5-11-2011
Dr. John L. Faessel
ON THE MARKET
Commentary and Insights
Dr.Faessel@onthemar.com
From my Best 2011 Idea List...
A Buy alert!
The “Piece de Resistance” that could make (CIGX) one of history's greatest market performers *
A post close earnings report may give us an opportunity to establish positions or add more of this superb speculation
A Stock for the Ages – Maybe!
Star Scientific Inc. (CIGX) $4.22 Nasdaq
I think the market may well give us another ‘freebie’ entry point here.
Yesterday, post-close, (CIGX) released their 10-Q and the stock sold off in after-hours markets to $4.04. During the trading session on volume of over 4 million shares reached a high of $4.37 and closed at $4.22. Importantly, shares broke above recent highs and are in the clear breakout mode.
No investor in (CIGX) that I'm aware of was expecting any substantial increase in revenues or earnings, but because it was just a small increase in the numbers the shares traded off in after-hours trade on very low volume of 70,000 shares. I'm a believer that if the shares open near $4 it's a clear opportunity to buy more (CIGX) or begin to establish a position.
Essential to note is that (CIGX) is the number one performing NASDAQ stock since the beginning of the year up from $1.60. It reached a high of $5.12 on April 4 retraced after its big advance to $2.97 on April 13 and since then has moved steadily up to yesterday's $4.22. Right after the early April selloff I suggested that, we were given a “freebie” entry point.
In my over 50 years of investing in markets I don't think I've ever come across a story / speculation with as much rich potential as the shares of Star Scientific possess. I call it, “A stock for the ages - maybe!”
Institutional ownership continues to grow. I believe that currently about 84 financial institutions hold about 30% of Star shares.
And even more importantly there's been massive insider buying of (CIGX).
Last November, insiders and 5% holders bought an “additional” $14 million worth of shares plus warrants with a 6-month lock-up I believe. On 3/19/2011, Star reported that CEO Jonnie Williams bought another 500,000 shares of the company's stock for $1.97 according to securities filings. Williams added those shares to the $3 million and $4 million that he invested over the last 12-month period.
Hedge fund Tradewinds Investment Management, also picked up another 1,000,000 shares at $1.84 per on 3/19/2011, to now total 20.3 million shares. Recently announced is that Goldman Capital increased their position by several hundred thousand shares.
And get this, on March 31 Robert Roskamp, the founder of the Roskamp Institute, bought another $1 million worth of (CIGX) [restricted stock] at $4.00. Think about this a minute; Roskamp has been involved in their Alzheimer study for some years now. Would they be buying more shares if the research wasn't going well? Hardly!
Also of note is that the short position is now up to 17,750,000 shares. For my reckoning 13 million shares of this position was established a couple of years back before the evolved an astonishing (CIGX) story took root. The shorts have bitten off more than they can chew on this one as by my math they're underwater by about $40 million and maybe orders of magnitude more if the huge “naked short” story has validity.
A bit more on Star CEO Jonnie Williams: He has been involved in successful venture capital start-up bio-tech companies for over a decade where he has been either a major shareholder or a co-founder of the following companies: LaserSight, LaserVision and VISX. VISX is now the world leader in laser vision correction. He's market tested and has been down this road before.
In March it was announced that a U.S. government re-examination of patents central to the Star lawsuit against Reynolds American Inc. (RAI) were validated, i.e. “set in stone” with no possibility of appeal. This news added fuel to the (CIGX) fire and propelled the stock to the above mentioned highs.
These patents cover a curing process of the tobacco leaf that results in "super" low levels of nitrosamines, thought to be the cancer-causing / lethal agent in tobacco. (CIGX)’s more recent (2008) patent application indicates in using the Star Scientific method of curing the deadly nitrosamines are “below the levels of detection”.
The mega lawsuit against tobacco giant RJ Reynolds, is being orchestrated by the powerful law firm Sidley and Austin LLP (a major patent law impresario that has lost just a few patent suits over their long history) that alone drove the stock to just below $6 in 2009.
Another big positive hit in late March: Star Scientific received official word from the U.S. Food & Drug Administration [FDA] the net effect being that “it” will allow Star’s modified risk tobacco products to be advertised, marketed and distributed. (CIGX)’s technology can lower the nitrosamine (the harmful cancer-causing part of tobacco complex) content to the zero level. The ruling stated that Star’s modified risk products are not “subject to regulation under FDC Act Chapter IX”; effectively approving Star’s request to market and advertise its Ariva-BDL™ and Stonewall-BDL™ “BDL” (Below Detectable Levels) products.
http://phx.corporate-ir.net/phoenix.zhtml?c=105863&p=irol-newsArticle&ID=1542053&highlight=
I like to say about Star that the “connect the dots” rational could make (CIGX) a stock for the ages. Here is a quick look in their quiver. The company is now marketing CigRx™, an over-the-counter (no Dr’s prescription required) Tic-Tac type non-nicotine nutraceutical made from natural ingredients that temporarily reduces the urge to smoke. Just picture the market. And you can purchase it very simply online; www.cigrx.com. Tobacco use will kill 6.5 million people in 2010 from cancer, heart disease, emphysema and other diseases. Moreover, 40% of those who smoke try to quit each year.
