By Jennifer Maloney and Thomas M. Burton
The Food and Drug Administration said it would bar the sale of
fruit- and mint-flavored e-cigarette cartridges -- dealing a severe
blow to one of the industry's biggest players and placing more
pressure on manufacturers already facing a May 12 deadline for
federal review of their products.
The FDA said on Thursday it would block the sale of fruit and
mint flavors in cartridge-based e-cigarettes popular with young
people, but wouldn't apply the restriction to tank vaping systems
commonly found at vape shops.
E-cigarettes, most of them cartridge based, generate $6.4
billion in annual U.S. sales while tank vaping systems generate
$2.6 billion, according to Wells Fargo. Cartridge-based vaporizers
such as those made by Juul Labs Inc. are sold in gas stations and
convenience stores as well as tobacco and vape shops. Tank-based
systems and their accompanying nicotine liquids are sold primarily
in vape shops, but are also available online and in some
convenience stores. Major retail chains such as Walmart and
Walgreens stopped selling all vaping products last year.
Federal officials framed the decision as a compromise that
addresses concerns about youth vaping while not putting vape shops
out of business.
Health and Human Services Secretary Alex Azar said the move
"seeks to strike the right public health balance by maintaining
e-cigarettes as a potential off-ramp for adults using combustible
tobacco while ensuring these products don't provide an on-ramp to
nicotine addiction for our youth."
The FDA's move was first reported by The Wall Street Journal
Tuesday.
Even so, the action came under fire from some public-health
groups and lawmakers, who said the action is inadequate to stop a
surge of e-cigarette use by high-school and middle-school
students.
"I'm deeply disturbed that industry lobbyists were able to get
President Trump to gut the ban on flavors that the FDA was
belatedly planning," said Sen. Jeff Merkley (D., Ore.).
The move is "a major missed opportunity that will still leave
young people at risk for addiction," said Sally Goza president of
the American Academy of Pediatrics.
Mitch Zeller, director of the FDA Center for Tobacco Products,
said the agency will closely monitor manufacturers and retailers to
ensure the new regulations are sufficient to combat e-cigarette use
by children. He said there will be penalties for companies that use
labeling and advertising that is appealing to youngsters -- or fail
to monitor retailers' compliance with the restrictions.
E-cigarette market leader Juul last fall voluntarily stopped its
U.S. sales of all flavors other than tobacco and menthol -- the
only two flavors of e-cigarette pods that will be allowed on the
market after the agency's policy goes into effect in February.
But for NJOY Holdings Inc., which last year became the No. 2
e-cigarette maker with its Ace e-cigarettes, the ban will wipe
products representing more than 75% of its sales from the market,
according to Barclays analysts.
A person familiar with the company said that estimate didn't
take into account NJOY's disposable e-cigarettes, which won't be
affected by the ban. The person added the restriction would apply
to products representing about 60% of the company's sales.
NJOY made gains last year by offering its Ace vaporizers for 99
cents and selling flavors like blueberry and watermelon after Juul
had voluntarily pulled its fruit flavors from U.S. retail
stores.
"I think in a world of just tobacco and menthol, Juul will win
and NJOY market share gains will erode," Gregg Smith, an investor
in both companies, said Thursday.
When the FDA asserted regulatory authority over e-cigarettes in
2016, the agency allowed products already on the market to stay
there during a grace period of several years so that manufacturers
could prepare application materials before submitting them for
agency review by a deadline recently set for May 12 of this year.
All of those products since then have remained on the market at the
agency's discretion, but could be pulled off at any point.
Agency officials Thursday said they would selectively revoke the
grace period, allowing tobacco- and menthol-favored e-cigarette
cartridges to remain on store shelves while other flavors would
have to come off.
FDA officials said the new policy would go into effect in early
February, 30 days after the agency's guidance is published. They
said the guidance would be posted early next week.
Just a few months after the restriction is implemented, the May
12 deadline for e-cigarette manufacturers is expected to yet again
throw the industry into turmoil.
By that date, manufacturers must submit for FDA review any
vaping products they want to remain on the market beyond that
point, even those that taste like menthol and tobacco. They can
also apply to bring fruit-flavored items back on the market.
No vaping product -- even the open tank systems that for the
next few months have a reprieve -- can remain on store shelves
after May 12 if it hasn't been submitted for review by the
agency.
Reynolds American Inc., a subsidiary of tobacco giant British
American Tobacco PLC, already has submitted applications for some
of its Vuse e-cigarettes. Juul had been preparing application
materials on four flavors -- mint, menthol, mango and Virginia
tobacco -- but now plans only to submit applications for menthol
and Virginia tobacco for the May deadline, according to people
familiar with the matter.
NJOY plans to submit applications to the FDA by March, according
to the person familiar with the company.
NJOY in 2007 introduced a pioneering disposable cigarette-shaped
device. Early investors included billionaire venture capitalist
Peter Thiel and Napster founder Sean Parker. But the company was
eclipsed as its new version of the device flopped and bigger
players entered the market. The company went into bankruptcy in
2016 and exited bankruptcy a year later. Its most recent funding
round in December put the value of the company at $2.5 billion.
Reynolds called the FDA's new policy "a positive step as it sets
a level playing field for the entire U.S. industry." Juul said it
supports the new restriction.
Studies showing e-cigarettes generally safer than regular
cigarettes are quite compelling, the National Academy of Sciences,
Engineering and Medicine wrote in an extensive report two years
ago.
That safety issue has been under a microscope through much of
2019, as thousands of people became sick and dozens died from a
vaping-related lung illness. However, evidence thus far -- while
not exculpating e-cigarettes themselves -- points to largely
black-market products containing THC, the psychoactive ingredient
in marijuana.
Write to Jennifer Maloney at jennifer.maloney@wsj.com and Thomas
M. Burton at tom.burton@wsj.com
(END) Dow Jones Newswires
January 02, 2020 18:46 ET (23:46 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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