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22nd Century Group Issues Annual Shareholder Letter

March 21, 2017

 

CLARENCE, N.Y.--(BUSINESS WIRE)-- 22nd Century Group, Inc. (NYSE MKT: XXII), a plant biotechnology company that is focused on tobacco harm reduction and cannabis research, announced today that the Company has issued the following letter to shareholders as part of 22nd Century Group’s 2016 Annual Report:

 

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Dear Fellow Shareholders:

 

In 2016, 22nd Century’s Very Low Nicotine technology captured the attention of scientists and public health officials around the world. Over the course of the year, we reported to shareholders the results of six new independent clinical studies investigating the efficacy and comparative safety of Very Low Nicotine (VLN) cigarettes among broad population groups, as well as among several at-risk groups. At the same time, well-respected, independent scientists published four compelling recommendations calling on governments worldwide to adopt 22nd Century’s VLN cigarettes as a central part of efforts to reduce smoking prevalence around the world. Chief among the organizations endorsing our Company’s VLN cigarettes was the World Health Organization (WHO) Study Group on Tobacco Product Regulation (www.who.int/tobacco/publications/prod_regulation/nicotine-reduction/en/).

 

The WHO report compiled and summarized the available science behind VLN cigarettes and recommended “a 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.” The WHO report states: “No specific amount of nicotine has yet been identified as the absolute threshold for addiction; however, it is likely to be equal to or possibly less than 0.4 mg/g of dry cigarette tobacco filler.” 22nd Century is the only company in the world capable of producing combustible tobacco cigarettes at this very low level of nicotine – without any artificial extraction or chemical processes.

 

The cost of the science conducted in 2016 on our Company’s behalf was staggering. In fact, 22nd Century was the beneficiary of tens of millions of dollars of clinical trials that were primarily funded by the National Institute of Health (NIH) and the U.S. Food and Drug Administration (FDA). Based on these and previous independent clinical trials, pragmatic countries in many parts of the world have identified three likely paths to integrate 22nd Century’s novel VLN tobacco products as a key ingredient in their respective tobacco control policies: (1) approval of BRAND Afor sale as an over-the counter reduced exposure tobacco product, (2) approval of X-22 as a prescription-based smoking cessation aid, and (3) mandate of a maximum nicotine level for cigarettes in line with the WHO’s recommendation of ≤ 0.4 mg per gram of tobacco (a 95% reduction in nicotine versus conventional cigarette brands). In 2017, we stand on the precipice of the adoption of VLN tobacco as a harm reduction strategy in one or more of the 180 WHO-member countries.

 

Building on 2015’s commercial success, in 2016 we once again reported record sales. From a revenue base of $8.5 Million in 2015, we grew gross sales nearly 50% to over $12 Million in 2016. Though we ultimately expect major licensing contracts or strategic partnerships to generate hundreds of millions of dollars in revenue, we are very proud of our organic growth and we look forward to reporting substantially greater sales in 2017. However, in an effort to sharpen our focus on international regulatory approvals and on public policy initiatives in various countries in the first half of 2017, we have made the decision to reallocate Company resources from sales and marketing and toward regulatory affairs.

 

Many shareholders have suggested we take this approach. In fact, some shareholders have suggested that 22nd Century forego all commercial activities until we receive regulatory approvals to freely sell and advertise our products as “reduced risk” or, at the very least, as “Very Low Nicotine.” We have not, however, decided to go quite this far. We continue to believe annual sales growth is an important metric of success and we will, therefore, strive to achieve record annual revenues once again this year. After a soft first quarter, revenues from already signed contracts will produce total gross revenue for 2017 that will greatly exceed 2016 total sales.

 

While our revenues have grown steadily, we recognize that the greatest opportunity for our Company is not in the sales of conventional commercial products, but is of course in the licensing of our technology and in the sales of our proprietary smoking cessation products. In recognition of this fact, and as a result of the publication of several very positive, new clinical trial results with VLN cigarettes, we expect that our regulatory efforts will significantly drive the future sales of our X-22 smoking cessation aid and our Modified Risk Tobacco Products in development. Ultimately, we expect that regulatory and scientific successes with these products will lead to truly explosive commercial success – amounting to hundreds of millions of dollars annually.

