22nd Century to Emphasize Disruptive and Proprietary Smoking Harm Reduction Products

Company Releases 2015 Annual Report Letter to Shareholders

CLARENCE, N.Y.--(BUSINESS WIRE)-- 22nd Century Group, Inc. (NYSE MKT: XXII), a plant biotechnology company that is a leader in tobacco harm reduction, released today the following letter that was included the Company’s 2015 Annual Report to Shareholders:

Dear Fellow Shareholders:

The year 2015 was a transformative year for our Company and the year 2016 will be a time of even greater opportunity for 22nd Century.

In 2015, our Company expanded our already dominant intellectual property portfolio and attracted the interest and attention of public health officials around the world. We submitted a Modified Risk Tobacco Product (“MRTP”) application to the U.S. Food and Drug Administration (“FDA”) for our BRAND A Very Low Nicotine cigarettes that contain approximately 95% less nicotine than conventional cigarette brands. The New England Journal of Medicine published two articles (N Engl J Med 2015; 373:1340-1349 and N Engl J Med 2015; 373:1289-1291) about the results of a landmark clinical trial utilizing 22nd Century’s proprietary SPECTRUM® research cigarettes. Funded by the FDA and the National Institute on Drug Abuse (“NIDA”), a division of the National Institutes of Health (“NIH”), the study found that smokers of our SPECTRUM® Very Low Nicotine cigarettes consumed far fewer cigarettes per day and doubled their quit attempts versus smokers of cigarettes with conventional nicotine content.

Simultaneous to these important milestones, 22nd Century began to actively commercialize our significant intellectual property portfolio. Our revenues increased from less than $530,000 in 2014 to more than $8.5 million in 2015. Indeed, our revenues in 2015 exceeded prior financial projections and were the highest in our Company’s history.

That said, we are not yet profitable and we did not expand the sales of our commercial products as quickly or as broadly as we would have liked. We are disappointed that logistical issues prevented us from rolling out MAGIC Very Low Nicotine cigarettes in Europe beyond Spain. Nevertheless, all things considered, these are merely “bumps in the road” and 22nd Century closed 2015 with a very strong foundation for continued success and growth.

As discussed in earnings calls over the last year, 22nd Century’s enormous potential – in the near term and the long term – rests with our technology that gives us the potential to disrupt at least two major industries. With ownership or exclusive control of more than 200 issued patents and more than 50 pending patent applications around the world, 22nd Century has a virtual monopoly on the genes in the tobacco plant responsible for nicotine production.

Ours is the only company in the world capable of growing tobacco with 95% less nicotine than conventional plants… and, at the other end of the spectrum, no other company can grow cigarette tobacco with nicotine content as high as our proprietary plants. These technologies – and the incredibly important independent clinical trials being conducted with cigarettes made from our proprietary tobaccos – are what make 22nd Century extraordinary. And these are the things management intends to build on, in the near term, to increase shareholder value.

To date, there have been numerous independent, scientific clinical studies (Phase II and Phase III) using 22nd Century’s proprietary Very Low Nicotine cigarettes. New clinical trials using 22nd Century’s SPECTRUM® research cigarettes are already underway. Most notably, a Phase III study featuring 1,250 participants compares two different approaches to help smokers lose their addiction to nicotine: (A) an immediate reduction in nicotine content in cigarettes to non-addictive levels by using 22nd Century’s proprietary Very Low Nicotine tobacco in such cigarettes, or (B) a gradual reduction in nicotine content in cigarettes to non-addictive levels by using 22nd Century’s SPECTRUM® research cigarettes. No matter which protocol ultimately prevails, each utilizes 22nd Century’s proprietary products, so 22nd Century will be the “winner” either way.

Based on the results of these and other independent clinical trials, we believe 22nd Century will be the first company in the world to achieve a Modified Risk Tobacco Product designation for a combustible cigarette.

Our Company also believes that our X-22 smoking cessation product in development may in fact prove to be the world’s most effective smoking cessation aid. Importantly, unlike Pfizer’s market-leading drug Chantix®, X-22 seems to pose no new side effects to smokers. What’s more, smokers we have surveyed overwhelmingly prefer the idea of quitting with a combustible cigarette rather than using a pill, nicotine patch, lozenge or gum. To this end, our Company has continued to identify and meet with potential strategic partners in our efforts to establish a non-dilutive joint venture to fund Phase III clinical trials for X-22. Announcement of such a joint venture, as one might imagine, would be a transformative event for 22nd Century. We will continue our efforts on this important initiative in 2016.

While the harm reduction theory behind a Very Low Nicotine cigarette that provides nicotine to smokers at “non-addictive” levels is easy to understand, the development of a high nicotine cigarette may seem counter-intuitive. However, we believe that both approaches serve to reduce the harm caused by smoking, though for very different reasons.

It has been hypothesized for many years that a high nicotine tobacco – when combined with a low tar yield cigarette design – will result in smokers inhaling far less smoke and far less “tar”. Of course, smoke and “tar” are the primary disease-causing agents of cigarettes. In the landmark publication, Virtually Safe Cigarettes, 2000, noted epidemiologist Dr. Gio Batta Gori lays the groundwork for our strategies succinctly, as follows:

With the exception of extremely low nicotine yield cigarettes, “smokers in general manage to utilize an average of about 1 mg of nicotine from cigarettes of any brand, regardless of…smoking machine yields.”

