22nd Century Group, Inc. (NYSE American: XXII), a leading
plant-based, biotechnology company focused on tobacco harm
reduction, reduced nicotine tobacco, and hemp/cannabis research,
announced today that the Company filed its 2021 First Quarter
Report on Form 10-Q with the U.S. Securities and Exchange
Commission. The Company will provide a business update for
investors on a live audio webcast to be held today at 10:00 a.m.
ET.
James A. Mish, chief executive officer of 22nd Century Group,
together with Michael Zercher, president and chief operating
officer, and John Franzino, chief financial officer, will host the
webcast. Interested parties are invited to participate by visiting
the Events section on the Company’s Investor Relations website at
www.xxiicentury.com/investors/events. Following prepared remarks,
the Company will host a Q&A session during which management
will accept questions from industry analysts. Investors,
shareholders, and members of the media will also have the
opportunity to submit their questions through the interactive
webcast.
“Our 2021 is off to an exciting start as we anticipate achieving
multiple key milestones that will dramatically expand our
commercial opportunities in both our tobacco and hemp/cannabis
franchises,” said James A. Mish, chief executive officer of 22nd
Century Group. “I remain highly confident in our MRTP
authorization. We continue to steadily increase our advocacy
activities at both the federal and state levels to achieve MRTP
authorization, in support of this critical public health issue. In
addition to our primary VLN® launch strategy to go to market within
90 days of authorization, we remain willing to license our
technology to every cigarette manufacturer to help them join us in
our efforts to reduce the harm caused by smoking and to protect
future generations from ever becoming addicted to cigarettes. Our
technology and capabilities make the FDA’s reduced nicotine mandate
feasible. According to the Centers for Disease Control and
Prevention (CDC), 80% of U.S. adult cigarette smokers favor
requiring cigarette makers to reduce nicotine levels in cigarettes,
so they are less addictive.”
“The first quarter also saw a continued strong cadence of moves
by both state and federal government bodies advancing marijuana
legalization, including positive changes in policy on both the
medical and recreational use cases,” Mish continued. “22nd Century
has established a strong position in the upstream hemp/cannabis
market through our focus on plant genetics and IP critical to the
successful commercialization of consumer products at the scale the
market will ultimately demand. In doing so, we have positioned
ourselves to provide valuable, tailored plant lines similar to a
‘boutique Monsanto’ focused on high-value markets, including
tobacco, hemp/cannabis, and our third franchise.”
Tobacco Franchise Highlights and Recent Key
Events
- The Company continues to focus on
its primary mission and highest, near-term priority of securing
MRTP designation of its proprietary, reduced nicotine content
tobacco cigarettes, VLN®. The designation will allow 22nd Century
to communicate key features of VLN® products, including the
headline claim of “95% less nicotine.” The Company continues to
steadily increase its advocacy activities and engage in
conversations at the highest levels of the Administration,
Congress, and the FDA about VLN®, and every indication is that its
MRTP application is in the final stages of review with the FDA. In
addition to its ongoing contact with the Agency, 22nd Century has
been and continues to work with various legal advisers, regulatory
consultants, and government affairs specialists to highlight the
public health importance of its MRTP application to encourage a
near-term authorization of its application.
- 22nd Century is fully prepared to
launch sales of VLN® within 90 days of receiving MRTP designation
and is in advanced discussions with potential independent,
regional, and national distribution and retail partners. The
Company plans to position VLN® in the premium pricing segment of
the cigarette market and, therefore, expects it to deliver
corresponding margins.
- 22nd Century’s expected MRTP
designation will serve as a catalyst for licensing and partnership
opportunities in the U.S. and internationally. The Company will
grow VLN® tobacco and anticipates a phased roll-out of VLN® in
select geographies to learn how to optimize investments to scale
VLN®.
- The Company is fully prepared to
manufacture enough VLN® to secure its market position. 22nd Century
owns and operates a fully credentialed 62,000 square foot facility
in North Carolina. The Company’s capacity is currently
approximately 1% of the U.S. cigarette market volume. With minimal
investment, the Company can triple that capacity to 3%.
- On January 11, 2021, 22nd Century
announced that it will significantly expand its growing program and
increase its planting in the 2021 crop year for VLN® based on the
Company’s latest sales projections. This new planting is in
addition to the Company’s sizeable inventory of VLN® tobacco, which
is earmarked for the launch and initial sales of VLN®
cigarettes.
- On May 5, 2021, 22nd Century
announced it is internalizing its nicotine content testing
capabilities to increase the Company’s ability to rapidly conduct
high-precision analysis of its VLN® cigarettes and other nicotine
products that it produces. 22nd Century is making the investment
now to be well-positioned for when its MRTP application is
authorized. The Company estimates that its cost per VLN® sample
will decrease by more than 90% and the lead time for key data will
take less than a day compared to using a third-party testing
service that can take weeks.
