22nd Century’s proposed VLN™ cigarettes
continue to fall squarely within the nicotine range that public
health officials anticipate will be mandated by the FDA.
Company’s financial position remains strong;
cash, cash equivalents, and short-term investment securities
totaled approximately $51.9 million.
22nd Century Group, Inc. (NYSE American: XXII), a plant
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 2019 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 conference call to be held Wednesday, May 8, 2019,
at 4:00 PM (Eastern Time).
Henry Sicignano III, President and Chief Executive Officer of
22nd Century Group, together with John T. Brodfuehrer, Chief
Financial Officer, will conduct the call. Interested parties are
invited to participate by dialing: (800) 667-5617 and using
Conference ID 5265600. The conference call will consist of an
overview of recent business highlights and a summary of the
financial information presented in the Company's first quarter 2019
Form 10-Q. Immediately thereafter, there will be a question and
answer segment open to callers.
For the first quarter of 2019, 22nd Century’s accomplishments
and notable events include:
On March 27, 2019, the Company announced the results of a
recently completed, Company-sponsored study involving its Very Low
Nicotine Content (“VLNC”) cigarettes, with the results of such
study indicating that subjects using 22nd Century’s VLNC product
had 97% less nicotine in their blood as compared to their
blood-nicotine levels after use of their usual brand of highly
addictive commercial cigarettes. In contrast, when the study
subjects used nicotine gum, which is a common nicotine replacement
therapy, the users’ nicotine level in their blood was only 69% less
than when they used their usual brand of cigarettes. The study
results also showed that the users’ cravings for cigarettes and
urge to smoke were significantly reduced when using the Company’s
VLNC product. Overall, the results of this study suggest that (i)
VLNC cigarettes have a lower potential for abuse than conventional
cigarettes, and (ii) VLNC cigarettes have a potential for abuse
that may be comparable to using nicotine gum. The Company included
this study and its results in its Modified Risk Tobacco Product
(“MRTP”) application submitted to the U.S. Food and Drug
Administration (“FDA”) for the Company’s VLNC cigarettes under the
proposed brand name VLN™. The Company’s MRTP application seeks the
FDA’s authorization to advertise that VLN™ cigarettes contain 95%
less nicotine as compared to the 100 top-selling cigarette brands
in the United States.
Subsequent to the close of the first quarter of 2019, 22nd
Century’s notable events include:
On April 9, 2019, the Company announced that it had entered into
a worldwide strategic research and development agreement with
KeyGene NV, a global leader in plant research involving high-value
genetic traits and increased crop yields. This exclusive, worldwide
collaboration will focus on the development of hemp/cannabis plants
with exceptional cannabinoid profiles for medical and therapeutic
use, among other applications and other improved agronomic traits
for commercial crop applications for agricultural uses. The KeyGene
collaboration provides the Company with access to a unique suite of
crop innovation platforms, including genomics, molecular genetics,
trait discovery and breeding technologies. Under the agreement,
22nd Century will hold exclusive worldwide rights to all
hemp/cannabis plant lines, intellectual property on metabolic
traits, and research results that are developed through the KeyGene
partnership.
On April 17, 2019, the Company announced the hiring of John
Pritchard as the Company’s new Vice President of Regulatory
Science. Mr. Pritchard was formerly the Head of Regulatory Science
for Imperial Brands, U.K., one of the largest tobacco companies in
the world. Over the course of his 12 years with Imperial Brands,
Mr. Pritchard served in key management roles in product
stewardship, compliance, research, and regulatory departments. As
the head of Imperial Brand’s scientific regulatory engagement team,
Mr. Pritchard led Imperial Brand’s technical regulatory strategy
and external scientific engagement on global product regulation.
