‘BAT key beneficiary of Juul MDO’

The removal of Juul products from the U.S. market would boost the prospects of British American Tobacco, create opportunities for Philip Morris International but represent a problem for Altria Group, according to Morgan Stanley.

In a letter to investors, the financial institution evaluated the impact of the U.S. Food and Drug Administration’s leaked plans to deny Juul Labs’ premarket tobacco product application (PMTA). While the FDA has not issued a formal statement yet, shares in Altria Group were down more than 9 percent in the immediate wake of the news. Altria owns about a third of Juul Labs.

According to Morgan Stanley, Juul is Altria’s only exposure to the growing vapor category. While a Juul marketing denial order (MDO) would give Altria an opportunity to terminate its noncompete agreement with Philip Morris International, allowing it to step-up its vapor product research and development or acquire vapor technology, the company would not be coming from a position of negotiating leverage, according to the investment bank.

“In addition, there are few larger scale independent e-vapor assets on the market,” wrote Morgan Stanley.

The investment bank believes that removing market leader Juul from U.S. store shelves would create opportunities for other products, such as PMI’s IQOS heat-not-burn device, which has already received PMTA approval.

The key beneficiary of a Juul MDO, however, would be British American Tobacco, according to Morgan Stanley.

Several of the company’s products have already received PMTA authorizations, the investment bank points out. Though its Vuse brands, BAT recently overtook Juul as the leading U.S. e-cigarette player with a market share of more than 33 percent. The company has gained significant momentum in the category over the past 24 months and a Juul MDO could lead to further BAT market share gains, according to Morgan Stanley.