- The Company continues to advance its
VLN® 2.0 program so that it can expand its business prospects
internationally with its reduced nicotine, non-GMO tobacco
technology. Non-GMO products are critical for success in
international markets where non-GMO products are preferred, or GMO
products are banned.
- On April 26, 2021, 22nd Century
announced the fulfillment of an order of 3.6 million of its
variable nicotine content research cigarettes, SPECTRUM®, for
independent clinical research funded largely by the FDA and other
federal health agencies. The FDA’s proposed plan to cap the amount
of nicotine in combustible cigarettes to “minimally or
non-addictive” is a level already achieved in the Company’s VLN®
cigarettes.
- The Company believes that recent
proclamations of the new Biden Administration support critical
public health initiatives, including the confirmation of Xavier
Becerra in March 2021 as the new Secretary of Health and Human
Services, a long-term proponent of a reduced nicotine cap for
cigarettes.
- Four former FDA Commissioners voiced
their support for the Agency’s plan to cap the amount of nicotine
in combustible cigarettes to a “minimally or non-addictive” level.
The mandate is projected to help 5 million smokers quit, during a
panel in March 2021 about the future of the FDA.
- New Zealand recently advanced a
reduced nicotine proposal, one of the bellwether countries for key
global markets and tobacco regulations. On April 15, 2021, 22nd
Century announced that the Company stands fully prepared to help
New Zealand reach its goal to be a smoke-free nation by 2025. The
Company’s VLN® cigarettes contain just 0.5 milligrams of nicotine
per gram of tobacco, 95% less nicotine than conventional cigarette
brands, which is in line with the New Zealand proposal. The Company
initially engaged with public health researchers in New Zealand in
2016, when the country announced its goal of becoming smoke-free,
leading the New Zealand Medical Journal to publish a letter
recommending 22nd Century’s reduced nicotine content cigarettes as
an “important smoking reduction tool.”
Hemp/Cannabis Franchise Highlights and Recent Key
Events
- The Company believes the Biden
Administration will be more open to updating hemp and marijuana
regulations at the federal level. Senate Majority Leader Schumer
has made a proclamation to federally legalize marijuana. With 36
states having legalized marijuana, and the recent House of
Representatives passage of the SAFE ACT addressing the removal of
banking limitation on cannabis companies, federal legalization
seems increasingly likely. Legalization will increase the number of
consumers and competition, which will increase the need for highly
differentiated products grown at scale – exactly where 22nd Century
is focused.
- 22nd Century is making great strides
and believes that it can accelerate the development of
commercially, valuable hemp/cannabis lines and related intellectual
property targeted on the upstream segments of the cannabinoid value
chain in the areas of alkaloid profiling/mapping, genetic
engineering and gene editing, breeding and cultivation, and
ingredient extraction and purification. The Company’s technology
and solutions will have broad-based appeal for a wide range of end
use markets, including but not limited to the life science,
consumer product and pharmaceutical industries, and will transform
the global cannabis market.
- The Company has secured a number of
the key partnerships needed to maximize its work in the upstream
segments of the cannabinoid value chain, and vertically integrate
its hemp/cannabis capabilities. The combination of its core
strengths in plant science and its network of key partnerships will
enable the Company to drive differentiation and value by delivering
new, disruptive plant lines and IP in two years while leveraging
its current library of lines and IP, including revenue from a
portion of 22nd Century’s hemp/cannabis IP later this year.
- On March 3, 2021, 22nd Century
announced it had secured an exclusive agreement with CannaMetrix,
LLC for the use of their proprietary, human cell-based testing
CannaMetrix EC50Array™ technology that will enable the Company to
accelerate the commercialization of new, disruptive hemp/cannabis
plant lines and intellectual property.
- On February 10, 2021, 22nd Century
announced that it has developed and launched a new, cutting-edge
technology platform that will enable the Company and its strategic
partners to quickly identify and incorporate commercially valuable
traits of hemp/cannabis plants to create new, stable hemp/cannabis
lines. The platform incorporates a suite of proprietary molecular
tools and a large library of genomic markers and gene-trait
correlations. The platform was developed in collaboration with
researchers at KeyGene, a global leader in plant research involving
high-value genetic traits and increased crop yields.
2021 Priorities and Areas of Focus
- 22nd Century remains focused on
securing FDA authorization for VLN®, the only reduced nicotine
content combustible cigarette in the world expected to receive a
MRTP designation from FDA. The Company is fully prepared to execute
a commercial product launch and will seek licensing and partnership
initiatives within 90 days of MRTP designation.
