Star Scientific After Human Trials - The Impact On Commercialization And Value To The Marketplace

| About: Rock Creek (RCPI)

Author's Note (Feb. 4, 2013): Due to Dr. Paul Ladenson's appointment as Director of Endocrinology and Metabolism at Johns Hopkins, I made the assumption that Johns Hopkins was therefore associated at the institutional level in Star Scientific's ASAP Thyroid clinical trial. It has now become clear that while Dr. Ladenson is the head clinical consultant to Star for the ASAP trial, the relationship between Dr. Ladenson and Star Scientific does not extend to Johns Hopkins as an institution. I regret any confusion, and I am pleased to correct this error below.

Delving into the Future

My recent Seeking Alpha report on Star Scientific (STSI) provided an update on its recently completed successful human trials carried out by Rock Creek and how the company's science, demonstrating proof of concept and efficacy in human subjects, has progressed. Accordingly, we now know that anatabine works, and it has worked on all study subjects. Now let's focus on the impact of the trials and their importance going forward.

Obviously, what follows are my thoughts and ruminations based on decades of experience; I like to call it, "anvils of experience" and as a qualifier; you know what experience is? Experience is what you get - when you don't get what you want. Nonetheless, these thoughts and musings follow, pretty much, with how breakthrough technologies manifest themselves into the market after sea change events clarify the scene going forward

The Impact of the Human Trials

A lot to say here:

On the science front, the just announced successful human trials will fire a multitude of new human testing orchestrated globally by Pharma big and small in the other auto-immune disease and inflammatory disorders.

What is not well known in the civilian world, but well known in the scientific community, is that many Big Pharmas are eagerly pursuing research on both anabasine (the analog of anatabine) and alpha-7 nicotinic receptor agonists, which is what anatabine is. Because of the huge market potential, companies such as Pfizer (NYSE:PFE), Abbott (NYSE:ABT), Novartis (NYSE:NVS), Lilly (NYSE:LLY), Roche (OTCQX:RHHBY), etc. are spending $billions in the hunt. These companies all have published papers or initiated clinical trials for alpha-7 agonists. For interesting detail on alpha-7 agonists from the National Institutes of Health, see the National Library of Medicine link here.

There is more. A peer review by the European Journal of Pharmacology of some recent Roskamp Institute studies titled Anti-inflammatory activity of anatabine via inhibition of STAT3 phosphorylation, which emphasizes the JAK-STAT signaling pathway acting on the same biochemical pathway as anatabine but considered safer than Tofacitinib, could have another level of positive implications for Star's compound Anatabloc™. Pharma, Big and small is also spending more $billions working in the JAK/STAT area - where more $billions in sales is their target: Pfizer, Lilly, J&J, Vertex, YM Biosciences, and Galapagos.

As followers of the Star science so well understand, we now know that Anatabine / Anatabloc lowers CRP and TNF-alpha in humans. There's a flourishing market out there for (TNF-αlpha) suppression drugs that is at least $22 billion per year (Remicade, Simponi, Humira, Enbrel, etc.). Johnson & Johnson (NYSE:JNJ) brings in around $8 billion per year from this market alone! Also, know that there are lots of deleterious side effects for these drugs.

Pharma knows all about this testing of anatabine and the successful human trial results will free them to pursue a whole new thrust of interest in anatabine and bring about a new level of human testing on a multitude of fronts / illnesses. When you add up the totality of the Pharma interest and the mega $billions being spent by the industry in areas front and center to anatabine that I've documented above… you get the picture: Star's anatabine compound Anatabloc is in the catbird seat of a confluence of research that adds a quite mind-boggling multiplier in gauging its and the company's potential.

It becomes more than conceivable therefore that a small-cap like Star, with an effective and safe agent / compound, could be a buyout target; the possibility of an eventual bidding war exists.

Important for investors in Star shares is that these successful human trial results will allow a whole new group of institutional investors who previously were not able to invest in companies that did not have successful human trial to do so.

Additionally, the successful human studies will bring new analysis from the investment banking community and other financial writers and analysts who comment on companies and markets.

Furthermore, successful human trials now open the door for major media coverage. It's only a matter of time before we see an escalation in coverage of this story, perhaps highlighting some of the people who have been so helped by anatabine, as the testimonial on a CBS news affiliate that I have linked below demonstrates. To this point, the thousands of personal testimonials were only anecdotal. Suddenly, the playing field looks to be favorably tilted in Star's favor because its compound Anatabloc works on humans. The "man in the street interest" will compound and drive this interesting story. Media will grasp the compelling weight of this narrative and follow with enlarged coverage.

View a CBS news affiliate WNEM-TV video about Anatabloc™ and inflammation as shown in the Flint/Tri-Cities market in Michigan that features Dale Wilson MD, one of the principal investigators in the clinical trial being conducted in the Flint area. In the video Dr. Wilson states that, "Anatabloc™ turns chronic low grade inflammation off."

Perhaps even more relevant going forward, at least as far as a sudden monetizing event, would be that the just completed successful human trials will now allow Star to work out a licensing agreement with Pharma. Star has been working with McColl Partners LLC on "structuring a controlled auction for bidding by pharmaceutical companies, for licensing, and/or co-venturing relationships," and the successful human trial results may well authenticate the science with proof of concept and efficacy qualifiers, sweetening the deal by orders of magnitude. McColl Partners is an independent investment banking firm co-founded by Hugh McColl, former Chairman of Bank of America.

And… Fini

Institutional ownership of Star is at a new high

· 29,551,607 shares held by 118 institutions (less than 5% holders). A new high (20.2% of shares). For detail link Nasdaq here.

· 21,825,492 shares held by TradeWinds Investment, a "Beneficial Owner" of more than 5% (15.9% of shares) [SEC PRE14A]; that number is down from 23,231,111 shares, reportedly due to redemptions. Link EdgarOnline here.

• In a new filing [SEC 13G], 13,673,454 shares are held by John McKeon (8.2% of shares).

• In addition, all directors and executive officers as a group own 28,383,173 shares (17.5% of shares).

Thus; institutions, insiders and executive officers, plus a new 13G (passive) now hold a total of 93,433,726 shares - a new high by my counting. As a group they own roughly 60% of the shares.

The Short position has decreased about 11%

Over the last three reporting periods, the short interest has declined from 31,105,510 shares to 27,703,666 shares. This 3,401,844 share reduction represents a noteworthy percentile reversal of a several year increase of the short position. See link for full Nasdaq recap of the short position in Star shares.

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Disclosure: I am long STSI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.