22nd Century Group, Inc. (NYSE American: XXII), a leading
plant-based, biotechnology company that is focused on tobacco harm
reduction, very low nicotine content tobacco, and hemp/cannabis
research, announced today that the Company filed its 2020 Third
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 8:00 a.m. ET.
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. 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.
“In my first few months as CEO of 22nd Century, I met with
scientists, public health officials, national cigarette retailers,
farmers, and 22nd Century shareholders. What I heard, from each of
these groups, is that 22nd Century’s VLN® cigarettes have the
potential to disrupt and redefine the entire tobacco industry and,
in doing so, prevent millions of our nation’s youth from becoming
addicted to the only legal consumer product that, when used as
intended, will kill half of all long-term users,” said James A.
Mish, chief executive officer of 22nd Century Group. “Understanding
these facts has helped me to truly appreciate the Company’s primary
mission of reducing the harm caused by smoking and to reaffirm the
Company’s strategic priorities.”
After conducting a comprehensive review of 22nd Century’s
existing business, extensive intellectual property portfolio, and
the regulatory climate in which the Company operates, management
has identified near-term milestones and medium/long-term
opportunities:
- Securing a MRTP authorization from the FDA for VLN® remains the
Company’s number one priority. Separately, but at the same time,
22nd Century has made product launch plans that include a national
roll-out with large, well-recognized retail chains in the U.S. and
a marketing campaign that has been designed to introduce adult
smokers to the world’s lowest nicotine content cigarette.
Commercial product launch and licensing discussion with potential
strategic partners in the U.S. and globally will commence within 90
days of MRTP authorization.
- An equally important first priority initiative is supporting
and advancing the FDA’s plan to require that 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 (a level already achieved by 22nd Century’s proprietary
VLN® cigarettes). When the FDA mandate ultimately goes into effect,
22nd Century plans to make the Company’s proprietary reduced
nicotine content tobacco and related intellectual property
available to every cigarette manufacturer in the U.S.
- 22nd Century’s near- and medium-term commercial prospects have
never been brighter. Since reporting second quarter earnings, the
Company has refocused its hemp/cannabis strategy to target the
upstream segments of the value chain such as plant biotechnology
research, gene modification and engineering, and modern plant
breeding. This renewed emphasis on intellectual property and
high-value genetic traits is a shift away from CBD and hemp-based
consumer products in the already saturated U.S. market.
Accordingly, 22nd Century will concentrate its hemp/cannabis
efforts on initiatives related to the Company’s current (and
exclusive) KeyGene collaboration and on the existing worldwide
license agreement with Anandia Laboratories.
- 22nd Century has also identified a third plant-based franchise
that has similarities in its genome to the hemp/cannabis plant. The
Company plans to turn attention to this franchise after execution
of its tobacco and hemp/cannabis strategies. 22nd Century is in the
process of securing valuable and necessary intellectual property
and pursuing strategic partnerships to support the development of
this franchise. The Company will provide additional information as
the competitive situation allows.
- Additionally, 22nd Century’s operating results for the third
quarter were strong, driven by year-over-year revenue growth and
continued gross margin improvement. The Company’s balance sheet is
healthy and has excellent prospects to establish strategic
partnerships upon its MRTP authorization. 22nd Century is fully
prepared to launch its historic VLN® product.
Business Highlights and Key
Events
- On September 17, 2020, 22nd Century announced the appointment
of Michael Koganov, Sc.D., Ph.D., to its Board of Directors. Dr.
Koganov will serve as Chair of the Company’s Scientific Advisory
Board and as a member of the Board of Director’s Finance Committee.
Recognized as a leading expert in the development of plant-derived,
natural products and solutions for pharmaceutical, consumer
packaged goods, and life science companies, Dr. Koganov brings a
valuable scientific perspective to 22nd Century’s business and
research and development strategies.
