May 23, 2016 (ACCESSWIRE via COMTEX) — WINDSOR, ON / ACCESSWIRE / May 23, 2016 / The Wealthy Biotech Trader (or “WBT”), an investment newsletter focused on showing everyday investors new opportunities in rapidly growing, little-known biotech, pharmaceutical and medical device stocks releasing impressive news and making market moves, would like to bring to investors’ attention how one little-known company, 22nd Century Group (nyse mkt:XXII), has developed a revolutionary combustible cigarette that could give smokers exactly what they have been seeking, and drastically change the tobacco industry in the process.
Companies included: 22nd Century Group (nyse mkt:XXII); Aradigm Corporation ARDM, +1.92% ; Electronic Cigarettes International Group, Ltd. ECIG, -2.95% ; Omeros Corporation OMER, +2.00% Phillip Morris International Inc. PM, -0.20% Altria Group Inc. MO, +0.28% British American Tobacco (nyse mkt:BTI), Reynolds American, Inc. RAI, +0.28%
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According to Euromonitor International, the global tobacco market is estimated to be worth more than $800 billion. This market is completely dominated by a handful of large, well-known companies such as Philip Morris, Altria, British American Tobacco, and Reynolds American. From investors’ perspective, these companies have long proven their value as they have had a long history of paying dividends as well as increasing their share prices. For instance, if an investor had bought shares in Philip Morris, Altria, British American Tobacco, and Imperial Brands five years ago, their positions would have gained 45 percent, 132 percent 33 percent and 114 percent, respectively.
The most pressing question now is whether this upward trend will continue over the next five years as new threats to the industry begin to emerge. For starters, the recent introduction of vaping products and e-cigarettes has attracted the attention of many smokers who are looking for less harmful alternatives to common cigarettes. That said, in recent months many leading tobacco analysts and industry insiders have concluded that the overwhelming majority of smokers simply prefer traditional combustible cigarettes over smokeless e-cigs. Greater government intervention over tobacco products represents a more significant threat to the industry. In recent years, Big Tobacco has faced increasing taxes and more stringent regulatory and marketing requirements. Interestingly, though these factors have led to declining cigarette shipment volumes, the industry has experienced increased cigarette sales and profits (generated by price increases). While experts are confident that Big Tobacco is well-positioned to continue to deliver shareholders over-sized investment returns, it is also clear that smokers are actively seeking less harmful alternatives to traditional cigarettes. The industry is ripe for a game-changer.
22nd Century Group (nyse mkt:XXII), a plant-based biotech with technology that allows it to alter the level of nicotine and nicotinic alkaloids through genetic engineering, has developed a number of innovative tobacco products that have the power to disrupt and redefine the whole industry. Earlier in January, the company submitted a somewhat historic Modified Risk Tobacco Product (MRTP) application with the FDA for the world’s lowest nicotine cigarettes (95% less than Marlboro) which, if approved, would represent the world’s first FDA-sanctioned reduced exposure cigarette – and could signal a new era for cigarette manufacturers around the globe. XXII is expecting to hear about this decision from the FDA at any time this year.
This paradigm shift is due to the fact that Big Tobacco was given notice by the U.S. government when words like ‘light’ or ‘ultra-light’ were banned on cigarette packaging and advertisements. Going forward, should a manufacturer claim that its product poses fewer or lesser health risks than other tobacco products, they are required to file an MRTP with the FDA with scientific evidence to support their claims. This bodes extremely well for 22nd Century Group since the scientific studies conducted on its BRAND A very low nicotine cigarettes have conclusively shown that they provide smokers with drastically less exposure to nicotine as compared to ordinary cigarettes.
With ‘light,’ ‘ultra-light,’ and ‘low tar’ cigarettes accounting for more than 60 percent of the total US cigarette market prior to the FDA banning the use of these implied health claim monikers, 22nd Century Group’s (nyse mkt:XXII) patented cigarettes could easily become the best alternative for smokers. In 2014, approximately $75 billion dollars was spent on cigarettes in the United States, which means that even if 22nd Century’s BRAND A cigarettes capture a mere 1 percent market share, the Company’s valuation could rise by a factor of 20x.
