22nd Century Group, Inc. (NYSE American: XXII) (“22nd Century”
or “the Company”), a leading plant biotechnology company focused on
reduced nicotine tobacco and hemp/cannabis plant genetics research
and development, today reported results for the first quarter ended
March 31, 2020.
“We are very pleased with the solid start to 2020 with revenue
increasing 12% over last year. We believe the Company is well
positioned to execute on its strategies despite a challenging
backdrop due to COVID-19. Our manufacturing facility has remained
open and has been able to fulfill orders without any backlog. The
improvements we made to our cost structure in 2019 have started to
pay off in the first quarter with a 16% reduction in operating
expenses compared to the same quarter last year,” said Mike
Zercher, President and Chief Operating Officer of 22nd Century
Group.
“Additionally, the U.S. Food and Drug Administration (“FDA”)
recently announced a deadline for public comments on the Company’s
Modified Risk Tobacco Product (“MRTP”) application. This moves our
MRTP application one step closer to an FDA authorization decision
for the Company’s proprietary, reduced nicotine content tobacco
cigarettes. Bringing these products to market is an important and
exciting prospect for the Company and public health,” Zercher
added.
Recent Accomplishments and Notable Events:
- On February 14, 2020, the Company presented data to FDA’s
Tobacco Products Scientific Advisory Committee (“TPSAC”) in support
of our MRTP application for our reduced nicotine content tobacco
cigarettes. 22nd Century’s MRTP application seeks a reduced
exposure marketing authorization from the FDA to allow its reduced
nicotine content cigarettes to be marketed under the brand name
“VLN®,” with pack and advertising claims stating that the product
contains 95% less nicotine than conventional tobacco cigarettes, as
well as related claims regarding reduced nicotine exposure. This
meeting was the first time that TPSAC considered an MRTP
application for a modified exposure claim and was also TPSAC’s
first discussion of an application for a combustible tobacco
product.
- On March 11, 2020, the Company announced in partnership with
KeyGene that it has assembled, in just under three months,
high-quality genome sequences of two hemp/cannabis lines and
established a new, proprietary hemp/cannabis bioinformatics
platform. Both are believed to be among the highest quality,
hemp/cannabis reference genomes in the world. The establishment of
a comprehensive bioinformatics platform is the first step in
building out the Company’s hemp/cannabis knowledge foundation.
Further work is underway to enhance the platform with additional
plant lines. The Company has also made significant achievements in
rapid cycle breeding and metabolomics with both high-CBD and
oil-seed hemp/cannabis plant lines widely used in the hemp/cannabis
industry.
- On April 30, 2020, the Company announced that it and North
Carolina State University (“NCSU”) have completed successful
research field trials that have validated new non-GMO (genetically
modified organism) methodologies for reducing nicotine in tobacco
plants. As an alternative to older, genetic-engineering
technologies that result in the creation of plants regulated as
GMOs, the NCSU researchers used newer, non-CRISPR, non-GMO, gene
editing technologies to consistently achieve reductions in nicotine
levels of as much as 99%, when compared to conventional tobacco
plants. This reduction in nicotine levels is believed to be caused
by the inactivation of several genes believed to encode for enzymes
involved in nicotine biosynthesis in the plant. 22nd Century has
earlier filed a patent application with the U.S. Patent and
Trademark Office to secure intellectual property rights for this
non-GMO genetic approach that achieves very low nicotine content
(VLNC) levels in tobacco plants using non-GMO methodologies.
First Quarter 2020 Financial Summary
- Net sales revenue for the first quarter of 2020 was $7.1
million, an increase of $0.8 million, or 12.1%, over net sales
revenue of $6.3 million during the first quarter of 2019. The
increase was driven primarily by sales relating to contract
manufactured cigarettes.
- Cash flows used in operations during the first quarter of 2020
was approximately $4.7 million, flat year on year when compared to
$4.7 million for the fourth quarter of 2019. The Company’s
liquidity remains strong as of March 31, 2020, with cash, cash
equivalents, and short-term investment securities totaling
approximately $34 million.
- For the first quarter of 2020, the Company reported an
operating loss of $4.1 million as compared to an operating loss of
$5.4 million for the first quarter of 2019, a decrease in operating
loss of $1.3 million, or 23%. The improvement was primarily due to
a decrease in operating expenses of approximately $0.9 million
which was driven by primarily by efforts in expense
management.
- The Company experienced a net loss for the first quarter of
2020 of $4.0 million, representing a net loss per share of ($0.03)
as compared to a net loss of $2.1 million, or a net loss per share
of ($0.02) for first quarter of 2019. The increased net loss for
the first quarter was due primarily to a change in the fair value
of warrants held by the Company in Aurora Cannabis, Inc.
- Adjusted EBITDA was negative $3.2 million, or ($0.02) per
share, for the first quarter of 2020, as compared to a negative
Adjusted EBITDA of $4.6 million, or ($0.04) per share, for the
first quarter of 2019, a decrease in the negative Adjusted EBITDA
of $1.4 million, or 30%. The improvement year-over-year is a result
of the Company returning the contract manufacturing business to a
gross margin positive state and rationalizing the operating expense
base.
