FDA denies blu marketing applications After the UK market close on Friday the FDA issued a marketing denial order for a number of Imperial’s myblu pod-based vapour products. According to the FDA, Imperial’s applications lacked sufficient evidence to show that permitting the marketing of these products would be appropriate for the protection of the public health. Coming on the back of FDA marketing authorisations for Logic (owned by Japan Tobacco) and Vuse (owned by BAT) in recent months, this decision is especially humiliating for Imperial and will surely disappoint investors. The FDA is specifically concerned about a lack of sufficient evidence in the applications regarding design features, manufacturing and stability of the products. The applications also did not demonstrate that the potential benefit to smokers who switch completely, or significantly reduce their combustible tobacco use, would outweigh the risk to youth. This is not only a disappointing development but it also raises many questions. Does Imperial lack the technical and legal expertise necessary to put forward a successful application? Was it unaware of what the applications required, and if so, why (especially in light of it being a significant tobacco and NGP market participant in the US)? What is “plan B” for the US NGP business if key myblu products are taken off the market? Could this mean Imperial is ill-prepared to handle regulatory scrutiny in other markets? What does this mean for the company’s NGP strategy, which was due to ramp up this year? The company issued a brief statement expressing its disappointment and committing to the administrative appeals process. For now, we leave our forecasts unchanged. The FDA can choose not to enforce the marketing denial order while Imperial appeals the decision, which means sales of the products can continue. However, there is a risk that other Imperial vapour products will also be denied, and if Imperial is unable to reverse the decision it could lead to the loss of c. 1% of group sales. While this is not a huge number, the forfeit of future revenue in the largest vapour market in the world would be a significant symbolic loss. While the appeals process continues (likely for many months), we believe this will be a dark cloud obscuring the NGP story.