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Biotech Stocks Have Seen Explosive Growth Recently
When one thinks of explosive biotech stocks, they usually think of medical breakthroughs, and for a good reason. We’ve seen unknown biotech stocks like Moderna and BioNTech morph from overnight experiments into giants in recent history.
With more and more people paying attention to a multitude of health treatments for countless conditions, many investors have seen biotech stock shares skyrocket year-to-date in 2021 as of Oct 19, 2021:(2)
What if I told you, though, that a little-known biotech company is itching to potentially break out in a way you wouldn’t typically think- with breakthrough plant sciences.
Now before you tilt your head sideways in skepticism, let me break it down for you. Not only does this company have the explosive breakout potential of biotech upstarts. It’s disruptively positioned itself in potentially $1.3 trillion worth of addressable markets with some of the world’s hottest in-demand industries craving innovation.(1)
That company would be 22nd Century Group, Inc. (NASDAQ: XXII).
22nd Century Group, Inc. (NASDAQ: XXII) leads the world with cutting-edge agricultural biotechnology and intellectual property. It is leveraging modern plant breeding, gene-editing, and molecular breeding technologies. It has created new, proprietary tobacco, hemp/cannabis, and hop plants with optimized alkaloid and flavonoid profiles. Moreover, it has improved yields and valuable agronomic traits for customers in the life science and consumer products industries.
In layman’s terms, it’s like this.
It could turn a potential $817 billion global tobacco industry upside down with a proprietary product containing approximately 95% fewer toxins than conventional cigarettes.
It could transform a potential $100 billion hemp and cannabis space by disrupting every segment of the green leaf value chain by using its technology to help commercial-scale growers to improve crop yield, stability, and expression of key traits in high-volume production.
Even a potential $500 billion hops industry could be disrupted by 22nd Century Group, Inc. (NASDAQ: XXII). The company is leveraging its experience with tobacco and hemp/cannabis to accelerate the development of proprietary specialty hop varieties or valuable traits. After all, those plants are close relative to hops.
Judging by what confident analysts have said and the stock’s 790% run from earlier in the year before uplisting to the Nasdaq, watch out.
This is a company to keep your eyes on ASAP as it aims to become the latest biotech break-out candidate.
22nd Century Group, Inc. (NASDAQ: XXII) is a revolutionary biotech disruptor with a historic chance to truly upend a global tobacco industry that has been a lucrative juggernaut for generations
As of 2018, the global tobacco market was worth approximately $817B, with cigarettes consisting of roughly $714B of this market- or about 90%.
This industry, though, is undergoing some shape-shifting changes, and XXII is right at the forefront.
Reports in the media claim that the government is actively considering moving forward with the Advance Notice of Proposed Rulemaking (ANPRM). Under this regulation, Big Tobacco firms will be required to reduce the number of toxins in all combustible cigarettes sold in the United States to be “minimally or non-addictive.”
Fortunately, long before the ANPRM proposal was even a thing, 22nd Century had the foresight to think outside the box and realize how lucrative and underserved a market for non-addictive smokes was. It wasn’t just the government demanding “something new.” It was the people.
Of the approximately 1 billion adult smokers in the world today, and roughly 34M U.S. adult smokers, about two-thirds, want to quit, with less than an estimated 10% successfully doing so.
That’s why the company developed its proprietary VLN product- a unique and roughly 95% reduced toxin combustible smoke alternative. All while having a familiar combustible product format that replicates the conventional cigarette experience, including the sensory and experiential elements of taste, scent, smell, and “hand-to-mouth” behavior.
The best part? VLN contains 0.5 mg of nicotine per gram of tobacco, an amount cited by FDA, based on clinical studies, to be “minimally or non-addictive.”
There’s been blue-sky potential for some time with VLN. But now, with demand reaching a fever pitch, government regulations promoting its potential growth, and even more subsequent tailwinds, we could be at the start of a tobacco revolution of biblical proportions.
Funding, clinical efficacy, and more
With nearly $100M in funding, mainly from U.S. government agencies, since 2011, 22nd Century’s reduced nicotine content cigarettes have been used in more than 50 independent scientific clinical studies conducted by universities and institutions.
Back in 2019, an FDA PMTA press release stated, “Authorizing these reduced nicotine products for sale in the U.S. is appropriate for the protection of public health.”