That's just a part of the story; there are several other looming, potentially hugely market moving dimensions to (CIGX) that are percolating and ready to pop, like the Roskamp studies related to a potential Alzheimer cure / treatment.
In addition to the newly announced human trials, Roskamp is working with researchers at Johns Hopkins School of Medicine for other medical applications of the compound for use in other disease venues; cancers, thyroid, arthritis and other diseases. Now add in the possibility of a buyout. Big Pharma is always in search of significant new revenue sources and with the fact that smoking issues are so huge worldwide; wouldn't some enterprising Pharma company become involved with either a type of licensing agreement or even a buyout? Perhaps, Big Tobacco will also have an interest I’m sure.
* And now let's introduce the “piece de resistance” that could make (CIGX) one of history's greatest market performers.
On 2/9/2011 Star Scientific announced that the subject of its provisional patent application, a pure form of a single isomer of anatabine, could be administered to treat numerous disorders, including those with inflammatory components, aberrant immune response and/or inappropriate cell proliferation. The application indicates that the disorders which may be treated with this discovery include inflammation occurring in brain swelling or neurodegenerative disease such as Alzheimer's disease, multiple sclerosis, and Parkinson's disease. Star said: “This isomer can be administered in a composition containing a therapeutically effective dose of anatabine to treat chronic low-level inflammation.”
Medical research is now unwavering in its assessment that low-grade inflammations, once they become chronic, do significant harm to the body. Today, clinicians treat many diseases like asthma, arthritis, periodontal disease, lupas, cancer, ulcers, heart disease and many others with anti-inflammatory drugs to neutralize, diminish or block the process of inflammation.
New research just underway referred to as the “Flint” study, where Star and the Roskamp Institute have obtained institutional review board approval for amulti-site human clinical trial. This testing involves the treatment of neurological conditions as well as conditions associated with elevated blood levels of C-reactive protein [CRP]. Star’s compound, anatabine, is found in
tobacco and in peppers, eggplant, and green tomatoes. Could it be that from tobacco, of all things, a new method of dealing with and treating low-grade inflammation might be realized, possibly eliminating a whole world of woe?
Star has recently trademarked a product called Anatabloc™ and the picture of the container that I've viewed on the Internet indicates that it’s "Anti-Inflammatory Support Lowers C-Reactive Protein Dietary Supplement.” (Again CRP is the critical marker)
A recently published graph below from the Roskamp website shows the astonishing effects of the naturally occurring compound anatabine (RCP006) on the molecule that typically causes inflammation during bacterial infection. The chart demonstrates the dramatic effect of anatabine versus Lipitor, well known to have advanced anti-inflammatory properties (about double the therapeutic effect of aspirin). http://rfdn.org/inflammaging.html
The graph demonstrates vividly how anatabine is more than three (3) times more effective than Lipitor in reducing inflammation.
If such is the case, this over-the-counter nutritional supplement could well be a product the likes of which there is and never has been a comparison. Important scientific authors have posed scenarios that are tantamount to elevating this compounds beneficial effects to mankind the likes of which makes your head spin; actually dramatically increasing the life expectancy of our species. It doesn't take much to extrapolate this understanding in terms of dollars to the market and the shares of Star Scientific. It would be an incredible boon to mankind. Envision the use of this product daily by the world's masses; indeed it boggles the mind.
Star understands the impact of this information on the scientific and medical community and has revealed in a press announcement that it is working with McColl Partners LLC on “structuring a controlled auction for bidding by pharmaceutical companies for licensing and/or co-venturing relationships.”
McColl Partners is an independent investment banking firm co-founded by Hugh McColl, former Chairman of Bank of America (BAC). See link: http://www.starscientific.com/news/rock-creek-pharmaceuticals-discloses-filing-of-provisional-patent-application-for-isolated-anatabine-isomer/
If you missed my previous reports more specific in detail and scope to each of the above stated themes, or receive my Best Ideas for 2011 send a request to: Dr.Faessel@onthemar.com
Disclaimer; I own shares in Star Scientific.