13th Oct 2023 10:32
(Alliance News) - British American Tobacco PLC shares took a hit on Friday after the company suffered a blow from the US Food & Drug Administration, though investment bank Jefferies said the verdict was expected and the decision on another product will be more crucial.
Late Thursday, the US federal drug regulator told BAT to halt sales of its menthol-flavoured Vuse Alto vape. It is among the most popular e-cigarettes in the US, and the regulatory scrutiny followed a jump in popularity of the product among underage users.
"Specifically, evidence submitted by the applicant did not demonstrate that the menthol- and mixed berry-flavoured products provided an added benefit for adults who smoke cigarettes—in terms of complete switching or significant smoking reduction—relative to that of tobacco-flavoured products that is sufficient to outweigh the known risks to youth," the FDA said in a statement.
The company must not market or distribute these products in the US, or they risk FDA enforcement action. However, the company may submit new applications for the products that are subject to these marketing denial orders.
The FDA said Vuse is the most commonly sold e-cigarette brand in the US, with Vuse Alto being its most popular sub-brand. Further, findings from the National Youth Tobacco Survey show that Vuse e-cigarettes, which are cartridge-based products, have been the second most commonly reported e-cigarette brand used by youth in the US since 2021, the watchdog added.
BAT hit out at the decision, believing it "flies in the face of proven science".
Chief Strategy & Growth Officer Kingsley Wheaton said: "We also remain deeply concerned that the FDA continues to allow the proliferation of youth-appealing vapour products like Cotton Candy and Peanut Butter Cookie which are flooding US retail shelves. Companies in open defiance of the agency must be held accountable. BAT believes FDA should be employing its most powerful enforcement tools on the worst offenders without delay."
BAT shares fell in response to the verdict when markets in London opened on Friday. It was down 3.3% at 2,453.50 pence each in morning trade.
Analysts at Jefferies believe the news is "not as bad as it may appear", however.
Jefferies explained: "A few things to consider. One, this was largely expected by the market. Tobacco is critical and we expect approval of that. Two, BAT will likely be given a stay by the courts. And three, FDA says BAT may resubmit. With a court stay, and then a possible new Bluetooth application, we then see approval and menthol never coming off the market."
The bluetooth-enabled vape device allows users to control the product through an application on their mobile phones. They can also track usage, adjust power setting and "have access to tips and news", according to BAT.
What is more key to the long-term direction for BAT shares, however, is a decision on another product. BAT noted its Vuse Alto Rich Tobacco and Golden Tobacco vape products remain under FDA review.
Jefferies added: "For us, it is the tobacco decision that is critical, and for this, we still fully expect approval. The fact that there was also not a decision on tobacco today further supports that likely outcome, in our view."
By Eric Cunha, Alliance News news editor
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