E-Cigarette Maker NJOY Seen as Takeover Target Amid Innovation

E-Cigarette Maker NJOY Seen as Takeover Target Amid Innovation
The market for e-cigs -- nicotine-infused, battery-heated tubes that create vapor instead of smoke -- may rise to $1 billion in the next three years from $300 million in 2012, said Bonnie Herzog, an analyst at Wells Fargo & Co. Source: Rosa + Rosa Studio, Inc/NJOY via Bloomberg

When NJOY throws a party tomorrow at the stylish Jane Hotel in New York’s West Village to pitch its latest smokeless electronic cigarette, the company will also send a reminder to traditional tobacco makers: the innovation of e-cigs is igniting growth.

The closely held company is introducing NJOY King nationally this week, with television and print advertising saying, “Cigarettes, you’ve met your match.” The goal is to make cigarettes obselete, “replacing them as they are currently designed,” said Executive Vice President Roy Anise.

The market for e-cigs -- nicotine-infused, battery-heated tubes that create vapor instead of smoke -- may rise to $1 billion in the next three years from $300 million in 2012, said Bonnie Herzog, an analyst at Wells Fargo & Co. Altria Group Inc., the maker of Marlboro cigarettes, may buy NJOY or another company, following the lead of rival Lorillard Inc., which acquired Blu Ecigs in April for $135 million, Herzog said.

“It is truly a wakeup call for Big Tobacco,” Herzog said this week by telephone from New York. “If manufacturers can create something that tastes, looks, feels and smokes like a traditional cigarette with substantially less risk or harm, more consumers are going to try them and retailers are going to give them more shelf space.”

A single NJOY King sells for $7.99 and lasts as long as two packs of cigarettes, the company said. It is the same length and diameter as a traditional cigarette and has a spongy filter unlike its predecessor, which was made of steel and introduced by the company less than a year ago. Such improvements have led Herzog to predict that U.S. consumption of e-cigs may surpass demand for regular cigarettes over the next decade.

Smoking Experience

“We are going to become the new way to smoke with a product that as closely as humanly possible replicates the actual smoking experience,” said Anise, who joined NJOY in 2010 after spending 24 years at Altria, where he helped efforts to develop new tobacco products. “Our goal is to take a look at a cigarette like a Marlboro. How do we not just be as good, but how do we become a superior smoking experience?”

Altria, the largest seller of tobacco in the U.S., has yet to join companies from start-ups to Lorillard, the third-biggest U.S. tobacco company, in tapping demand for e-cigs.

Craig Weiss, chief executive officer of Scottsdale, Arizona-based NJOY, declined to comment on whether the company would be open to a takeover. Altria won’t discuss whether it plans to start selling e-cigs or whether it may make an acqusition to enter the category, David Sylvia, a company spokesman, said by telephone.

Digital Cigarette

NJOY controls about 40 percent of the U.S. e-cigs market, according to Weiss. Blu Ecigs’ share is 25 percent to 30 percent, Lorillard CEO Murray Kessler said last month.

Reynolds American Inc., the second-biggest U.S. tobacco maker, has developed a “digital cigarette” using computer chips to replicate smoking a cigarette, Chief Executive Officer Daniel Delen said on a conference call last month.

“We’re looking to make a big splash in the category” with a product made in the U.S. using patented technology to “make sure you get a cigarette experience,” Delen said.

Lorillard’s acquisition of Blu Ecigs pressures Altria and Reynolds to buy e-cig companies in the next year or so, said Kevin Frija, CEO of Fort Lauderdale, Florida-based Vapor Corp., the only publicly traded e-cig company. He said major tobacco manufacturers aren’t as skilled as e-cig companies in developing new products.

E-cigs were invented by a Chinese pharmacist and smoker in 2003 and started selling in the U.S. in 2006, according to the website of Blu ECigs.

China Made

Most e-cigs sold in the U.S. are made in China, according Thomas Kiklas, co-founder of the Tobacco Vapor Electronic Cigarette Association. There are now more than 3.5 million e-cig users in the U.S., according to the association.

“The smoker likes the hand to mouth, the ritual,” Kiklas said by telephone this week. “The e-cigarette provides that.”

John Magee, a smoker for almost four decades, was skeptical about NJOY King until he tried one last week.

“Whoa, that first puff is strong,” said Magee, a 58-year-old restaurateur in Greensboro and regular smoker of Marlboro. “It feels and smokes like a cigarette. I like the flavor. I got a hit of nicotine.”

Magee said the plastic box with flip lid reminds him of cigarette packaging. The NJOY box has room for a single e-cigarette and two regular cigarettes for smokers making the switch, Weiss said.

Even as NJOY prepares to celebrate its newest product in New York tomorrow, the company is already working on its replacement, Anise said. NJOY expects to introduce its next version in the next few months, he said.

“You have to be prepared to obsolete your best-selling product,” said Anise, “because if you don’t your competitor will.”

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