 

Our more pronounced attention on regulatory efforts relating to the differentiation of our unique products is an intentional and planned progression of our commercial strategy, especially in light of the tightening of tobacco control laws around the world. For example, since the spring of 2016, European Union law no longer permits us to disclose the nicotine yield on our MAGICcigarette packaging. And so, rather than continuing to expand MAGIC sales without the ability to disclose the remarkably low nicotine yield of our Very Low Nicotine MAGIC cigarettes, we have opted to first secure European regulatory approvals for our Very Low Nicotine cigarettes. On a country-by-country basis, we have identified appropriate regulatory pathways which will lead to the ability to introduce Very Low Nicotine cigarettes together with an accurate disclosure of their trace nicotine content.

 

An example of the headway we have made in our pursuit of regulatory approval comes from the United Kingdom. In the fourth quarter of 2016, we recognized a unique opportunity in the U.K. after the Medicines and Healthcare Products Regulatory Agency (MHRA) approved a vape product called E-Voke as a smoking cessation device. (E-Voke is made by Nicovations Limited, which is a part of British American Tobacco.)

 

The E-Voke device is described as an electronic inhaler. Interestingly, the E-Voke device that was approved for smoking cessation in the U.K. delivers with each use about 0.4 mg of nicotine, or about 10 times the machine-generated smoke yield of nicotine of 22nd Century’s X-22 Very Low Nicotine cigarettes.

 

The circumstances surrounding E-Voke’s application and approval in the U.K. as a smoking cessation device led us to investigate following a similar path in the U.K. for X-22. Accordingly, we recently contacted the MHRA and submitted a preliminary information package. Our submission referenced numerous, independent clinical trials that used our proprietary Very Low Nicotine tobacco, including a clinical trial that was conducted in the U.K. at the Queen Mary University of London. Officials from MHRA have reviewed our submission and have already offered helpful and straight-forward advice to 22nd Century. At this point, we are working to prepare a complete dossier on X-22 as a prescription-based smoking cessation product for the U.K. for review by MHRA.

 

While we are investigating the regulatory pathways in numerous countries around the world – starting with the most promising countries – we are also continuing our efforts to achieve regulatory approval for our VLN products here in the U.S. As recently announced, we requested and secured a meeting with FDA’s Center for Drug Evaluation and Research (CDER). At the meeting, which will take place in June 2017, we will seek agreement from FDA on an appropriate path for X-22 to become a prescription-based cessation aid for smokers in the United States – a huge step forward for our Company!

 

In the meantime, following guidance provided by FDA’s Center for Tobacco Products (CTP), we are working to resubmit our Modified Risk Tobacco Product (MRTP) application for BRAND AVery Low Nicotine cigarettes as an over-the-counter product with reduced exposure to nicotine. We will separate our application to the CTP into a Pre-Market Tobacco (PMT) application and an MRTP application in order to take advantage of a shorter review process by the CTP for the PMT application. We anticipate filing a more expansive and robust PMT application and MRTP application in the first half of 2017.

 

2016 was also the year that 22nd Century opened and began operating our own fully functional biotechnology laboratories in Buffalo, New York, with our small but highly experienced team of scientists and research associates. Although 22nd Century already owns an impressive portfolio of tobacco technologies, our researchers are ambitiously working to produce improved “second generation” non-GMO plants, as well as brand new tobacco and cannabis technology. Non-GMO varieties will open new international markets for 22nd Century and will enable us to protect further our technology with new patents and plant variety protection, thus extending our competitive advantage.

 

At the start of 2016, our cannabis portfolio consisted only of licensed intellectual property in the cannabinoid biosynthetic pathway and a newly signed research agreement with Anandia Laboratories in Vancouver, Canada.