Mr. Pritchard received a Master of Science Degree in Toxicology
from the University of Birmingham, England and his Bachelor of
Science Degree in Pharmacology from the University of Aberdeen,
Scotland. With work cited by the U.S. Surgeon General, the World
Health Organization, and Public Health England, Mr. Pritchard has
considerable experience in the fields of tobacco harm reduction and
next generation tobacco products. Mr. Pritchard will lead and
oversee our global regulatory and compliance activities and he will
engage with the FDA in support of the Company’s MRTP application
for VLN™ cigarettes. In addition, Mr. Pritchard will work in
support of the planned rule by the FDA to require the reduction of
the nicotine content of all cigarettes sold in the U.S. to
“minimally or non-addictive levels.” Mr. Pritchard will also lead
the Company’s initiatives with foreign governments that are
interested in 22nd Century’s proprietary VLNC tobacco for use in
their countries.
On April 30, 2019, the Company announced that the FDA conducted
a comprehensive inspection of the Company’s manufacturing facility
in North Carolina as a part of the FDA’s review of 22nd Century’s
Pre-Market Tobacco (“PMT”) application for the Company’s VLN™
cigarettes. 22nd Century’s proposed VLN™ cigarettes are made with
the Company’s proprietary VLNC tobacco and contain at least 95%
less nicotine as compared to the 100 leading cigarette brands in
the United States. The FDA’s inspection was a highly anticipated
component of the third phase of the FDA’s four phase review process
for the PMT application. The FDA’s stated goal for the inspection
was “to verify the information and data contained in the [PMT]
application.” As such, the FDA inspectors witnessed production of
22nd Century’s proprietary VLN™ cigarettes. In addition, FDA
inspectors reviewed 22nd Century’s raw material receiving and
storage procedures, quality control processes, manufacturing
equipment and systems, tobacco processing methods, and
finished-products analyses procedures.
Officials from the FDA have previously indicated a
“minimally-addictive or non-addictive” level of nicotine in
cigarettes could be achieved at approximately 0.3 to 0.7 mg
nicotine per gram of tobacco. The World Health Organization (“WHO”)
has similarly recommended that all WHO-member nations adopt “a
[tobacco] policy of limiting the sale of cigarettes to brands with
a nicotine content that is not sufficient to lead to the
development and/or maintenance of addiction.” 22nd Century’s
proposed VLN™ cigarettes – with a target concentration of 0.5 mg
nicotine per gram tobacco – fall squarely within the nicotine range
that public health officials anticipate will be mandated by the
FDA, and that will simultaneously enable the WHO to advance its
global nicotine reduction agenda. For these reasons, when 22nd
Century’s proprietary VLNC cigarettes achieve MRTP status, they
could serve as a powerful tool and precedent in support of the
FDA’s broader national nicotine reduction mandate.
First Quarter 2019 Financial Summary
The Company’s financial position remains strong as of March 31,
2019; cash, cash equivalents, and short-term investment securities
totaled approximately $51.9 million. The Company incurred expenses
of approximately $1.21 million relating to its MRTP application to
the FDA for its “BRAND A” VLNTM cigarettes during the first quarter
of 2019.
Net sales revenue for the three months ended March 31, 2019 was
$6,294,000, an increase of $178,000, or 2.9%, over net sales
revenue of $6,116,000 for the three months ended March 31,
2018.
For the three months ended March 31, 2019, the Company reported
a net operating loss of $5,379,000 as compared to a net operating
loss of $4,969,000 for the three months ended March 31, 2018, an
increase in the net operating loss of $410,000, or 8.3%. The
increase in the net operating loss was primarily due to an increase
in operating expenses of $236,000, and a negative change in gross
profit on the Company’s product sales from a gross profit for the
three months ended March 31, 2018 to a gross loss for the three
months ended March 31, 2019 in the amount of $174,000. The negative
change from a gross profit for the three months ended March 31,
2018 to a gross loss for the three months ended March 31, 2019 was
primarily the result of additional expenses recorded as part of the
cost of goods sold during the first quarter of 2019, as compared to
the first quarter of 2018. The additional expenses consisted
primarily of (1) an increase in fees due to the FDA on filtered
cigars of approximately $100,000, and (2) a net increase in other
manufacturing expenses charged to the cost of goods sold of
approximately $60,000, relating mainly to labor and equipment
maintenance costs.
