Hudson, Wis., company that supplies Juul nearly done with $63M expansion

One of Juul's suppliers is expanding in western Wisconsin, even as the e-cigarette industry takes a regulatory beating that is clouding its future.

Contract manufacturer Phillips-Medisize — a major economic force in western Wisconsin that is almost done building a new $63 million plant in Hudson — makes medical devices to treat all sorts of illnesses, including cardiovascular disease, as well as electronic-cigarette components.

The company provides more than 1,400 jobs in the Twin Cities and Wisconsin, and it hopes to hire at least another 250 people at the new factory, its biggest yet in Wisconsin. Juul, the leader in the e-cigarette industry, said Phillips-Medisize is one of its suppliers.

The manufacturer — based in Hudson and ultimately owned by Koch Industries, one of the nation's largest privately held companies — said it makes e-cig components at its existing Hudson facility and larger operations in New Richmond and Menomonie but did not acknowledge Juul as customer.

"In Wisconsin, we are proud to support hundreds of jobs with contract partners such as Phillips-Medisize as we continue to invest in helping adult smokers switch from combustible cigarettes," the San Francisco-based Juul said in a statement.

The U.S. Food and Drug Administration (FDA) last month warned Juul it was violating federal law by marketing its e-cigarette as a lower-risk alternative to conventional tobacco products. The FDA has been investigating Juul for more than a year, including inspecting its contract manufacturing facilities.

Also last month, President Donald Trump's administration announced plans to ban most e-cigarette flavors. The bulk of Juul's sales come from mint and menthol flavored nicotine.

Meanwhile, vaping-related illnesses have been spreading since June, with 1,080 confirmed and probable cases — including 18 deaths — in 48 states, according to U.S. Centers for Disease Control data released Thursday. California has the highest number of cases; Wisconsin and Minnesota are among six states with next-highest incidence of disease associated with e-cigarette use.

Most cases have been linked to e-cigs containing THC, the psychoactive ingredient in marijuana, according to the CDC. But 17% involved the exclusive use of nicotine products. No companies have been implicated in the disease outbreak.

Juul is by far the vaping industry's leader, its annual sales topping $1 billion in 2018. The global company appears to have some direct employees in Wisconsin, advertising online recently for job openings in Menomonie and Hudson, including for a senior quality engineer and a senior operating manager.

It's not clear if Juul would house its own employees in Phillips-Medisize facilities, or elsewhere. Juul declined to comment beyond its statement. Juul's products are manufactured in China, Hungary, Mexico and several locations in the United States.

Phillips-Medisize said in a statement it makes "ENDS components," referencing the vaping trade's acronym for "electronic nicotine delivery systems." The company said it does not assemble the "ENDS device" or the liquid that fuels it, but declined to be more specific and comment beyond its statement.

An ENDS device, which is powered by a battery, heats and aerosolizes a liquid concoction composed mostly of nicotine, flavorings and propylene glycol, the latter to create visible vapor. The e-liquid is held in a cartridge or "pod" that is snapped into the device.

It is not clear when Phillips-Medisize got into the e-cig business. But the 55-year-old company founded in Phillips, Wis., as Phillips Plastics has been a contract medical device maker since at least 1992. Phillips merged with a European contract manufacturer named Medisize in 2011.

Five years later, Phillips-Medisize was sold by its private-equity owner to Molex, an affiliate of Wichita, Kan.-based Koch Industries, which has been largely owned by brothers Charles Koch and the late David Koch.

Phillips-Medisize's wares include continuous glucose monitors, stent-delivery systems and drug-delivery devices used to treat diabetes, multiple sclerosis and other serious diseases. The company makes medical products at the three Wisconsin plants that also make e-cig components.

Phillips-Medisize declined to say what will be produced at its new 230,000-square-foot factory in Hudson, which is more than three times as big as the company's current plant there.

But the new plant's Carmichael Road address in Hudson is listed in the FDA's registry of tobacco-product manufacturers and processors.

The new plant, on the site of the old St. Croix Meadows dog-racing track, is slated to open later this year or early in 2020. "Now hiring" signs hang from the fences surrounding the construction site.

The Juul e-cigarette was launched in 2015, and today it commands nearly 70% of the U.S. e-cig market, according to a recent report by a Wells Fargo stock analyst. The company's future looked so bright in December that Altria, a huge global cigarette maker, paid almost $13 billion for a 35% stake in Juul.

Juul's sales have grown more than eightfold over the past two years through Sept. 7, even after the company removed its fruit and crème flavors from more than 90,000 stores late last year, the Wells Fargo report said. (Juul yanked them amid criticisms that they appealed to teenagers.)

But Juul's unit sales dropped sharply in the most recent four-week period covered by the report, which used Nielsen market data. The decline prompted Wells Fargo analyst Bonnie Herzog to write that sales are being hurt by an increasingly negative perception of e-cigarettes and Juul itself.

"While too early to call, this could result in improved [conventional] cig volumes as vapers potentially return to the cig [category] — not the FDA's desired outcome."

Staff writer Joe Carlson contributed to this report. Mike Hughlett • 612-673-7003