- The Company believes that an equally
important first priority initiative is to support and advance the
FDA’s plan to require all cigarettes sold in the U.S. be made
“minimally or non-addictive” by limiting their nicotine content to
just 0.5 milligrams of nicotine per gram of tobacco.
- 22nd Century continues to target the
upstream segment of the cannabinoid value chain by creating within
two years proprietary, commercially valuable new plant lines and
related intellectual property with stabilized genetics to harness
and optimize hemp/cannabis plant potential. The Company expects to
monetize a portion of its existing hemp/cannabis IP in the second
half of 2021, then additional plant lines coming through in the
pipeline will continue to bring disruptive technology forward.
- The Company will turn attention to
the development of a third, plant-based franchise after securing
MRTP authorization for VLN®. 22nd Century will leverage its plant
science expertise to develop and secure valuable intellectual
property and sign lucrative strategic partnerships to support the
development of this franchise. The Company believes the third
franchise is a faster route to commercialization because it is not
as regulated relative to its first two franchises.
- 22nd Century will
maintain diligent financial execution, efficient operating
structure, and balance sheet strength to support its growth
initiatives.
2021 First Quarter Financial Results
- Net sales revenue for the first
quarter of 2021 was $6.8 million and comparable to the first
quarter of 2020 at $7.1 million. The decrease was primarily driven
by lower sales volume in the early part of the quarter, partially
offset by an increase in volume in March driven by the sale of
SPECTRUM® cigarettes in the Company’s contract manufacturing
business. Higher cigarette prices in the first quarter of 2021
supported net sales revenue growth.
- Gross profit for the first quarter
of 2021 improved by $360 thousand, or 125% to $647 thousand
compared to the prior-year period. The improvement in gross margin
was primarily the result of higher margin on SPECTRUM® cigarette
sales partially offset by overall lower volume.
- Total operating expenses for the
first quarter of 2021 increased by $1.4 million compared to the
prior-year period. This was driven by the following:
- Research and development expense for
the first quarter of 2021 was favorable by $259 thousand compared
to the prior year period. This favorability was primarily driven by
$137 thousand lower MRTP application costs, lower personnel,
license, and contract costs partially offset by higher costs of
patents and legal fees.
- Research and development expense
related to the MRTP application was favorable by $137 thousand
compared to the prior year primarily the result of expenses
incurred in 2020 that were associated with the preparation for the
Company’s Tobacco Products Scientific Advisory Committee (TPSAC)
hearing, which occurred on February 14, 2020.
- Sales, general and administrative
expense increased by $1.7 million compared to the prior year
period. This was driven primarily by the addition of new members to
the Company’s management team, including its newly appointed Chief
Executive Officer and Chief Financial Officer, higher personnel,
insurance, and consulting as the Company prepares for an expected
MTRP designation of VLN®. 22nd Century deployed incremental
SG&A spending to support, evaluate, and prepare for future
opportunities. The increase was partially offset by lower legal
fees.
- Operating loss for the first quarter
of 2021 was $(5.2) million, an increase of $1.0 million compared to
the prior year period. This was primarily driven by an increase in
SG&A and was partially offset by higher gross profit and lower
research and development spend in the first quarter of 2021.
- Net loss in the first quarter of
2021 was $(5.0) million, an increase of $1.0 million compared to
the prior year period, representing a net loss per share of
$(0.03). This compares to the first quarter of 2020 net loss of
$(4.0) million, or $(0.03) per share.
- Adjusted EBITDA was $(4.4) million
for the first quarter of 2021 compared to Adjusted EBITDA of $(3.2)
million for the first quarter of 2020.
Balance Sheet and Liquidity
- For the first quarter of 2021, net
cash used in operating activities was $3.9 million, a $751,000
improvement compared to $4.7 million for the first quarter of
2020.
- The Company’s liquidity remains
strong with cash, cash equivalents, and short-term investment
securities totaling approximately $30.9 million as of March 31,
2021, a 39% higher than $22.3 million as of March 31, 2020.
- The Company does not have any plans or need to raise capital at
this time. It believes the healthy cash position of $30.9 million
as of March 31, 2021, and the Company’s continued initiatives to
manage expenses relative to net sales revenue, should provide the
Company with additional runway to execute for the foreseeable
future.
First Quarter Earnings Conference Call
22nd Century will host a live audio webcast today at 10:00
a.m. ET to discuss its first quarter 2021 financial results
and business highlights. Following prepared remarks, the Company
will host a Q&A session during which management will accept
questions from interested analysts. Investors, shareholders, and
members of the media will also have the opportunity to pose
questions to management by submitting questions through the
interactive webcast during the event.
James A. Mish, chief executive officer of 22nd Century Group,
together with Michael Zercher, chief operating officer, and John
Franzino, chief financial officer, will host the webcast.