International opportunities could be even more lucrative. The company has more than 200 patents for its technology in nearly 100 countries around the world which leads one to conclude that 22nd Century will likely license internationally for substantial additional revenue. The United States often leads the world in technology that benefits public health; it is not unreasonable to project that in an $800-billion-dollar global tobacco market, an FDA-sanctioned ‘less harmful’ combustible cigarette could easily generate hundreds of millions of dollars in international sales for under-the-radar 22nd Century Group.
OTHER INTERESTING STOCKS IN THE SECTOR:
Aradigm Corporation ARDM, +1.92% is an emerging specialty pharmaceutical company focused on the development and commercialization of drugs for the prevention and treatment of severe respiratory diseases. Apart from the company’s robust pipeline of novel respiratory treatments, it is also developing products to prevent diseases in tobacco smokers through smoking cessation and a diagnostic program to detect aspirations of gastrointestinal fluid into the respiratory tract. The company’s main smoking cessation product ARD-1600 recently completed the first human clinical trials delivering aqueous solutions of nicotine using the palm-size AERx Essence system with some pretty encouraging results.
The phase 1 trials were aimed at subjectively evaluating acute cigarette craving when one of three doses was administered to 18 adult male smokers and results showed that their blood levels of nicotine rose much more rapidly following a single-breath inhalation compared to published data on other approved nicotine delivery systems. At five minutes following the inhalation of the nicotine solution the craving scores reduced by more than half in all the patients and did not return to pre-dose baseline during four hours of monitoring.
According to a recently released report (Global Smoking Cessation Products Market 2016-2020) the market for smoking cessation products is expected to grow at a CAGR of 18 percent over the next five years which signifies that Aradigm’s stock deserves to be closely watched by investors.
Omeros Corporation OMER, +2.00% is a biopharmaceutical company committed to discovering, developing, and commercializing small-molecule and protein therapeutics for large-market as well as orphan indications targeting inflammation, coagulopathies, and disorders of the central nervous system. The company’s extensive product pipeline includes OMS405 developed under its peroxisome proliferator-activated receptor gamma or PPARγ program for the treatment of substance abuse.
The management believes that it is the first company to demonstrate a link between PPARγ and addiction disorders. The company is currently collaborating with The New York State Psychiatric Institute for the clinical trials of which phase 2 studies have already been completed with the results expected to be released at a later date. The clinical trials were funded by the National Institute of Drug Abuse which saved Omeros substantial costs to put into its other programs.
The company recently reported Q1 revenues of $7.4 million as its share price soared by more than 100 percent over the last week.
Electronic Cigarettes International Group ECIG, -2.95% through its subsidiaries, operates as an independent marketer and distributor of vaping products and electronic cigarettes in the United States and internationally. It offers disposables, rechargeables, tanks, starter kits, e-liquids, open and closed-end vaping systems which it distributes through a number of channels. While e-cigarettes may be in the early stages of market penetration with more than 250 brands available, we believe that ECIG has the capability of emerging as a dominant force in the market.
E-cigarettes accounted for approximately $4.8 billion of global cigarette sales and Euromonitor expects this figure to climb to about $51 billion by 2030 which underscores the potential opportunity for investors with a long time horizon. So far the only problem that we see is the low barrier to entry as well as competition from the more established tobacco firms which have also began working on their own e-cigarettes. However, this is does not mean that ECIG doesn’t present a compelling investment argument. According to the company’s FY2015 earning report, the ECIG generated $54.2 million in revenue an increase of about 21 percent from the prior year with gross profit coming in at $30.5 million.
ECIG’s management also made a couple of tweaks to its marketing and selling expenses which decreased 16 percent to $13.7 million in an attempt to find the right mix of spending to target advertising and kiosk rentals which it believes would be more effective in increasing net sales. With the adoption of e-cigarettes steadily gaining traction, this is one stock that can give investors exposure to the market at bargain prices.
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