MO Altria Group Inc

E-cigarette maker alienated regulators, helping create a crisis that imperils its future

By Jennifer Maloney and Stephanie Armour 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (September 23, 2019).

Juul Labs Inc. pursued a strategy to win over Washington. But the e-cigarette maker wound up further alienating regulators, helping to thrust the once-soaring startup into a crisis that threatens its business.

Facing scrutiny stemming from surging teen use of its vaporizers, Juul has tried over the past year to position itself as a responsible actor in an industry with few rules. It overhauled its marketing, halted retail-store sales of its fruity flavors that young people favor and introduced a checkout system to curb illegal sales to minors.

But other steps it took backfired and contributed to a perception in Washington that Juul was on the wrong side of a public health crisis.

"I think Juul put the entire category at risk by pursuing top-line growth and market share without a real eye toward what was going on and who was using them," said Scott Gottlieb, who as federal Food and Drug Administration commissioner clashed with the startup last year.

The company flooded the White House with lobbyists and other advocates, making it appear that it was bypassing the FDA, which irked officials in the agency and some in the administration, according to people familiar with the discussions.

Juul launched an anti-vaping program for schools despite warnings that the effort was reminiscent of one by major tobacco companies years ago that seemed aimed more at luring new smokers than dissuading them. And it made unauthorized claims to children and adults that its products were safer than cigarettes, the FDA concluded, prompting a formal rebuke from the agency.

Juul has said it never targeted underage users, that its youth-prevention program was intended to help stop young people from vaping and that it ended that program after receiving feedback.

"We strongly agree with the need for aggressive category-wide action to combat youth usage," a Juul spokesman said, adding that the company would continue to work to curb teen vaping "while supporting reasonable access" for adult cigarette smokers looking to switch.

The Trump administration this month said it planned to ban most vaping products from the market, leaving just those formulated to taste like tobacco. That would wipe out products that account for more than 80% of Juul's U.S. sales, which had been on track to exceed $2 billion this year.

Subsequent developments tightened the vise. Two Chinese e-commerce websites stopped selling Juul's products without explanation. India banned e-cigarettes entirely. And on Friday, Walmart Inc. said it would stop selling vaping products in all of its U.S. stores.

With just two to three months before the proposed federal ban would take effect, Juul executives are deliberating a critical decision: whether to lobby for a less-comprehensive ban that allows mint and menthol refill pods to remain on the market as an alternative for smokers of menthol cigarettes. The carve-out would preserve what has become the majority of Juul's business since it stopped selling flavors like mango and cucumber in stores.

But mounting a fight would pit Juul against a rising anti-vaping tide fueled by a mysterious vaping-related lung illness that has caused eight deaths and sickened hundreds of people. Juul hasn't been linked to the deaths.

Though the ban would be crippling in the near term, Juul officials believe the new policy could help curb underage vaping, shake out potentially hazardous copycat products and avert an even bigger threat: the possibility that the FDA could take Juul's products off the market altogether.

Regulators started closing in on Juul in April 2018, when the FDA launched an investigation as parents and school administrators raised the alarm about teenagers vaping. With its products and marketing suddenly under the microscope, Juul launched a political-action committee, opened a Washington office and began amassing lobbyists.

Juul last year developed an anti-vaping program to be presented in elementary and high schools. But an executive inside Juul and public health experts raised concerns that the program was "eerily similar" to youth-prevention tactics used by R.J. Reynolds and Philip Morris in the 1980s and 1990s, according to a person familiar with the matter and internal documents published by a congressional subcommittee.

In June 2018, the executive, Julie Henderson, director of Juul's youth prevention program, pointed to research showing those initiatives -- which distributed materials about the hazards of smoking to young people at amusement parks, video arcades, schools, camps and elsewhere -- did nothing to curb underage smoking and in fact helped the tobacco industry.

Nevertheless, Juul that summer paid $134,000 to fund a "healthy life adventures" program for students from third to 12th grades at a Baltimore charter school. Ms. Henderson couldn't be reached for comment.

Two teenagers testified at a July congressional hearing about Juul's school programs. The students said that a Juul representative at their high school told them that the company's e-cigarettes were "99% safer than cigarettes."

In September, Mitch Zeller, director of the FDA's Center for Tobacco Products, wrote in a letter to Juul's chief executive that he was troubled by the testimony. "Juul engaged in a wide variety of promotional activities and outreach efforts to persuade potential customers, including youth, to use Juul products," Mr. Zeller wrote in the letter, which the FDA published.

In September 2018, the FDA received data from a federal survey confirming that vaping among high-school students had climbed. Dr. Gottlieb, then the agency's commissioner, declared it an epidemic and threatened to take flavored e-cigarettes off the market if the manufacturers didn't act quickly to curb youth use.

Juul stopped selling in retail stores all of its flavors except for tobacco, mint and menthol, though it continued to sell other flavors on its website, which has age controls. It also shut its U.S. Facebook and Instagram accounts.

In December 2018, regulators were taken by surprise when Marlboro maker Altria Group Inc. struck a deal to invest $12.8 billion for a 35% stake in Juul. FDA officials felt that the deal -- in which Altria agreed to give Juul shelf space and insert Juul coupons in cigarette packs -- contradicted statements both companies had made in private meetings with the FDA, according to letters the FDA released from Dr. Gottlieb to the companies' CEOs.

Facing an irate regulator, Juul ramped up its lobbying campaign, taking its message directly and repeatedly to the White House.

By then, Juul lobbyists were able to secure meetings with top White House officials. Two people familiar with the discussions used the word "unprecedented" to describe the scale of the company's presence in the West Wing. In a meeting with officials from Juul and Altria, Dr. Gottlieb voiced his displeasure at their White House lobbying, peope familiar with the matter said.

A senior administration official said Juul's lobbying didn't stand out as excessive or heavy.

Altria and Juul both have said they shared the FDA's concerns about youth vaping, embraced its 2018 proposal to restrict sales of sweet and fruit-flavored e-cigarettes and supported federal legislation to raise the minimum purchase age to 21.

In August, the FDA received a new set of data. While cigarette smoking had dropped among teens, nearly 28% of high school students said they had used an e-cigarette at least once in the past 30 days, up from 21% a year earlier. The figures also showed a jump in teen use of mint- and menthol-flavored e-cigarettes.

Alex Azar, the secretary of Health and Human Services, took the data to the White House. White House advisers, who had been mulling a ban for weeks in advance of the data's arrival, now pushed for it, including a halt to the sales of mint and menthol flavors.

Although President Trump had been briefed on the idea by Mr. Azar, he didn't appear to fully engage on it until Melania Trump got involved, a senior White House official said.

Write to Jennifer Maloney at jennifer.maloney@wsj.com and Stephanie Armour at stephanie.armour@wsj.com

(END) Dow Jones Newswires

September 23, 2019 02:47 ET (06:47 GMT)

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