Interested parties are invited to participate by visiting the
Events section on the Company’s Investor Relations website at
www.xxiicentury.com/investors/events. An archived replay of the
webcast and the event transcript will also be available shortly
after the live event has concluded.
About 22nd Century Group, Inc.
22nd Century Group, Inc. (NYSE American: XXII) is a leading
plant biotechnology company focused on technologies that alter the
level of nicotine in tobacco plants and the level of cannabinoids
in hemp/cannabis plants through genetic engineering, gene-editing,
and modern plant breeding. 22nd Century’s primary mission in
tobacco is to reduce the harm caused by smoking through the
Company’s proprietary reduced nicotine content tobacco cigarettes –
containing 95% less nicotine than conventional cigarettes. The
Company’s primary mission in hemp/cannabis is to develop and
commercialize proprietary hemp/cannabis plants with valuable
cannabinoid profiles and desirable agronomic traits.
Learn more at xxiicentury.com, on
Twitter @_xxiicentury, and on LinkedIn.
Cautionary Note Regarding Forward-Looking
Statements
Except for historical information, all of the statements,
expectations, and assumptions contained in this press release are
forward-looking statements. Forward-looking statements typically
contain terms such as “anticipate,” “believe,” “consider,”
“continue,” “could,” “estimate,” “expect,” “explore,” “foresee,”
“goal,” “guidance,” “intend,” “likely,” “may,” “plan,” “potential,”
“predict,” “preliminary,” “probable,” “project,” “promising,”
“seek,” “should,” “will,” “would,” and similar expressions. Actual
results might differ materially from those explicit or implicit in
forward-looking statements. Important factors that could cause
actual results to differ materially are set forth in “Risk Factors”
in the Company’s Form 10-K filed on March 11, 2021. All information
provided in this release is as of the date hereof, and the Company
assumes no obligation to and does not intend to update these
forward-looking statements, except as required by law.
Below is a table containing information relating to the
Company’s Adjusted EBITDA for the three months ended March 31, 2021
and 2020, including a reconciliation of net (loss) income to
Adjusted EBITDA for such periods.
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended |
|
|
March 31, |
|
|
Dollar Amounts in Thousands ($000's) |
|
|
|
|
|
|
|
|
|
$ Change |
|
|
2021 |
|
|
2020 |
|
|
|
fav / (unfav) |
Net loss |
|
$ |
(5,030 |
) |
|
$ |
(4,028 |
) |
|
$ |
(1,002 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
Amortization and depreciation |
|
|
288 |
|
|
|
328 |
|
|
|
(40 |
) |
Unrealized loss (gain) on investment |
|
|
(36 |
) |
|
|
445 |
|
|
|
(481 |
) |
Realized (gain) loss on short-term investment securities |
|
|
— |
|
|
|
3 |
|
|
|
(3 |
) |
Accretion of non cash interest expense |
|
|
6 |
|
|
|
12 |
|
|
|
(6 |
) |
Equity-based employee compensation expense |
|
|
507 |
|
|
|
481 |
|
|
|
26 |
|
Executive and board search fees |
|
|
— |
|
|
|
141 |
|
|
|
(141 |
) |
Interest income, net |
|
|
(112 |
) |
|
|
(612 |
) |
|
|
500 |
|
Interest expense |
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Adjusted
EBITDA |
|
$ |
(4,376 |
) |
|
$ |
(3,230 |
) |
|
$ |
(1,146 |
) |
1Fav = Favorable variance, which increases Adjusted EBITDA;
Unfav = unfavorable variance, which reduces Adjusted EBITDA
Adjusted EBITDA, which the Company defines as earnings before
interest, taxes, depreciation and amortization, as adjusted by the
Company for certain non-cash and non-operating expenses, as well as
certain one-time expenses, is a financial measure not prepared in
accordance with generally accepted accounting principles (“GAAP”).
In order to calculate Adjusted EBITDA, the Company adjusts the net
(loss) income for certain non-cash and non-operating income and
expense items listed in the table above in order to measure the
Company’s operating performance. The Company believes that Adjusted
EBITDA is an important measure that supplements discussions and
analysis of its operations and enhances an understanding of its
operating performance. While management considers Adjusted EBITDA
to be important, it should be considered in addition to, but not as
a substitute for or superior to, other measures of financial
performance prepared in accordance with GAAP, such as operating
loss, net (loss) income and cash flows from operations. Adjusted
EBITDA is susceptible to varying calculations and the Company’s
measurement of Adjusted EBITDA may not be comparable to those of
other companies.
Investor Relations & Media Contact:Mei
KuoDirector, Communications & Investor Relations22nd Century
Group, Inc.(716) 300-1221mkuo@xxiicentury.com
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