- On October 14, 2020, the Company announced that it was granted
U.S. Patent No. 10,669,552 entitled “Up-regulation of auxin
response factor NbTF7 to decrease nicotine in a plant.” This
crucial patent covers methods of manipulating plant metabolism and
alkaloid levels by controlling transcription factor NbTF7, which
regulates the nicotine alkaloid biosynthetic pathway. This
breakthrough technology provides the Company with a rapid pathway
to introduce very low nicotine traits into virtually any variety of
tobacco, including bright, burley, oriental, and cigar tobacco
varieties. This achievement further demonstrates that the FDA’s
Comprehensive Plan for Tobacco and Nicotine Regulation to limit the
nicotine content for all cigarettes sold in the U.S. is technically
feasible and at the same time definitively disproves the “Big
Tobacco” claim that such low nicotine levels cannot be achieved in
all tobacco varieties.
- On October 19, 2020, the Company announced its participation in
the Food and Drug Law Institute’s Tobacco and Nicotine Products
Regulation and Policy Conference. John Pritchard, 22nd Century’s
vice president of regulatory science, presented as a member of the
conference’s “Nicotine and Harm Reduction” panel on Thursday,
October 22. During the conference, 22nd Century expressed strong
support for the FDA’s landmark 2017 Comprehensive Plan for Tobacco
and Nicotine Regulation, in particular the FDA’s plan to require
all cigarettes sold in the U.S. to be made “minimally or
non-addictive” by limiting their nicotine content to just 0.5
milligrams of nicotine per gram of tobacco, a level already
achieved by 22nd Century’s proprietary VLN® cigarettes. The Company
gained significant exposure with the 300 participants attending the
conference, including members of the FDA’s Center for Tobacco
Products (CTP), advocates of public health and regulation, and key
members of the media. 22nd Century continues to advocate for
common-sense tobacco and nicotine regulation and urges public
health officials to unite against the tragic toll of cigarette
addiction.
- Since reporting second quarter earnings in August, the Company
has finalized its strategic plans, set near-term milestones, and
identified exciting medium and long-term opportunities. 22nd
Century’s primary mission and highest, near-term priority is on
reducing the harm caused by smoking. The Company will achieve its
mission by bringing to market its proprietary, reduced nicotine
content tobacco cigarettes – containing 95% less nicotine than
conventional cigarettes – under the brand name VLN® upon the FDA’s
authorization of its MRTP application. The Company continues to
maintain its dialogue with the FDA, and believes the Agency is in
the final stages of the review process related to its application.
In addition to its ongoing contact with the FDA, 22nd Century is
also working with various legal counsel, advisors, and government
affairs specialists to highlight the public health importance of
its MRTP application to encourage a near-term authorization of its
application.With more than 34 million smokers in the U.S. and more
than 1 billion worldwide, the FDA’s authorization of the VLN® MRTP
application will serve as a catalyst for 22nd Century’s commercial
sales. The Company believes that achieving just one-quarter of one
percent (0.25%) market share of the U.S. cigarette market, could
result in revenues that may over time, based on the disruptive
nature of VLN®, drive the Company’s market capitalization more than
10 times higher. In addition, the Company believes the FDA’s
authorization of 22nd Century’s MRTP with modified exposure claims
would open multiple licensing opportunities for 22nd Century’s
proprietary reduced nicotine content tobacco in the U.S. and
globally.
- The Company will make VLN® available to adult smokers in the
U.S. through its planned distribution in pharmacies, convenience
stores, and other tobacco retail outlets within 90 days of
receiving MRTP authorization from the FDA. 22nd Century has
received extremely positive feedback on its reduced nicotine
content cigarettes from many potential partners in the independent,
regional, and national retail trade, and the Company is in the
process of finalizing its distribution plans and agreements. The
Company is also in the final stages of completing its marketing
plans for VLN® and currently anticipates a phased roll out in
select geographies within 90 days of MRTP authorization. 22nd
Century plans to position VLN® in the premium pricing segment of
the cigarette market and expects it to deliver corresponding
margins. The Company’s consumer market research indicates that 60%
of adult smokers have an interest in using VLN®. Discussions with
potential tobacco retailers have indicated strong support from
trade channel partners.
