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Juul Labs increases debt offering amid FDA review

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Juul Labs has raised almost $800m in the face of escalating regulatory scrutiny of the US ecigarette market it leads, in a sign of investors’ confidence in a vaping technology that lies at the heart of a potential $200bn merger between Philip Morris International and Altria.

The company disclosed in a filing today that it had expanded a $325m convertible debt offering announced earlier this month. Fourteen investors have now contributed $785m to the offering, which is expected to go toward Juul’s global expansion efforts as it faces a growing backlash at home.

Juul’s amended disclosure came hours after the US Food and Drug Administration and the Centers for Disease Control and Prevention announced that they were reviewing 215 possible cases from 25 states in which “severe respiratory disease” has been linked to ecigarette consumption.

$13bn


the amount Altria paid last year for a 35% stake in Juul Labs

One adult ecigarette user in Illinois died last week after being sent to hospital with a respiratory illness, escalating investors’ concerns about a further clampdown on vaping.

The CDC said on Friday that e-cigarettes should not be used by young people or pregnant women, adding that other consumers concerned about the possible risks should consider refraining from the use of e-cigarettes pending the completion of its investigation.

Juul, which launched only in 2015, now commands more than 70 per cent of the US ecigarette market. The FDA and CDC did not single out any one company as being the focus of their investigation, however, saying instead that “there does not appear to be one product involved in all of the cases”. It added that many of the cases it was investigating involved cannabis extracts such as THC.

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The regulatory outlook for e-cigarettes has become a subject of new urgency for investors after news broke this week that PMI, which makes Marlboro cigarettes outside the US, is in talks about a possible $200bn merger with Altria, the American counterpart which last year paid almost $13bn for a 35 per cent stake in Juul.

Buying Altria could give PMI access to the fast-growing US ecigarette market while allowing it to use its network to accelerate Juul’s international distribution. The Lausanne-based company is separately introducing its own heated tobacco product, Iqos, to the US through a licensing deal with Altria.

Shares in both tobacco companies fell this week as investors and analysts questioned the rationale behind the proposed deal, with Altria’s stock also coming under pressure on Thursday from a report of a possible Federal Trade Commission investigation into Juul’s marketing.

Juul is also battling a San Francisco ban on the sale of e-cigarettes that will go into effect next year. The law requires that vaping products be approved by the FDA before being sold in stores, a hurdle Juul has said will punish adult smokers looking to switch from traditional cigarettes.

The company announced on Thursday a new scanning system for verifying the age and identity of retail customers, as it tries to convince regulators that it is investing in security procedures to keep its products out of the hands of children.

The FDA in November last year announced a ban on most flavoured versions of e-cigarettes, and the Trump administration continues to signal its intent to crack down on youth vaping. Alex Azar, President Donald Trump’s health secretary, said on Friday: “We will continue using every regulatory and enforcement power we have to stop the epidemic of youth ecigarette use.”

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JPMorgan is advising Juul on the convertible debt placement.

Via Financial Times

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