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22nd Century Group, Inc. (XXII) Cigarettes Could Help Smokers Kick the Habit

Sound like a paradox? Not upon a closer look at a recent NY Times article that features 22nd Century Group, Inc. (OTCBB: XXII) and their genetically-altered tobacco. The company holds 98 patents for genetic manipulation of tobacco plants to reduce or increase the amount of nicotine in cigarettes. The company’s technology can dramatically lower the nicotine levels in cigarettes while preserving all the other tastes and smells, giving those looking to quit a fighting chance. On the flipside, it can also boost the nicotine levels, a quality that is being developed as a “modified risk” tobacco product because smokers can take fewer puffs to obtain the same amount of nicotine.

22nd Century produces its cigarettes in varying tar and nicotine levels, many of which are actually being purchased by the federal government for research purposes. With the passing of a law in 2009 (The Tobacco Control Act), the U.S. Food and Drug Administration cannot completely ban nicotine, but it does have complete regulatory authority over all tobacco products; meaning that it could mandate an extremely low level of nicotine in smokes if it deems the action a benefit to public health.

In fact, Harvard Professor of Public Health and former member of the FDA Tobacco Products Scientific Advisory Committee Dr. Gregory Connolly is publicly calling for the FDA to mandate a massive reduction of nicotine levels in cigarettes to approximately 0.3 milligrams per cigarette. XXII is the only company we could find capable of manufacturing tobacco cigarettes with this minute level of nicotine. If the FDA does mandate such extremely low levels of nicotine content, tiny XXII could command a market cap well in excess of $2 billion.

As the NY Times article goes on to explain,

“The National Institutes of Health bought nine million of these [XXII] cigarettes, marked ‘for research purposes only,’ from the 22nd Century Group as part of a broadening scientific effort to find ways to regulate cigarettes so that they are non-addictive. The Spectrum brand test cigarettes have eight different levels of nicotine for research, from a nicotine content of 3 percent to 100 percent of the nicotine in the best-selling Marlboro Gold, though a 97 percent reduction is the most common level.”

The experts all seem to agree that more research with larger groups is required to get a more thorough assessment of the cigarettes as a smoking cessation product and its potential benefits within the cigarette industry. That data is coming, though. 22nd Century is near concluding a company-sponsored Phase II clinical trial testing the X-22 cigarettes as a smoking cessation product and plans Phase III trials in 2012 to test safety and efficacy. Moreover, the F.D.A. and National Institute of Health are beginning a $118 million, multi-year study to track approximately 44,000 people and all things pertaining to their smoking habits.

While there are certainly humanitarian benefits, it cannot be overlooked that this is business. Tobacco represents an $80 billion industry. Realizing the revenues that can be generated from smoking cessation products, many companies have chased their tails to a certain extent trying to develop products such as lozenges and gums with limited success. 22nd Century may have the right approach. As 22nd Century Chief Executive Officer Joseph Pandolfino stated, “No one has ever sought F.D.A. approval of a cigarette as a medical device.”

With multi-million dollar orders already having been delivered and a multi-year supply contract, 22nd Century Group seems to be moving its way toward the catbird’s seat of the industry. With a current share price of just $1.18, Elemer Piros, PhD, put a $5.00 near-term price target on XXII. Given that the results of the company’s pivotal Phase II-B trials will be reported in December, it may be possible for investors to net strong gains in the short-term with this intriguing microcap.

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