2 Overvalued Pseudo-Pharmaceuticals Revisited

| About: Rock Creek (RCPI)

In December, Seeking Alpha published my article entitled, Star Scientific And TherapeuticsMD: 2 Overvalued Pseudo-Pharmaceuticals. Here is the scorecard of how they performed since the article was published:

Name Ticker





% change
Star Scientific STSI $3.17 $1.78 -44%
TherapeuticsMD TXMD $2.93 $3.42 +17%

TherapeuticsMD continues to defy all logic, and is probably the most overvalued company in the US today. The company has a bloated market cap of $349M, and a net loss of $39M over the last twelve months with no relief in sight. Even worse, insiders are gouging the other investors in the company. Certain insiders purchased TXMD shares for $0.01 to $0.38 last year, while retail investors paid $2.15 in the September placement and between $1 and $3.70 (mostly weighted towards the $3.70) since TXMD started trading in its current form at the end of 2011.

There has been no news flow, except for adding more debt, since our December article. The only explanation for the stock rise in the last two months is a short squeeze. We recently experienced forced buy-ins at current elevated prices. Usually, these buy-ins are followed by a stock sell-off.

Name Ent Val Revenues EV/Revs Net Loss
Star Scientific $274M $5.4M 49x -$33M
TherapeuticsMD $355M $3.1M 113x -$39M

On the other hand, Star Scientific followed the script. Management released news on the potential benefits of anatabine as a anti-inflammatory to treat thyroid diseases. These vaporware news releases were quickly discredited by Star Scientific skeptics, and the stock has been reeling ever since.

I would not underestimate Star Scientific's CEO and Founder, Jonnie Williams. He will try to surprise the market with a new strategy to boost the stock price. He may try to use the still overvalued currency of STSI shares to buy a company with substantial revenues and profits. Creating a going concern is much better than the current situation of losing tens of millions of dollars every year.

Management's dilemma, however, is that no legitimate company will accept STSI's stock currency of 49x revenues that generated $33M in losses over the last twelve months. Thus, in order to make the company a going concern, management will have to depress the stock price even more, through the heavy dilution required to acquire a decent company. Buying a bad company for less dilution would not remove the insolvency risk and only further destroy the valuation. Promotional activity will not be able to offset such dilution. It remains a mystery of how STSI share price can be resurrected.

Disclosure: I am short STSI, TXMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.