Below is a table containing information relating to the
Company’s Adjusted EBITDA for the three months ended March 31, 2020
and 2019, including a reconciliation of net (loss) income to
Adjusted EBITDA for such periods.
Quarter Ended March 31,Dollar Amounts in Thousands ($000's)
2020
2019
% Change fav /
(unfav)1
Net loss
$
(4,028
)
$
(2,073
)
94%
Adjustments: Amortization and depreciation
$
268
$
291
8%
Amortization of license fees
$
60
$
60
0%
Unrealized loss (gain) on investment
$
445
$
(2,974
)
(115%)
Realized gain on the sale of investments
$
-
$
-
-
Realized loss on short-term investment securities
$
3
$
16
81%
Gain on the sale of machinery and equipment
$
-
$
(87
)
-
Accretion of interest on notes payable and severance
$
12
$
11
(9%)
Accretion of interest on Panacea Life Sciences investments
$
(209
)
$
-
-
Equity-based compensation
$
481
$
449
(7%)
Executive and Board search fees
$
141
$
-
-
Interest Income
$
(403
)
$
(272
)
48%
Interest Expense
$
12
$
11
(9%)
Adjusted EBITDA
$
(3,218
)
$
(4,568
)
30%
1Fav = Favorable variance, which increases to 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.
COVID-19 Update
- In response to the COVID-19 pandemic, 22nd Century’s first
priority has been the health and safety of its employees. The
Company implemented a work from home policy for all corporate
employees on March 23, 2020, and the Company’s R&D lab in
Buffalo, New York has been temporarily closed to comply with the
state orders. The Company’s production facility in North Carolina
is classified as an essential business and remains fully
operational with heightened health and safety protocols in place.
At this time, the Company has the ability to fulfill sales orders,
while protecting the safety and well-being of its employees and
complying with local, state and federal orders. The Company’s
executive leadership team is monitoring this rapidly evolving
situation and will continue to make the best decisions for all
employees and the business.
- On March 30, 2020, the FDA issued a letter requesting a 120-day
extension to the impending deadline for Premarket Tobacco
Applications (PMTA) process, in light of the global pandemic caused
by the novel virus, COVID-19. The letter cited that “as a result of
the outbreak, some employees from the FDA’s Center for Tobacco
Products (“CTP”) have been deployed to work for the U.S. Public
Health Service, including many within one of the divisions of CTP’s
Office of Science, which is responsible for reviewing premarket
applications.” The FDA is part of the broad-based public health
response to COVID-19; therefore, the pandemic could have the impact
of delaying the timing of the FDA’s review of the Company’s MRTP
application and FDA’s other tobacco control activities.
First Quarter Earnings Conference Call
22nd Century will host a conference call today at 8:00 a.m. ET
to discuss the Company’s first quarter 2020 financial results.
The conference call can be accessed live over the phone by
dialing (877) 407-6914. A replay of the call will be available
until May 21, 2020 by dialing (877) 660-6853; the passcode is
13702417.
The live audio webcast of the conference call will be accessible
in the Events section on the Company's Investor Relations website
at https://www.xxiicentury.com. An archived replay of the webcast
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. The Company’s primary mission in tobacco
is to reduce the harm caused by smoking by bringing its proprietary
reduced nicotine content cigarettes with 95% less nicotine than
conventional cigarettes to adult smokers in the U.S. and
international markets. The Company’s primary mission in
hemp/cannabis is to develop proprietary hemp/cannabis plants with
unique cannabinoid profiles and desirable agronomic traits and to
commercialize those plants through a synergistic portfolio of
strategic partnerships in the hemp/cannabis industry.
Cautionary Note Regarding Forward Looking Statements
This press release contains forward-looking statements
concerning our business, operations and financial performance and
condition as well as our plans, objectives and expectations for our
business operations and financial performance and condition that
are subject to risks and uncertainties. All statements other than
statements of historical fact included in this press release are
forward-looking statements. You can identify these statements by
words such as “aim,” “anticipate,” “assume,” “believe,” “could,”
“due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,”
“plan,” “potential,” “positioned,” “predict,” “should,” “target,”
“will,” “would” and other similar expressions that are predictions
of or indicate future events and future trends. These
forward-looking statements are based on current expectations,
estimates, forecasts and projections about our business and the
industry in which we operate and our management's beliefs and
assumptions. These statements are not guarantees of future
performance or development and involve known and unknown risks,
uncertainties and other factors that are in some cases beyond our
control. All forward-looking statements are subject to risks and
uncertainties and others that could cause actual results to differ
materially from those contained in our forward-looking statements,
please refer to “Risk Factors” in our Annual Report on Form 10-K
filed on March 11, 2020 and In subsequently filed 10-Qs. We
undertake no obligation to publicly update or revise any
forward-looking statement as a result of new information, future
events or otherwise, except as otherwise required by law.
Learn more at xxiicentury.com, on Twitter @_xxiicentury and on
LinkedIn.
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version on businesswire.com: https://www.businesswire.com/news/home/20200507005215/en/
Mei Kuo 22nd Century Group Phone: 716-300-1221
mkuo@xxiicentury.com
John Mills ICR (646) 277-1254 john.mills@icrinc.com
Deirdre Thomson ICR (646) 277-1283
deirdre.thomson@icrinc.com
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