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Dr. John Faessel
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Dr. John L. Faessel is a seasoned and respected Wall Street professional with industry-wide recognition for expertise in market strategy and analysis. He is widely recognized for his insights in public companies. For over 20-years Dr. Faessel’s ON THE MARKET reports have been widely distributed... More
  • The Last Great Buying Opportunity” For STAR SCIENTIFIC (STSI) 9 comments
    Sep 26, 2012 3:24 PM

    9/26/2012

    Dr. John L. Faessel

    ON THE MARKET

    Commentary and Insights

    STAR SCIENTIFIC (STSI) "The Last Great Buying Opportunity"*

    * Yesterday BIR Research in an update referred to the recent market selloff in Star shares as perhaps "The Last Great Buying Opportunity"― I agree...

    Here's the quick story: Because of a quirky gag order that's still in place the details of the settlement between Star and Reynolds Tobacco have yet to be released. All we know for sure is that Star now owns the subject patents as the US Supreme Court has vacated the patent case at the behest of both Reynolds Tobacco and Star. Details will be forthcoming shortly I presume...

    The old Wall Street rumination of 'no news is bad news' comes in to play here as the void of settlement details opened the door for the shorts to slug the market with a big sell order of about 300,000 shares as that market was about to close (3:54 pm). Stars shares tumbled down a chunk from $3.55 to a low of $3.21, but buyers were there and shares retraced immediately higher (in the last 30 seconds of that one minute 'bar') to close at $3.37. In the last 5 minutes of trade another 480,000 shares traded and shares closed at $3.34. Total volume for the day was 4.499 million shares. Should mention that the gag order has been in effect since February.

    Here lies the opportunity in my opinion. Before addressing the lawsuit, 'things' have never been better for Star. Operationally sales of Anatabloc™ are ramping ever higher and the product is well on the way to becoming a household word as full page newspaper spreads, radio and TV ads are becoming commonplace. The news of the wonders of Anatabloc™ are spreading. Human study results by Johns Hopkins are imminent 'within days' as are the Flint study results. With the ownership of the patents now undisputed I expect the sale or spin-off of Star's tobacco biz plus Big Pharma licensing of anatabine loom (post the Johns Hopkins results) and there's rumors of new managed care interest. The launch of Anatabloc Cream is off and running and testimonials are running extremely positive; my wife loves the stuff and she's fussy about that topic. In addition lots of research data re the cream will follow shortly from some eminent dermatological names.

    Net, net - all things legal are now going Stars way and the science builds. Management continues to execute, always from an ever more substantial and sound platform Considering that none of this existed just two years ago this progress is exceptional.

    Re the Settlement: All we absolutely know for sure is that Star now owns the subject patents as the US Supreme Court has vacated the patent case at the behest of both Reynolds Tobacco and Star. And because the gag order that's still in place details of the settlement between Star and Reynolds Tobacco have yet to be released so all we can do is muse on re the possibilities; important to first ponder is that the tobacco market is huge - over a trillion cigarettes are sold every year and the USA is only a small player of less than 25% of which Reynolds is but a small part. So the real payoff is for royalties from tobacco companies worldwide if Star (or the spun off company) is able to successfully sell-off or license their curing method / technology that removes the cancer causing elements from tobacco. Certainly the payoff could be worth $billions in licensing fees and royalties from a global industry that sells $80 billion of tobacco products in the U.S. and $250 billion world-wide. Over the last 5-years that's an industry with over a $trillion in sales and since the lawsuit was filed over 11-years ago it's twice that amount. Envision a cigarette with the cancer causing elements removed and what that would be worth to the inventor i.e. Star? Consider what a minuscule 1% or 2% royalty would mean to Star in revenue? The entire tobacco industry is now beholden to Star Scientific.

    With regard to Reynolds no one knows, but the chances that Star comes away with nothing are nil in my estimation. Let's remember that Star is lawyer'ed up to the gills and is represented in this settlement case by Mike Bettinger of K&L Gates. He's national lead trial counsel for patent cases in U.S. District Courts and the International Trade Commission and has represented Microsoft and a host of other big names. Also of note and overseeing the legal show is Stars President and Chairman of the Board Paul L. Perito who is the new president of the Harvard Law Alumni Association and he was Secretary of the Harvard Law School Association for the past 14 years. Considering that Star has been at this contentious legal trudge for eleven years I doubt that they would have acquiesced to 'the' or "any" deal if it was a only a token settlement.

    Once again, Star now indisputably owns the patents that remove the cancer causing agents from tobacco to "beyond detectable levels" [BDL] in a world where each day 13,500 people die from tobacco related illness.

    Think of it this way - What would the market cap of a new issue be if that company could claim ―and have indisputable patents set in stone by the Supreme Court of the USA that they could remove the cancer causing agents from tobacco to levels to "beyond detectable levels" [BDL] ? Certainly in my mind more than the market cap of $487 million. Worldwide this could be worth $billions in settlement fees and royalties going forward.

    Let's also note that during the time frame of (STSI)'s decline (from $5.05 to $3.34) institutional ownership has grown over 3 million shares (last quarter reporting period). Add Institutional ownership including greater that 10% holders)- see detail below - is now at a record high of greater than 41.68 million shares.

    We should also note that as of yesterday's new posting that the 'reported' short interest is up 'another'1.30 million shares. Two weeks prior it was up 1.24 million shares, (not counting the 'Naked Shorts' that could be 2 or 3 times that amount.)

    Market cap 9/26/2012 is $487 million- Market cap 7/5/2012 was $ 737 million

    In sum; Stars operations are advancing at a rate and arc as never before the shares decline 33%. - It's a 'buy' the shares if you've been waiting - or and add too - IMHO...

    * STSI - Institutional Ownership - 9/12/2012

    Ownership Analysis

    # of Holders

    Shares

    Total Shares Held:

    116

    28,840,979

    New Positions:

    22

    687,265

    Increased Positions:

    66

    5,162,978

    Decreased Positions:

    28

    1,574,582

    Holders With Activity:

    94

    6,737,560

    Sold Out Positions:

    13

    471,725

    STSI Institutional Ownership - 8/10/2012

    Ownership Analysis

    # of Holders

    Shares

    Total Shares Held:

    112

    25,745,437

    New Positions:

    23

    1,162,584

    Increased Positions:

    51

    2,331,303

    Decreased Positions:

    35

    2,444,441

    Holders With Activity:

    86

    4,775,744

    Sold Out Positions:

    10

    513,719

    Another 16,606,520 shares are owned by 10% owner

    TRADEWINDS MASTER FUND (BVI) LTD.

    Beneficial Owner)

     

    STSI - Short interest - 9/26/ 2012

    Settlement Date

    Short Interest

    Avg Daily Share Volume

    Days To Cover

    9/14/2012

    26,386,042

    1,140,436

    23.136802

    8/31/2012

    25,083,466

    1,334,802

    18.791900

    8/15/2012

    24,851,338

    1,628,612

    15.259213

    7/31/2012

    23,839,224

    1,285,669

    18.542272

    Read more here

    For more on Star's Anatabloc™ science see a recent report of mine; Hypothesis no longer - New Peer Review Credibility from Johns Hopkins Could Drive Star Scientific Shares Higher go here:

    Also NEW (8/1/2012) see a terrific 13 page research report by Gilford Securities on (STSI) / CIGX by market maven Otis Bradley:

    Disclosure: I am long (STSI) I have bought shares the open market and have no affiliation with the company.

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