 

During 2016, our sponsored research at Anandia produced several independent lines of industrial hemp that have either zero THC or zero total cannabinoids. This is a major breakthrough that has the potential to transform completely the hemp industry. We are diligently working to fine-tune these new varieties and plan to commercialize them as soon as this year and no later than 2018.

 

Different hemp/cannabis plant varieties produced through our Company’s sponsored research at Anandia also express other valuable cannabinoid profiles and are thus good candidates for extraction of cannabinoids for medical research purposes. To that end, we are talking with a number of universities to develop 22nd Century’s medical marijuana varieties as sources of cannabinoids for medical testing and for use in new medicines.

 

In December 2016, we signed a new cannabis research agreement with the University of Virginia (UVA). Professor Michael Timko and his colleagues at UVA are starting an extensive new cannabis biotech project aimed at developing new technologies for improving hemp through the utilization of our proprietary intellectual property and our unique and advanced plants that we are bringing to UVA. Our agreement with UVA is a very exciting step forward for our Company in the field of hemp/cannabis research; it serves as a prototype for the types of research partnerships that 22nd Century seeks in this emerging industry. 22nd Century co-owns with UVA all results and intellectual property resulting from the sponsored research; further 22nd Century has the sole and exclusive rights to commercialize all results of our collaboration with UVA.

 

Looking to the future, we are extremely optimistic for 2017. 22nd Century has been granted a guidance meeting with CDER/FDA for our X-22 smoking cessation aid. 89% of smokers that we have surveyed report that X-22 would be their top or first choice to help them quit smoking. We firmly believe that smoking cessation cigarettes made from 22nd Century’s proprietary Very Low Nicotine tobacco could save millions of lives and billions of dollars in healthcare costs.

 

We are also encouraged by CTP/FDA’s feedback on our MRTP application and we look forward to working cooperatively with the FDA to obtain approval to market BRAND A as an over-the-counter, modified risk tobacco product that significantly reduces smokers’ exposure to nicotine.

 

Our own laboratories and new research agreements with third-parties will result in us co-owning or solely owning, outright, all intellectual property that is developed in our research with third parties and used in our new products. Our researchers in Buffalo are developing a new generation of non-GMO Very Low Nicotine tobacco. Our zero THC hemp lines are the genesis of a whole new generation of industrial hemp products, and we stand to be a major force in the medical marijuana industry which is predicted to be a multi-billion dollar market by 2020.

 

Achieving our scientific goals – while also securing important regulatory approvals for our novel technologies – will enable our Company to grow by quantum leaps. We are confident that achieving these goals will ensure that 22nd Century shareholders are handsomely rewarded for their investments.

 

On behalf of the 22nd Century Group management team and our Board of Directors, we thank you for being part of our family of shareholders. We look forward to meeting many of you at our annual shareholder meeting in April and we look forward to sharing exciting Company developments with everyone in the weeks and months to come.

 

Sincerely,

 

Henry Sicignano III
President & Chief Executive Officer

 

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 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. Visit www.xxiicentury.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, 2016, filed on March 8, 2017, 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.

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Disclaimer: Except for the historical information and data presented herein, matters discussed in articles on this website contain forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from any future performance or achievements expressed or implied by such coverage. Smoke Show Ventures, Inc., which owns The Daily Marijuana Observer, is not registered with any financial or securities regulatory authority, and does not provide nor claims to provide investment advice or recommendations to readers of this release. Smoke Show Ventures, Inc., which owns The Daily Marijuana Observer, may from time to time have a position in the securities mentioned herein and will increase or decrease such positions without notice. Before making specific investment decisions, readers should seek their own professional advice and that of their own professional financial adviser. Smoke Show Ventures, Inc. or its affiliates, which owns The Daily Marijuana Observer, may be compensated for its services in the form of cash-based and/or equity- based compensation in the companies it writes about, or a combination of the two. For full disclosure please visit: https://www.dailymarijuanaobserver.com/legal-disclaimer/.