- 22nd Century has also made considerable progress in the
development of its non-GMO (genetically modified organisms)
technology and has successfully applied the next generation
methodology of reducing nicotine levels in tobacco plants to
several varieties of tobacco. The non-GMO technology has shown to
consistently achieve reductions in nicotine levels by as much as
99% compared to conventional tobacco. The Company believes that
non-GMO technology is key to commercializing global opportunities
where non-GMO products are preferred by consumers or where GMO
products are banned. The Company will begin to execute on
commercial opportunities overseas once it secures MRTP
authorization from the FDA, as the Agency is viewed as the gold
standard in public health. The Company has already harvested
non-GMO crops from field trials conducted earlier this year and is
already developing a non-GMO very low nicotine content cigarette
prototype.
- The Company’s genesis in hemp/cannabis research was established
in 2014 through a worldwide license agreement with Anandia
Laboratories. The Company maintains its exclusive sublicense in the
U.S. and co-exclusive sublicense in the remainder of the world,
excluding Canada, for 23 patent and patent applications relating to
the hemp/cannabis plant. The licenses for these valuable patents
survive Aurora Cannabis’s acquisition of Anandia. The Company
believes that it can accelerate its research in hemp/cannabis
through selective partnerships.Through its partnership with
KeyGene, the Company has recently completed building its
proprietary bioinformatics platform. Armed with this encyclopedia
of information on the hemp/cannabis genome, 22nd Century looks now
to begin monetizing the vast knowledge foundation and intellectual
property it has developed over the past year. The Company believes
that its collaborative efforts with KeyGene enables the Company to
modify and improve the hemp/cannabis plant using the fastest and
most cost-effective methods available. 22nd Century continues to
target and develop hemp/cannabis lines with select agronomic traits
including lines with stable, ultra-high tetrahydrocannabinol (THC)
levels, lines with higher levels of rare cannabinoids, and lines
with ultra-low terpene levels.
- 22nd Century has refocused its hemp/cannabis strategy to target
the upstream segments of the cannabinoid value chain, in
particular, in the areas of plant biotechnology research, gene
modification and engineering, modern plant breeding and
development, and extraction. The Company intends to build upon its
core strengths in the plant science and ingredient value chain and
seek to form operational partnerships that will enable it to offer
comprehensive commercial breeding, cultivation, and extract
purification services utilizing its proprietary hemp/cannabis
plants in development. With the progress that 22nd Century has made
over the past year in its partnership with Panacea, the Company
will focus on and ensure the accelerated delivery of valuable,
commercial plant lines and technology, and intellectual property
for the life science, consumer product, and pharmaceutical markets
over finished consumer goods.
- 22nd Century has also identified a third plant-based franchise
that has similarities in its genome to the hemp/cannabis plant. The
Company plans to turn attention to this franchise after execution
of its tobacco and hemp/cannabis strategies. 22nd Century is in the
process of securing valuable intellectual property and pursuing
strategic partnerships to support the development of this franchise
and will provide additional information over the coming months as
the competitive situation allows.
2020 Third Quarter and Year-to-Date Financial
Results
- Net sales revenue for the third quarter of 2020 was $7.3
million, an increase of 13.1% over net sales revenue of $6.5
million during the third quarter of 2019. Net sales revenue
year-to-date was $20.8 million, an increase of 12.0% from net sales
revenue of $18.6 million for the first nine months of 2019. The
increase in sales for both periods was primarily driven by higher
volume and pricing in its contract manufacturing business.
- Gross profit improved by $383 thousand in the third quarter of
2020 compared to prior year and improved $1.1 million year-to-date
compared to the first nine months of 2019. The improved gross
margin was primarily the result of higher volume, price increases,
and lower labor and overhead costs driven by factory efficiencies
implemented over the last nine months.
- Total operating expenses improved by $3.2 million for the third
quarter and improved by $4.0 million year-to-date, driven by the
following:
- Research and development expenses decreased by $1.0 million
quarter-to-date and $2.2 million year-to-date. This was primarily
driven by a reduction in personnel expense, lower license and
contract costs, and the absence of a one-time impairment charge
taken on research tobacco leaf inventory in the prior year.
