TGTX - Why Has 22nd Century Group Stock Rallied 140% Past Month?

22nd Century Group (XXII) is a leading plant biotechnology company that markets technology that allows for the reduction of nicotine and other nicotinic alkaloids in tobacco plants, and the reduction of cannabinoids in hemp/cannabis plants through genetic engineering and gene-editing.

The company’s primary mission regarding tobacco is to reduce the harm caused by smoking by bringing its proprietary reduced nicotine content tobacco cigarettes, which contain 95% less nicotine than conventional cigarettes, to adult smokers in the United States and international markets. XXII has been developing a product known as Spectrum cigarettes and has produced around 28 million units for research purposes.

XXII is one of the best performing stocks in 2020, with record revenue growth and successful patent registrations. Net sales revenue in the third quarter ended September 30, 2020 increased 13.1% year-over-year to $7.3 billion. The increase in sales was primarily driven by higher volume and pricing in its contract manufacturing business. The company reported a loss of $0.03 per share, representing a significant improvement from a year-ago loss of $0.08 per share.

The stock has more than doubled year-to-date. This impressive performance, improving financials and the potential upside based on several other factors have helped it earn a “Buy” in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates XXII:

Trade Grade: A

XII is currently trading higher than its 50-day and 200-day moving averages of $1.19 and $0.85, respectively, indicating that the stock is in an uptrend. In fact, the stock’s 140% gain over the past month reflects solid short-term bullishness.

On December 8, XXII announced that the U.S. FDA, in coordination with the National Institute on Drug Abuse (NIDA) and others, has submitted an order to XXII for 3.6 million new Spectrum variable nicotine research cigarettes. The company’s research cigarettes will continue to feed numerous independent, scientific studies seeking to validate the public health benefits identified by the FDA and others of implementing a national standard requiring all cigarettes to contain minimal or non-addictive levels of nicotine.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, XXII’s positioning is not impressive. The stock is currently trading 28.4% below its 52-week high of $3.13.

Over the past year, the stock has gained 163.4% due to its effective research and development and capital expenditures, which yielded breakthrough technology. XXII has grown its top-line at a CAGR of 9.2% during the same period. However, the company is still not profitable.

XII was recently granted a highly valuable U.S. patent that  provides the company with precise genetic control over nicotine levels in virtually any variety of the tobacco plant. The breakthrough technology will enable the company to rapidly introduce very low nicotine traits into all varieties of tobacco currently used in the production of cigarettes and other tobacco products.

XXII is now making efforts to secure a Modified Risk Tobacco Product (MRTP) authorization from the FDA for its VLN (very low nicotine) cigarettes. With 95% less nicotine than leading brands, VLN will make XXII the first and only company in the world to achieve a MRTP designation for a combustible cigarette.

Peer Grade: B

XXII is currently rated #91 of 399 stocks in the Biotech industry. Other popular stocks in the group are TG Therapeutics, Inc. (TGTX), Arena Pharmaceuticals, Inc. (ARNA) and Alexion Pharmaceuticals, Inc. (ALXN).

XXII is up 103.6% year-to-date. While TGTX has gained 380.3%, ARNA and ALXN have gained 57.2% and 46.1%, respectively, over this period.

Industry Rank: B

The StockNews.com Biotech industry is ranked #25of the 123 industries. Companies in the biotech space manufacture drugs, therapies, vaccines, and medical diagnostic tests for the treatment of health disorders and illnesses. The COVID-19 outbreak has highlighted the importance of science and technology in advancing the course of treating ailments. The industry is expected to perform well in the upcoming months thanks to an increasing demand for Biotech products. However, the industry is considered one of the riskiest for investors because drug development is a difficult, time-consuming, and expensive process.

Overall POWR Rating: B (Buy)

Overall, XXII is rated a “Buy” due to its strong business model, extensive intellectual property portfolio, short- and long-term bullishness, and solid price momentum, as determined by the four components of our overall POWR Rating.

Bottom Line

XXII had an incredible run so far this year and has the potential to keep soaring in the coming months based on its continued business growth. It has acquired numerous IPs on the tobacco plant which enables them to produce cigarettes at any level of nicotine. The company has now refocused on its hemp/cannabis strategy to prioritize the upstream value chain segments and hemp-based consumer products in the United States.

Some research scientists and public health officials believe that XXII’s VLN cigarettes have the potential to disrupt and redefine the entire tobacco industry. Hence, the company seems to have acquired a unique and advantageous place in both the biotech and the tobacco & cannabis industries.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is impressive for XXII. Analysts expect current year revenues to grow 3.7% from the year-ago value. This outlook should keep XXII’s price momentum alive in the near term.

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XXII shares were trading at $2.17 per share on Thursday afternoon, down $0.07 (-3.13%). Year-to-date, XXII has gained 97.27%, versus a 17.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Sidharath Gupta

Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies.

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