This statement addresses the phenomenon now commonly referred to as “smoker compensation.” Especially for cigarettes with slightly lower nicotine contents, like in cigarettes formerly referred to as “light,” smokers compensate by taking more puffs, inhaling more deeply, covering the dilution air holes on the filter, and/or simply smoking more cigarettes in order to consume their desired nicotine of approximately 1 mg per cigarette. What this means is smokers find a way to achieve about 1 mg of nicotine no matter the type of cigarette they smoke, unless the nicotine of a cigarette is so low as to make smoker compensation impossible (which is true with 22nd Century’s Very Low Nicotine SPECTRUM®, MAGIC, BRAND A, and X-22 cigarettes).

In 2003 at the TabExpo Congress in Barcelona, Spain, Dr. Gori reached the natural conclusion of his theory when he explained:

“…the higher the smoke concentration of nicotine, the sooner inhalation is inhibited, the lower the dose of whole smoke to the lungs, and the lower the risk to be expected.”

In other words, as smokers make the adjustment to a higher nicotine cigarette, they naturally consume less “tar” and less smoke – primarily because the nicotine their bodies crave is more readily and more efficiently available when smoking a high nicotine tobacco cigarette. And with less smoke consumption, the risks for heart disease, lung disease and cancer also lessen.

Accordingly, we believe that 22nd Century’s BRAND B higher nicotine cigarettes may in fact qualify for Modified Risk Tobacco Product status with the FDA. Based on the work of Dr. Gori and others, we have developed BRAND B cigarettes with relatively high nicotine content in combination with moderate tar content. Thus, when comparing BRAND B to conventional cigarettes, BRAND B has a tar-to-nicotine ratio that is more than 60% lower than that found in conventional cigarette brands.

So, for smokers who wish to reduce their exposure to nicotine and/or to quit smoking altogether, 22nd Century has developed naturally growing tobacco with the world’s lowest nicotine content. At the same time, for the more than 20 million American smokers who accept the risks associated with smoking, do not wish to quit, and are not concerned with decreasing their exposure to nicotine, our Company has created BRAND B not to give smokers more nicotine – but to deliver nicotine more efficiently than conventional cigarettes with a reduced exposure to the smoke and “tar.” It is our belief that 22nd Century’s BRAND B cigarettes reduce smokers’ exposure to “tar” and smoke by more than 60% as compared to conventional cigarettes. We believe this product has truly enormous market potential.

We expect BRAND B will be of great interest to pragmatic public health officials. At the recent March 2016 Annual Meeting of the Society for Research on Nicotine and Tobacco, the FDA presented a summary of the initial results of its own recently completed clinical study on dual users of both cigarettes and filtered cigars in which the FDA found that such smokers inhaled less smoke when they smoked filtered cigars than when they smoked conventional cigarettes. This result supports the theory held by our Company that a higher nicotine product, like a filtered cigar or a filtered cigarette with high nicotine tobacco, will result in the intake of less smoke and less “tar” by the user. For these reasons, in 2016 we plan to meet with the FDA to discuss conducting “proof of concept” exposure studies for BRAND B extremely low tar-to-nicotine ratio cigarettes. If the results of these exposure studies allow, and provided sufficient funds are available, we will begin work on a Modified Risk Tobacco Product application for BRAND B cigarettes in order to request from the FDA the right to disclose to consumers that BRAND B exposes smokers to substantially less “tar” and substantially less smoke than the current market leading brands of cigarettes in the United States.

In 2016, we will also continue our scientific research and development activities relating to the cannabis plant. We currently conduct all of our research and development on the cannabis plant in fully licensed laboratories in Vancouver, Canada. In the cannabis plant, the Company’s unique intellectual property allows 22nd Century to regulate the “active ingredients” in the plant, which are known as cannabinoids. With this technology we intend to develop cannabis plants with low levels of THC for the commercial hemp market and plants with high levels of CBD for the legal medical marijuana markets. These initiatives could provide significant future revenues for our Company.

In summary, 22nd Century remains uniquely positioned as a plant biotechnology company with the important primary mission of reducing the harm caused by smoking; we are also very excited about our opportunities to develop important medical marijuana plants. We have made huge strides over the last 12 months on many scientific initiatives and we are proud of what we have accomplished. While we are not yet profitable, we are certainly putting “points on the board” both in terms of the substantial increases in revenues and in terms of our strategic accomplishments.

We also continue to see great progress with a greater number of independent clinical trials utilizing our proprietary products. As we continue to make our own MRTP application submissions to the FDA, we believe 22nd Century’s technology will be widely recognized as a true paradigm shift for at least two industries. We believe that ultimately capturing a share of the growing smoking cessation market and/or a mere fraction of a percent of the U.S. cigarette market with one or more of our Modified Risk Tobacco Products in development will transform our Company into a true industry leader.

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.

Best regards,

Henry Sicignano III
Chief Executive Officer, President & Director

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. The Company’s strong IP position led to a licensing agreement with British American Tobacco (“BAT”), the world’s second largest tobacco company. Visit www.xxiicentury.com, www.magiccigarettes.com and www.redsuncigarettes.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, 2015, filed on February 18, 2016, 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.

Investor Relations:
IRTH Communications
Andrew Haag, 866-976-4784
Redington, Inc.
Tom Redington, 203-222-7399

Source: 22nd Century Group, Inc.