The FDA under former Commissioner Scott Gottlieb had waged an aggressive campaign against e-cigarette use by teenagers, in particular, and Juul was fast in his sights for marketing that he alleged specifically targeted young people. The company’s vape pens had become popular with teens, who were drawn to flavors, including crème brûlée, cucumber and mango, that are now banned from convenience stores and gas stations.
Gottlieb threatened to fully ban pod-based vaporizers such as Juul’s if underage vaping were to continue to increase. He described the popularity of the devices as an epidemic, a characterization that was echoed by the U.S. Surgeon General .
In the last week as concerns about the lung disease outbreak have grown, Walmart /zigman2/quotes/207374728/composite WMT +0.32% said it would stop selling e-cigarettes, Massachusetts announced a four-month ban on vaping products and California warned its citizens to stop vaping immediately.
Altria spun off Philip Morris in 2008 to allow it to focus on its international tobacco business and let Altria focus on the U.S. market. The two companies hold a portfolio of cigarette and tobacco brands led by Marlboro, which is sold by Altria in the U.S. and by Philip Morris overseas.
Analysts had questioned whether a deal between the two would really constitute a merger of equals.
“We see significant valuation risks from the perspective of PM shareholders, as we suspect that the combined entity would be unlikely to trade at PM’s premium valuation with ~40% of earnings exposed to U.S. regulatory risks and slower growing U.S. market,” Bernstein analyst Callum Elliott wrote when the talks were announced.
Altria has also expanded into the cannabis sector via a 45% stake in Canadian cannabis company Cronos Group Inc. /zigman2/quotes/206842762/composite CRON -2.96% , for which it paid $1.8 billion last year. The company also owns a wine business and a stake in beer company Anheuser-Busch InBev /zigman2/quotes/209225053/composite BUD +1.67% .
The IQOS product is a heated tobacco product that is the only one to have premarket approval from the U.S. Food and Drug Administration.
“IQOS is not an e-vapor product,” the companies said in a statement. “PMI submitted a comprehensive body of scientific evidence in support of this premarket authorization and of the parallel applications for IQOS as a “Modified Risk Tobacco Product,” which the FDA continues to review.”
Meanwhile, Altria tightened its full-year guidance and said it now expects adjusted per-share earnings to range from $4.19 to $4.27, versus a prior range of $4.15 to $4.27. The company is still expecting 2019 domestic cigarette industry volumes to fall 5% to 6%.
Philip Morris shares have gained 17.2% in 2019, while Altria has lost 17.5%. The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.84% has gained 18.3% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.47% has gained 14.9% so far this year.