The Company experienced a net loss for the three months ended
March 31, 2019 of $2,073,000, or ($0.02) per share, as compared to
net income of $1,386,000, or $0.01 per share, for the three months
ended March 31, 2018, a negative change from net income to a net
loss in the amount of $3,459,000. The negative change from net
income to a net loss was due primarily to the decrease in the
unrealized gain on investment of $3,174,000, a negative change in
the gross profit (loss) on product sales of $174,000, an increase
in operating expenses of $236,000, partially offset by a net
increase in various other income (expense) of $125,000. The net
loss for the three months ended March 31, 2019 also included
non-cash expenses consisting of equity-based compensation in the
amount of $449,000 and depreciation and amortization in the amount
of $351,000.
Adjusted EBITDA (as described in the table and paragraph below)
was approximately a negative $4,580,000, or ($0.04) per share, for
the three months ended March 31, 2019, as compared to a negative
Adjusted EBITDA of approximately $4,113,000, or ($0.03) per share,
for the three months ended March 31, 2018, an increase in the
negative Adjusted EBITDA of $467,000, 11.4%. The increase in the
negative Adjusted EBITDA for the three months ended March 31, 2019
was primarily the result of an increase in the operating loss of
$410,000, as discussed above.
Below is a table containing information relating to the
Company’s Adjusted EBITDA for the quarters ended March 31, 2019 and
2018, including a reconciliation of net (loss) income to Adjusted
EBITDA for such periods.
For the Quarters Ended March 31, 2019
2018
% Change
Net (loss) income $(2,072,713) $1,386,488 -249% Adjustments:
Warrant liability gain, net - (48,711) -100% Depreciation and
amortization 350,606 292,080 20% Unrealized gain on investment
(2,973,533) (6,147,088) -52% Unrealized loss on investment
securities - 92,574 -100% Realized loss (gain) on investment
securities 16,021 (195) -8,316% Interest expense 10,660 - 100%
Interest income, net (272,243) (251,840) 8% Equity-based
compensation 448,905 563,876 -20% Gain on disposal of machinery and
equipment (87,351) - 100%
Adjusted EBITDA
$(4,579,648) $(4,112,816) 11%
Adjusted EBITDA, which the Company defines as earnings before
interest, taxes, depreciation and amortization, as adjusted by 22nd
Century for certain non-cash and non-operating 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 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.
About 22nd Century Group, Inc.
22nd Century is a plant biotechnology company focused on
technology which allows it to increase or decrease the level of
nicotine in tobacco plants and the level of cannabinoids in
hemp/cannabis plants through genetic engineering and plant
breeding. The Company’s primary mission in tobacco is to reduce the
harm caused by smoking. The Company’s primary mission in
hemp/cannabis is to develop proprietary hemp/cannabis strains for
important new medicines and agricultural crops. Visit
www.xxiicentury.com and www.botanicalgenetics.com for more
information.
Cautionary Note Regarding Forward-Looking Statements: This press
release contains forward-looking information, including all
statements that are not statements of historical fact regarding the
intent, belief or current expectations of 22nd Century Group, Inc.,
its directors or its officers with respect to the contents of this
press release, including but not limited to our future revenue
expectations. The words “may,” “would,” “will,” “expect,”
“estimate,” “anticipate,” “believe,” “intend” and similar
expressions and variations thereof are intended to identify
forward-looking statements. We cannot guarantee future results,
levels of activity or performance. You should not place undue
reliance on these forward-looking statements, which speak only as
of the date that they were made. These cautionary statements should
be considered with any written or oral forward-looking statements
that we may issue in the future. Except as required by applicable
law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform
these statements to reflect actual results, later events or
circumstances, or to reflect the occurrence of unanticipated
events. You should carefully review and consider the various
disclosures made by us in our annual report on Form 10-K for the
fiscal year ended December 31, 2018, filed on March 6, 2019,
including the section entitled “Risk Factors,” and our other
reports filed with the U.S. Securities and Exchange Commission
which attempt to advise interested parties of the risks and factors
that may affect our business, financial condition, results of
operation and cash flows. If one or more of these risks or
uncertainties materialize, or if the underlying assumptions prove
incorrect, our actual results may vary materially from those
expected or projected.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190507006035/en/
22nd Century Group, Inc.James Vail, Director of
Communications(716) 270-1523jvail@xxiicentury.com
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