiar with the matter.

Trying to salvage the merger talks with Philip Morris, Altria raised the possibility of a leadership change at Juul, some of the people said. But the Philip Morris board remained divided and without unanimous support, the people said, the parties decided to abandon the merger.

Altria and Juul both said Wednesday the leadership change was Juul's decision. Mr. Burns told staffers that after taking a small startup and building it into a global company with thousands of employees, he was ready to hand over the reins.

Altria and Philip Morris said they would focus on the launch of their own joint cigarette alternative in the U.S., a heat-not-burn tobacco device called IQOS. Unlike Juul, IQOS has been reviewed and authorized by the Food and Drug Administration.

Shares of Altria fell 0.4% in trading on Wednesday, while stock in Philip Morris, many of whose investors opposed the potential deal, gained 5.2%. Shares of both companies have slumped this year, amid signs that traditional cigarette sales were slowing and concerns about the potential merger.

Altria CEO Howard Willard said the proposed U.S. ban on e-cigarette flavors would hurt Juul's business and vaping products next year, but it was unclear exactly what restrictions the FDA was preparing.

"I continue to believe Juul will continue to be successful and a good investment for Altria in the long run," Mr. Willard said in an interview, noting that Juul's products have converted millions of adult cigarette smokers in the U.S. and are entering new markets abroad.

Mr. Willard said that Mr. Crosthwaite, who headed up Altria's IQOS efforts, would "work in a responsible way" with the FDA and other regulators to address youth vaping. Mr. Willard said he was still confident Juul could get approval from the FDA when the company submits applications for review next year.

Citing the surge in underage vaping, President Trump's administration said earlier this month that it planned to ban all e-cigarettes except those formulated to taste like tobacco.

The banned flavors, including mint and menthol, represent more than 80% of Juul's sales.

U.S. health officials viewed e-cigarettes as a safer alternative to smoking and allowed products like Juul to remain on the market before they were reviewed by the FDA. Juul and others now face a May 2020 deadline to apply for FDA review of any vaping product they want to sell beyond that date, including flavored e-cigarettes.

Juul is still conducting clinical trials on its products, including mint and menthol flavors, to gather information that it plans to submit by May, according to people familiar with the matter.

Altria pulled its own e-cigarettes last year when it decided to invest in Juul. Meanwhile, rival Reynolds American, which sells Camel and Newport, plans to file in the coming weeks for FDA review of its Vuse e-cigarettes, whose sales have been dwarfed by Juul. Reynolds American is the U.S. unit of British American Tobacco PLC.

Federal health officials and antitobacco groups blame Juul for a sharp rise in underage vaping. Juul said that it hasn't targeted teens, that it has taken steps to combat underage purchases and that its products are intended for adult cigarette smokers who want to switch.

Mr. Burns, a former partner at private-equity firm TPG Capital and executive at yogurt maker Chobani, joined Juul in December 2017. The startup was growing quickly and its sleek vaporizers, introduced in 2015, had already become a teen status symbol and growing problem in U.S. schools.

In 2018, Juul struck a deal with Altria, which invested $12.8 billion in Juul for its 35% stake and several board seats that are pending antitrust review. Mr. Crosthwaite became a nonvoting observer on the board. The deal valued the startup at $38 billion and made many of its employees millionaires.

Now, Juul is the subject of several investigations, including a criminal probe by prosecutors in California, The Wall Street Journal reported this week. It also faces investigations by the FDA and Federal Trade Commission into its marketing and business practices.

U.S. health officials have urged adults to stop vaping while the federal Centers for Disease Control and Prevention investigates a rash of respiratory illnesses that have sickened hundreds of people and caused eight deaths. Juul hasn't been linked to the illnesses.

Juul's U.S. sales fell in August as officials raised the alarm about the illnesses, dropping to $278 million in the four weeks ended Sept. 7 from $294 million in the four weeks before that, according to a Wells Fargo analysis of Nielsen data.

Ned Sharpless, the acting FDA commissioner, said the agency moved too slowly to avoid the vaping health crisis. "We're going to catch up," Dr. Sharpless said Wednesday amid criticism of the FDA's response at a congressional hearing.

--Thomas M. Burton contributed to this article.

Write to Jennifer Maloney at jennifer.maloney@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

 

(END) Dow Jones Newswires

September 26, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.

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