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22nd Century Group Inc (NYSEMKT:XXII) Takes A Hit, But Should Recover

22nd Century Group Inc (NYSEMKT:XXII) Takes A Hit, But Should Recover
Written by
Chris Sandburg
Published on
January 9, 2017
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22nd Century Group Inc (NYSEMKT:XXII) took a hit late last week on its latest release. The company put out an update regarding its lead product, a so called Very Low Nicotine cigarette (we're capitalizing this because it's a brand name, as opposed to an official classification), and markets have interpreted the update as negative. It's not great news, certainly not the sort of news shareholders were hoping to kick off the new year with, but 22nd Century is now available at a 25% discount to its December 28 pricing. We think there might be an opportunity to get in at a discount at these rates, ahead of markets properly absorbing the news, and realigning to accommodate the absorption.By way of a quick introduction. 22nd Century has developed a cigarette that it somewhat mysteriously refers to as Brand A, and it reportedly contains less than 0.6 mg nicotine per cigarette and less than 0.05 mg nicotine yield per cigarette. That's around 95% less than the standard leading brands – Malboro, Camel, Newport etc. – and as such, the company believes it addresses a remit set out by the World Health Organization (WHO), which has recommended reductions in nicotine to minimally addictive levels. It's the nicotine in cigarettes that is addictive, of course, so a 95% reduction should technically fall within this remit. In order to market Brand A as doing so, however, 22nd Century has to get a green light from the FDA. In order to get this green light, it's got to submit a Modified Risk Tobacco Product Application (MRTPA) and a Premarket Tobacco Product Applications (PMTA). Both its MRTPA and its PMTA for Brand A were with the FDA, and investors have been watching the tape carefully for any suggestion that the agency had come back with a positive review.Enter, the latest announcement.There's a lot of fluff in the latest release, but the meat of it is that the company has had some feedback from the FDA that suggests the latter wants to see some data relating to whether a reduction in nicotine, and in turn, a reduction in addictiveness, actually translates to a reduction in the amount an individual smokes. That's not great news, and that's why the company has taken a hit. It's withdrawn its applications, and essentially has to resubmit with a whole new data set. Back to square one.Maybe not. Here's the good news.The company already has the data collected – it's not going to have to conduct any more studies, and, ergo sum, it's not going to have to spend any more money on trials. Additionally, the withdrawing of the initial application has given 22nd Century an opportunity to separate the two applications into one PMTA and one MRTPA, to be submitted individually.A PMTA review process is far quicker than an MRTPA process, and while it's the MRTPA application that the company needs to start marketing its product as Very Low Nicotine, a PMTA will at least allow the company to start selling Brand A under FDA authorization. For us, this is a step forward, and it's going to provide a near term catalyst. We've seen over the past six months what positive news will do to this stock, and the more that hits press, the better.As a side note, 22nd Century also has a secondary product, designed as a smoking cessation device, called X-22, with the FDA. This is probably a slightly longer term pathway than the above discussed Brand A, but it's waiting in the wings, and just as we are looking out for a positive release relating to Brand A, so are we regarding X-22.Cash on hand at last count (September 30) came in at a little over $5 million, with total debt at circa $600K.We will be updating our subscribers as soon as we know more. For the latest updates on XXII, sign up below!Disclosure: We have no position in XXII and have not been compensated for this article.

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