Summary of conference call.
Pinkie, please use this one as I've gone back to fill in a few blanks and did some formatting to help it read better. You can delete my other post. I could not update as I ran over the 15 min time limit.
Summary of Call
Accomplishments this past year:
- purchased factory
- became a member of MSA.
- Important for near-term revenues. Contract agreement with Smoker Friendly. More than 800 stores. They will carry our Red Sun cigs in all their stores. 1 contract mrfr partner. As we are registered in each state, we will sell in each state. (he discusses this in more detail later).
- Polish manufacturing agreement to mfr/sell in Europe. Jan launch.
- Acquired exclusive rights with Andura (??).
- Completed $10M pipe with a strategic partner. Working with XXII to create joint venture in Asia.
- Formed 22nd Century JV in Asia.
- 129 patents
- partnerships in Europe/Asia.
Could have done better:
- explaining ??? Missed this...
- Rational for entering cannabis space
- better explanation on Joe's departure
Will communicate quarterly going forward.
Joe's departure - visionary, loves tech, perfect leader for the 1st 15 yrs. Continuing as a director with company. At this point the company needs to commercialize tech, achieve significant revs, develop strategies, manage personnel, all things that Henry is good at and will focus on. Begin selling product in US/Europe in Jan. Shipping Magic as early as Jan 15th. Need NAAG approval with Smoker Friendly before selling in each state. Reg process is out of our control but we've hired someone to head up this effort. Summarized that the company is on the next phase of growth and Joe has done his part to get XXII where it is today.
Asian JV opportunities, Moynihan? - just back from visit to Asia. James Cornell in China now to promote XXII. Hoping to announce a partnership and shipping schedule in 2015.
Brand B - lowest tar/nicotine content. 60% less tar and smoke.
2014 didn't pay enough attention to X-22. Will refocus. Spoke recently with pharm interested in this product. Will make top priority on (someone's) list. 5 phase 2 clinical trial demonstrating efficacy. 1 phase 3 study. $15M-$20M for a phase 3 study to open a $1B market to the company. Recommitting to move this forward to finish phase 3 trials and get it to market.
Mission is to help reduce harm from smoking.
Going forward - need to execute.
Q&A:
Domestic revenue projection? Granularity once products are in the market. not less than $5M in 2015 just cigs, (red sun, Magic, product to Asia).
JV in China - potential of business there? Timeframe? $1B market cap potential. Red Sun $1B MC potential. They are very excited about Asia. Timeframe, no promises, but working very hard over the last 6 mths. Chief scientist in China last week and officer of company there now. Expect announcement in 1st qtr of 2015.
Mrfg/production/distribution in China - expensive to import finished product to Europe. Discussing shipping raw tobacco to finish in Asia.
Update on BAT JV? Milestone payments in 2015-2016? BAT is in control of milestone payments so Henry cannot predict revenue from BAT. This is true with BAT and cannabis licensing.
XXII is a $100M MC company, 12 employees, expecting half-dozen or so in the near future. Will focus on company's core mission. Revs, X-22, modified risk products. Can't put focus on cannabis/biofuels at this time. Focused on revenues. Future on cannabis and biofuels.
Reynolds launched heat not burn product last week. Does XXII have any play in this space? Heat not burn eliminates smoke/tar. XXII is not involved in this but Henry believes our product is ideal for this.
Could XXII deal with other partners or just BAT in the heat-not-burn space? We can deal with others but not a priority at this time.
Wells Fargo - Shipping to 1000 stores in Spain? How is it going, update. Had intended to ship in 4th qtr but delayed to 1st qtr in 2015 to comply with labeling reqmts. Launch in Jan 2015.
Modified risk designation - process with FDA? 2015? No product authorized as Modified product to date for combustible product. Process is evolving. There are guidelines. 1st to meet with FDA - Met with them a few weeks ago and it was encouraging. Contracted with nationally know to conduct exposure study to begin 1st qtr 2015 with results 2nd qtr 2015 then another meeting afterwards.
Capacity to grow tobacco? Lead time if a significant order from China is received? We don't have a huge tonnage "of tobacco" in storage. Product will need to grow in spring, harvest, cure, ship in December. If agreement in 1st qtr, could grow product in 1st qtr 2015 then ship in dec 2015. Volumes are substantial. We contract with 100s of farmers to grow our tobacco. Capacity of seeds - XXII is prepared to grow all we need to grow.
Update on NAG approval for each cigarette product:
Red Sun - All NAAG approvals we need. FTC approval, ag approval. Need state approval. Approved in 12 states. Addtnl 22 states expected by Dec. 16 of 17 remaining applications to be submitted in dec and approval in Jan. Shipping RedSun in Jan.
Smoker Friendly is a MSA product - NAAG has to approve the SF agreement before shipping can begin. Expect shipping 6 weeks after NAG has approved agreement.
Europe? - not waiting for approvals. Submitted labeling. Made changes. Shipping Magic in Spain in mid Jan.
Will XXII have revenue in Jan? Yes.
What does Bonnie Herzog need to endorse XXII - Henry thinks revs and MC. Not just Wells Fargo but others will also follow.
Revenue forecast? Red Sun, Magic, we will not do less than $5M in 2015. Will not provide qtrly projections yet until we can see how the products are received.
Bonus upsides are China JV, Asian JV, Modified Risk, Signing pharma for X-22, BAT hits milestone payments. Focus is to generate revs.
Chief Scientist in China - what are they doing or looking for? They are testing to confirm that our product is everything we say it is. Sensory tests also.
How long will the tests take? a few weeks but the results may lead to more testing. Tests, retests, affirming tests, then more tests, then an agreement hopefully is made.
When will XXII be EPS positive? Depends where the sales comes from? More sales from Red Sun the faster we become positive. $10M in Red Sun sales results in break even.
Anticipate 4th QTR sales for distribution? No sales in 4th qtr. Pushed to 1st qtr. FL not in MSA but has master directory.
Closing -
very positive, tremendous team, unrivaled technology. Henry has never sold company stock and doesn't plan to anytime soon. A lot of his friends and family have purchased shares in the last few weeks. Annual meeting in mid April.
END of CALL
