22nd Century Group Inc (NYSEMKT:XXII) Making A Comeback

Source: 22nd Century Group Inc

Shares of 22nd Century Group Inc (NYSEMKT:XXII) have been on a downtrend ever since early February when the company completed a $5.5 million equity raise. XXII issued 5 million shares and 2.5 million warrants at $1.21 per share. Worries over dilution lead some investors to dumping their shares. We think investors should be more focused on how XXII is going to revolutionize the global cigarette market over the next few months and overlook the dilution.

22nd Century describes itself as "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 cannabis plants through genetic engineering and plant breeding. The company’s primary mission is to reduce the harm caused by smoking. 22nd Century currently owns or exclusively controls more than 200 issued patents and more than 50 pending patent applications around the world. The company’s strong IP position led to a licensing agreement with British American Tobacco (“BAT”), the world’s second largest tobacco company."

Last week, XXII announced that the FDA had formally acknowledged receipt of the company’s Modified Risk Tobacco Product (MRTP) application for BRAND A Very Low Nicotine tobacco cigarettes. 22nd Century’s BRAND A tobacco cigarettes aim to revolutionize the global cigarette market since they contain less than 0.6 mg nicotine per cigarette and less than 0.05 mg nicotine yield per cigarette – a reduction in nicotine of at least 95% as compared to conventional cigarettes.

With more than 200 patents relating to the genes in the tobacco plant responsible for nicotine production, 22nd Century is the only company in the world capable of growing virtually nicotine-free tobacco. Though Very Low Nicotine cigarettes have the taste and sensory characteristics of conventional cigarettes, smokers’ exposure to nicotine is drastically reduced. According to FDA guidance literature, the MRTP application process results in a “Final Review and Action” by FDA within the 360 days of the receipt of an application that contains the information required by Section 911 of the FD&C Act.

This is not the first time the agency or affiliates have expressed interest in the concept of a very low nicotine cigarette. As a reminder, nicotine is the addictive substance in cigarettes that smokers crave. Tar, among other chemicals, is the poison that causes cancer. The concept of a VLN cigarette is that if you reduce nicotine levels in cigarettes down to “non-addictive” levels, smokers would eventually lose interest in smoking. In June 2010, former U.S. FDA commissioner, Dr. David Kessler, MD, JD, stated, “The FDA should quickly move to reduce nicotine levels in cigarettes to non-addictive levels. If we reduce the level of the stimulus, we reduce craving. It is the ultimate harm reduction strategy.”

The New England Journal of Medicine published two different articles related to SPECTRUM research cigarettes. The first article reported on the results of a landmark, double-blind, parallel, randomized clinical trial involving 840 smokers. Funded by the FDA and the National Institute on Drug Abuse (“NIDA”), the study found that smokers of SPECTRUM Very Low Nicotine cigarettes consumed far fewer cigarettes per day and doubled their quit attempts versus smokers of cigarettes with conventional nicotine content.

For the year ended December 31, 2015, revenue was $8,522,000 compared to revenue of $529,000 for the year ended December 31, 2014, an increase of nearly $8,000,000. Revenues for the year ended December 31, 2015 consisted primarily of sales of RED SUN and MAGIC cigarettes, as well as contract manufactured cigarettes and filtered cigars, and the sale of a portion of the SPECTRUM research cigarette order the company received in September 2015. The revenues for the year ended December 31, 2014 consisted primarily of the sale of SPECTRUM research cigarettes in the amount of approximately $448,000.

Currently trading at just a $60 million market cap, 22nd Century Group has the potential to be a billion dollar company. Consider that one billion consumers spend $700 billion a year on tobacco products. At present, the United States is completely devoid of any “reduced exposure cigarette” option. If 22nd Century’s application to the FDA is successful, the company’s Very Low Nicotine cigarettes will offer millions of American smokers the first reduced exposure cigarette choice. We will be updating Insider Financial as soon as we know more. For continuing coverage on XXII, sign up for our free newsletter today and get our next hot stock pick!

Disclosure: We have no position in XXII and have not been compensated for this article.