The future is now, and significant moves are being made in the U.S. and overseas to fully commercialize.
The company already has FDA authorization to sell VLN in America. However, VLN could soon become the first and only combustible tobacco product with FDA MRTP authorization. This would permit it to carry a headline claim of “95% less nicotine” on VLN’s packaging.
The second XXII receives MRTP authorization, they could be launch-ready for commercial sales within 90 days. Already, the company has identified both initial pilot and subsequent markets for launch. It is also in advanced discussions with multiple trade and retail partners. It is advancing marketing materials and other vital aspects of the launch.
The company keeps on making moves and preparing for what could be imminent approval. In May 2021, for example, 22nd Century Group announced the installation of state-of-the-art nicotine testing equipment to enhance VLN production. Investment in these new lab capabilities is expected to reduce testing costs by 90% and improve turnaround time from weeks to hours.
Beyond this, as potential regulations and crackdowns start, 22nd Century has a massive opportunity to license its reduced toxin technology to “Big Tobacco” firms such as Philip Morris.
After all, Philip Morris just announced an earnings beat on Oct 19, 2021, thanks to its smokeless non-tobacco product sales. In fact, Philip Morris said that cigarette and heated tobacco unit shipment volume reflected a 0.4% drop in shipment volumes. In comparison, non-heated shipment volume was up by 23.8%, driven mainly by the company’s smokeless IQOS product.
Beyond this, 22nd Century Group is also fully prepared to expand internationally and initiate the launch process of VLN countries with lower regulatory hurdles. It is entirely focused on multiple markets with premium tobacco products and proven distribution partners. It targets international market sales to begin in Q1 ‘22, fully funded by proceeds from the June 2021 capital raise.
Right off the bat, the company may have an easy opportunity to support New Zealand in becoming a smoke-free nation by 2025. The New Zealand Medical Journal years ago already published a letter recommending 22nd Century’s products as an “important smoking reduction tool.”
So with all of these potential catalysts from multiple angles, 22nd Century Group, Inc. (NASDAQ: XXII) is preparing to be the face of this possibly very lucrative revolution.
Should it be a shock to anyone that, based on the company’s latest earnings report, first sales are planned by Q1 2022?
Even without a full VLN commercial launch, the company saw record second quarter and H1 sales. James A. Mish, chief executive officer of 22nd Century Group said, “Our record second quarter and first half net sales were a result of the investments to scale-up our tobacco contract manufacturing capabilities and confirms our ability to generate new business and operate at scale ahead of VLN launches in the U.S. and internationally.”
Don’t think for a second that 22nd Century Group, Inc. (NASDAQ: XXII) is limiting itself to a smokeless tobacco revolution. It’s also positioning itself right in the thick of a potential $100 Billion+ “Green Rush.”
You’re already probably well aware of how the hemp/cannabis space has seen unprecedented momentum over the last few years. Canada was the first domino to fall when it became the first G20 country in the world to fully legalize it almost exactly three years ago.
In the U.S., 36 states & D.C. have now legalized medical cannabis use, while 18 states & D.C. have approved recreational use.
Now that New York has fully legalized green leaf, this could be the start of imminent full federal legalization. California legalized adult use in 2016, and Illinois legalized adult use in 2019. This means that three of the five most populous U.S. states have now fully legalized green leaf!
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On top of the various potential health benefits of green leaf and the multitude of consumer products now available, this appears to be one of the only topics of conversation with widespread American support.
For instance, have Montana legalized green leaf at about the same time New York did. Had they ever agreed on anything politically before? South Dakota, another deep red state, is in the process of exploring scrapping its medical green leaf program for outright legalization.
Results from an April 5-11, 2021 survey by Pew Research Center shouldn’t come as a shock then. According to Pew, “An overwhelming share of U.S. adults (91%) say either that MJ should be legal for medical and recreational use (60%) or that it should be legal for medical use only (31%). Fewer than one-in-ten (8%) say MJ should not be legal for use by adults.”
The green era has arrived, the game has changed, and 22nd Century is leveraging its plant science expertise to revolutionize it.
First and foremost, 22nd Century Group may have a solution to a severe industry problem- existing plant genetics result in low quality and unreliable yield for large-scale commercial production.