- Research and development expenses related to the MRTP
application was favorable in the third quarter by $65 thousand and
$1.4 million year-to-date. The expenses in the prior year were
primarily related to preparation for the Company’s Tobacco Products
Scientific Advisory Committee (TPSAC) hearing which occurred on
February 14, 2020.
- Sales, general and administrative expense was favorable by $890
thousand in the third quarter. The favorability was driven
primarily by lower one-time severance expenses and decreased equity
compensation that occurred in the third quarter of 2019 as a result
of management changes.
- Sales, general and administrative expense was $690 thousand
higher year-to-date compared to the first nine months of 2019. This
was driven primarily by an increase in expenses related to
consulting and professional services and personnel and insurance
costs and was partially offset primarily by lower equity
compensation and a decrease in one-time severance expense.
- Impairment of intangible assets decreased by $1.1 million in
the third quarter and by $997 thousand year-to-date. The decrease
year-over year was related to an intellectual property portfolio
rationalization that resulted in higher impairment in the prior
year.
- Operating loss improved by $3.6 million in the third quarter of
2020 to ($4.0) million. The improvement in the quarter was driven
by higher gross profit which increased by $384 thousand and lower
total operating expenses of $3.2 million, primarily driven by the
aforementioned impairment of intangible assets recorded in the
prior year, lower sales, general and administrative expenses, and
lower research and development spend.
- Operating loss year-to-date improved by $5.1 million to ($12.9)
million driven by the combination of higher gross profit which
increased by $1.1 million and a $4.0 million reduction in operating
expenses. The decrease in operating expenses were primarily driven
by a decrease in research and development expenses and the
aforementioned impairment of intangible assets recorded in the
prior year.
- Net loss for the third quarter of 2020 improved by $6.0 million
to ($4.2) million, representing a net loss per share of ($0.03) as
compared to a net loss of ($10.3) million, or a net loss per share
of ($0.08) for third quarter of 2019. In addition to the
improvement in operating loss of $3.6 million, other income and
expense improved by $2.5 million primarily due to a reduction in
the unrealized loss on Aurora warrants of ($3.0) million in the
quarter.
- Net loss for the first nine months of 2020 improved by $7.1
million to ($13.3) million, representing a net loss per share of
($0.10) as compared to a net loss of ($20.4) million, or a net loss
per share of ($0.16). In addition to the improvement in operating
loss of $5.1 million, other income and expense improved by $2.0
million primary due to a $1.9 million litigation expense recorded
in the prior year. This was partially offset in the current year by
an impairment charge of $1.1 million related to the Panacea stock
warrant investment.
- Adjusted EBITDA was ($3.4) million for the third quarter of
2020, an improvement of $1.2 million, or 26.4% compared to Adjusted
EBITDA of ($4.6) million for the third quarter of 2019.
- Adjusted EBITDA was ($10.2) million for the first nine months
of 2020, an improvement of $3.1 million, or 23.3% compared to
Adjusted EBITDA of ($13.4) million for the first nine months of
2019.
Balance Sheet and
Liquidity
- For the first nine months of 2020, net cash used in operating
activities was approximately $12.6 million, compared to
approximately $11.7 million in the first nine months of 2019.
- The Company’s liquidity remains strong with cash, cash
equivalents, and short-term investment securities totaling
approximately $26.8 million as of September 30, 2020.
- The Company does not have any plans or need to raise capital at
this time. It believes the continued improvement in quarterly cash
burn rate, an ongoing reduction in costs, and a healthy cash
position should provide the Company with ample ability to execute
for the foreseeable future.
Third Quarter Earnings Conference
Call
22nd Century will host a live audio webcast today at 8:00
a.m. ET to discuss its third quarter 2020 financial results.
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.
The live audio webcast, interactive Q&A, and investor
presentation will be accessible in 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 Annual Report on Form 10-K filed on March 11, 2020
and in its subsequently filed Quarterly Report on Form 10-Q. 22nd
Century undertakes 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.
