Altria said it will stop selling its e-cigarette pods and pull most of its flavors from the market, responding to the Food and Drug Administration's request for plans to curb "epidemic" levels of use among teens.
In September, the FDA ordered five manufacturers — Juul, British American Tobacco's Vuse, Altria's MarkTen, Imperial Brands' Blu E-cigs and Japan Tobacco's Logic — to submit plans within 60 days on reducing teen use. Altria is the first company to publicly share its response to the agency.
In appeasing the FDA, Altria has more to gain than lose.
E-cigarette sales made up a fraction of Altria's $25.6 billion in revenue last year. So dropping some e-vapor products won't impact its earnings as much as companies like San Francisco start-up Juul, which sells only e-cigarettes. Supporting federal regulators in removing products the FDA sees as driving "epidemic" use among teens also may help eliminate some competition.
FDA Commissioner Dr. Scott Gottlieb, among others, says the products are potentially less harmful options for adult smokers than smoking. This position has been challenged as nicotine use among teens rises. Preliminary federal data show the number of high school students using e-cigarettes surged 77 percent this year with about 20 percent of them using the devices within the last 30 days.
"The current situation with youth use of e-vapor products, left unchecked, has the potential to undermine the opportunity for adult smokers," Altria CEO Howard Willard wrote in a letter addressed to Gottlieb. "Because we believe in the long-term promise of e-vapor products and harm reduction, we are taking immediate action to address this complex situation."
Altria will remove its MarkTen pod-based products and will stop selling all flavors except for menthol or tobacco in its cig-a-like products until the FDA reviews and approves them. Cig-a-like devices are designed to look like a cigarette. Altria also supports federal legislation to make 21 the minimum age to buy tobacco products.
The maker of Marlboro and Virginia Slims, Altria sold just $220.3 million of e-cigarettes over the last year ended Oct. 6, according to Nielsen data compiled by Wells Fargo analyst Bonnie Herzog. That represents just 6 percent of the total $2.52 billion e-cigarette market. In comparison, market leader Juul generated $1.5 billion in revenue, or nearly 60 percent of all sales over the past year.
While e-cigarette makers say the devices are intended to help adult smokers quit, federal regulators say the sweeter flavors, like strawberry brulee and hazelnut cream, tend to attract teens. Altria agreed.
"As we looked at the data that is available and some of the remarks from the FDA, I think we concluded that the driver of the recent increase we think is pod-based products and in flavored products," Altria's Chief Financial Officer William Gifford told analysts on an earnings call Thursday.
The Big Tobacco company is far more dominant in selling conventional cigarettes. Over the past year, it has sold $33.19 billion, or 55 percent of the entire $60.23 billion cigarette category. Its best-selling brand, Marlboro, accounted for $28.8 billion, or 87 percent of Altria's cigarette revenue.
Additionally, Altria needs the FDA right now to enter what could be a new lucrative market, heat-not-burn. Philip Morris International is awaiting a decision from the FDA on whether it can introduce its heat-not-burn device, iQOS, in the U.S. If the agency clears it, Altria will sell it in the U.S.
Similar to e-cigarettes, the product is billed as a less risky alternative for current adult smokers. Philip Morris CEO Andre Calantzopoulos has said iQOS isn't as appealing to kids as e-cigarettes might be because they use real tobacco and only come in tobacco and menthol flavors, not fruity ones.
Altria has not given any financial estimates for iQOS. However, there are currently about 38 million adults who smoke in the U.S., according to the Centers for Disease Control and Prevention. Philip Morris has introduced iQOS in 43 markets so far, with the product generating $823 million in revenue during the third quarter, or 11 percent of its $7.5 billion total revenue.
The FDA said in a statement that it "appreciates any voluntary steps companies can take to address the youth access and appeal of e-cigarettes ... all policy options are on the table."