The company can potentially create disruptive, proprietary plant lines showing stability and higher crop yields for commercial use. How? Thanks to decades of experience and expertise in plant biotechnology and genetic engineering, a strong track record in developing disruptive valuable plant lines, and the ability to increase crops’ value by improving genetics to optimize desired traits.
22nd Century plans to accomplish the following:
Because this market is growing so explosively, monetizing key plant lines is a significant priority for the company. 22nd Century has established a leadership position in genetic IP critical to hemp/cannabis achieving its full commercial potential. Moving to monetization in 2H ‘21 is looking more and more realistic because of:
Judging by the company’s expertise, transforming the entire industry could happen sooner than anyone thinks.
On Aug. 30, 2021, 22nd Century Group, Inc. (Nasdaq: XXII) announced its formal entry into the global specialty hops market, its third and newest plant franchise.
The global hops industry could be a $500 billion opportunity. This is a sizable global growth market with well-established hops providers and consumer brands. 95% percent of global hop flowers are used in the brewery industry.
The remainder is a small but rapidly growing segment for active ingredients used in the flavor and fragrance, dietary supplement, and pharmaceutical markets.
What’s really causing rising demand for hops is the surge in the popularity of microbrew and craft beers. There’s also major demand for yield optimization to reduce brewers’ input costs, increase active ingredients for dietary supplements/pharmaceutical companies, and to improve disease and pest resistance.
So here’s where 22nd Century is coming into play. It intends to leverage its experience with tobacco and hemp/cannabis. After all, hops are a close relative. By doing this, the company aims to accelerate the development of proprietary specialty hop varieties or valuable traits.
Leveraging research findings from closely related hemp/cannabis plants supports the development of specialty hop varieties with:
The hops market is ripe for disruptive new plant technologies, especially new accelerated molecular breeding technologies and gene-editing tools that only 22nd Century can potentially provide. Hops also has lower regulatory barriers than the tobacco and hemp/cannabis markets.
Therefore, this is what the company intends to do about it:
Because many of the critical hops market participants are located in Europe, 22nd Century is targeting many commercial partnerships in that continent. A new subsidiary in the Netherlands, 22nd Century Group Europe B.V., was established to open new revenue opportunities in hops. At the same time, it’s still serving its tobacco and hemp/cannabis plant franchises and reinforcing its presence through an expanded global footprint.
In addition to this new subsidiary, 22nd Century is actively engaged in discussions with multiple hops growers and consumer product partners to develop specific desired traits and strategic partnerships.
Strategic partnerships could enable 22nd Century to deliver valuable, commercial-scale plant lines and IP in way less time than the traditional 10+ years in the Hops industry. It could very well transform a booming hops industry by accelerating the commercialization of new disruptive hops plants.
By applying its 5-step technique identifying the Plant Profile/Roadmap, Plant Biotechnology, Plant Breeding & Trials, Plant Cultivation, and Ingredient Extraction & Purification, 22nd Century’s innovative upstream alkaloid plant value chain is critical to unlocking new disruptive hop plant lines and IP at large-scale.
The upside potential for this company is extremely atypical. It has disruptive exposure to three multi-hundred billion dollar sectors that in total give the company a potentially addressable market of $1.3 trillion.
Its latest Q2 earnings highlights show eye-popping stability, strength, and growth to accomplish its mission.
All signs indicate the potential for financial strength and an efficient operating structure with a strong balance sheet supporting current operations and strategy. The company saw an astounding +30% increase in YOY net sales and a +390 basis points increase in YOY gross profit margin. The company also has a dramatically improving cash situation, with cash and cash equivalents also skyrocketing from $22.3M to $62.3M YOY.
Earlier, we mentioned that even without a full VLN launch, the company saw record second quarter and H1 sales.(15) That’s because 22nd Century Group currently generates revenue from tobacco contract manufacturing operations (CMO), self-funding the cost of facilities needed to manufacture research cigarettes and its reduced nicotine tobacco products ahead of U.S. and global launch.
Beyond this, the company has other powerful-looking fundamentals. The company’s Altman Z-Score of roughly 26.8 as of Oct 19, 2021, looks potentially outstanding. Why? The Altman Z-Score is usually a solid gauge for illustrating financial health and bankruptcy risk. A company ideally wants a score of around 3.0 or higher and no lower than roughly 1.8. The fact that 22nd Century Group has a score almost 9x more elevated than the ideal figure speaks volumes.