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 and nine months ended
September 31, 2020 and 2019, including a reconciliation of net
(loss) income to Adjusted EBITDA for such periods.
|
|
Quarter Ended |
|
|
September 30, |
|
|
Dollar Amounts in Thousands
($000's) |
|
|
|
|
|
|
|
|
$ Change |
|
|
2020 |
|
|
2019 |
|
|
fav / (unfav) |
Net
loss |
|
$ |
(4,221 |
) |
|
$ |
(10,245 |
) |
|
$ |
6,024 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
Impairment of intangible assets |
|
|
— |
|
|
|
1,142 |
|
|
|
(1,142 |
) |
Amortization and depreciation |
|
|
323 |
|
|
|
390 |
|
|
|
(67 |
) |
Unrealized loss (gain) on investment |
|
|
429 |
|
|
|
2,959 |
|
|
|
(2,530 |
) |
Realized (gain) loss on short-term investment securities |
|
|
— |
|
|
|
(90 |
) |
|
|
90 |
|
Gain on the sale of machinery and equipment |
|
|
(1 |
) |
|
|
— |
|
|
|
(1 |
) |
Accretion of non-cash interest expense |
|
|
4 |
|
|
|
12 |
|
|
|
(8 |
) |
Equity-based employee compensation expense |
|
|
306 |
|
|
|
1,440 |
|
|
|
(1,134 |
) |
Interest Income |
|
|
(270 |
) |
|
|
(242 |
) |
|
|
(28 |
) |
Interest Expense |
|
|
19 |
|
|
|
— |
|
|
|
19 |
|
Adjusted
EBITDA |
|
$ |
(3,412 |
) |
|
$ |
(4,634 |
) |
|
$ |
1,222 |
|
1Fav = Favorable variance, which increases Adjusted EBITDA;
Unfav = unfavorable variance, which reduces Adjusted EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
Year-to-date Ended |
|
|
September 30, |
|
|
Dollar Amounts in Thousands
($000's) |
|
|
|
|
|
|
|
|
$ Change |
|
|
2020 |
|
|
2019 |
|
|
fav / (unfav) |
Net
loss |
|
$ |
(13,307 |
) |
|
$ |
(20,360 |
) |
|
$ |
7,053 |
|
Adjustments: |
|
|
|
|
|
|
|
|
|
Impairment of intangible assets |
|
|
146 |
|
|
|
1,142 |
|
|
|
(996 |
) |
Impairment of Panacea warrant |
|
|
1,062 |
|
|
|
— |
|
|
|
1,062 |
|
Amortization and depreciation |
|
|
997 |
|
|
|
1,111 |
|
|
|
(114 |
) |
Unrealized loss (gain) on investment |
|
|
562 |
|
|
|
1,410 |
|
|
|
(848 |
) |
Realized (gain) loss on short-term investment securities |
|
|
— |
|
|
|
(146 |
) |
|
|
146 |
|
Litigation Settlement |
|
|
— |
|
|
|
1,891 |
|
|
|
(1,891 |
) |
Gain on the sale of machinery and equipment |
|
|
(1 |
) |
|
|
(87 |
) |
|
|
86 |
|
Accretion of non-cash interest expense |
|
|
34 |
|
|
|
33 |
|
|
|
1 |
|
Equity-based employee compensation expense |
|
|
1,162 |
|
|
|
2,406 |
|
|
|
(1,244 |
) |
Executive and board search fees |
|
|
430 |
|
|
|
— |
|
|
|
430 |
|
Interest Income |
|
|
(1,344 |
) |
|
|
(757 |
) |
|
|
(587 |
) |
Interest Expense |
|
|
19 |
|
|
|
3 |
|
|
|
16 |
|
Adjusted
EBITDA |
|
$ |
(10,240 |
) |
|
$ |
(13,354 |
) |
|
$ |
3,114 |
|
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
22nd Century (AMEX:XXII)
Historical Stock Chart
From Mar 2024 to Apr 2024
22nd Century (AMEX:XXII)
Historical Stock Chart
From Apr 2023 to Apr 2024