Furthermore, 22nd Century Group could be under-leveraged and more than capable of meeting its short-term obligations. Its current ratio of approximately 7.7x and quick ratio of around 7.0x as of Oct 19, 2021, reflect its strong cash position. It also shows that the company has more cash than debt on its balance sheet and could indicate that 22nd Century has over 7 times more current assets than current liabilities.
Not to mention, the company shows impressive growth potential. Its 5-year revenue CAGR forecast could be around 27%, while its net income growth forecast is expected to be approximately 8.5%.
Is it any wonder why the company uplisted to the NASDAQ back in August with numbers like this?
Analysts like Dawson James Securities appear to be wildly bullish on the company. On Aug 6, 2021, Dawson James gave the company a $7 price target based on better-than-expected Q2 revenue and multiple catalysts, including the FDA’s approval of the company’s MRTP application, along with “monetization of the legacy Anandia IP, revenue from the Colorado farm crop, and VLN launches in international markets.” Dawson James also expects additional license revenues, proceeds from additional crop harvests, and a low-nicotine mandate in the coming quarters.
After 22nd Century announced its foray into Hops, Dawson James doubled down on its $7 target on Aug 31, 2021. The firm said that the company is six months into its expected two-year development cycle and believes upfront license fees can begin in 12 to 18 months. It also added that the addition of Hops as another revenue source gives the company a major positive potential catalyst in a market with less regulation than tobacco. Most importantly, the company could have significant potential upside with less dependency on favorable regulatory rulings.
Do the math. That would give the company a tremendous 142.21% potential upside from its Oct 18, 2021 closing price of $2.89.
Does its pullback still seem like something to worry about? Or something to take advantage of?
Sources
Source 1: https://d1io3yog0oux5.cloudfront.net/xxiicentury/files/pages/xxiicentury/db/328/description/XXII_Investor_Overview_Website_100621.pdf
Source 2: https://fknol.com/list/best-performing/biotech-stocks.php
Source 3: https://finance.yahoo.com/news/22nd-century-fully-prepared-deliver-200000882.html
Source 4: https://bit.ly/3jfwV3g
Source 5: https://www.thestreet.com/investing/earnings/philip-morris-ekes-out-third-quarter-earnings-beat
Source 6: https://finance.yahoo.com/news/22nd-century-stands-fully-prepared-215600267.html
Source 7: https://bit.ly/3voRHSC
Source 8: https://nyti.ms/3poMuZY
Source 9: https://bit.ly/3urd1Wb
Source 10: https://bit.ly/2Pu9veu
Source 11: https://www.census.gov/newsroom/press-releases/2015/cb15-215.html
Source 12: https://bit.ly/2WBfpO6
Source 13: https://bit.ly/3B74KJX
Source 14: https://pewrsr.ch/3DoOvu1
Source 15: https://www.globenewswire.com/news-release/2021/08/05/2275328/0/en/22nd-Century-Group-Reports-Business-Highlights-and-Financial-Results-for-the-Second-Quarter-2021.html
Source 16: https://www.xxiicentury.com/investors/news/press-releases/detail/447/22nd-century-group-to-begin-trading-on-nasdaq-on-august-16
Source 17: https://d1io3yog0oux5.cloudfront.net/xxiicentury/files/pages/xxiicentury/db/328/description/XXII+Hops+Overview+Website+082921.pdf
Source 18: https://www.xxiicentury.com/investors/news/press-releases/detail/447/22nd-century-group-to-begin-trading-on-nasdaq-on-august-16
Source 19: https://finbox.com/NASDAQCM:XXII/explorer/altman_z_score
Source 20: https://www.investopedia.com/terms/a/altman.asp
Source 21: https://finbox.com/NASDAQCM:XXII/explorer/current_ratio
Source 22: https://finbox.com/NASDAQCM:XXII/explorer/quick_ratio
Source 23: https://finbox.com/NASDAQCM:XXII/explorer/total_rev_cagr_5y
Source 24: https://schrts.co/rxHaisDW
Source 25: https://finbox.com/NASDAQCM:XXII/explorer/analyst_target_upside
Source 26: Dawson James Report August 6
Source 27: Dawson James Report August 31
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