Star Scientific Is On A Run: Who's Buying And Who's Selling?

| About: Rock Creek (RCPI)

Star Scientific (CIGX) has recently seen a nice run from a low of $2.74 on April 23rd to a high of $4.69 on June 19th. Over the past week, the volume has really started to pick up. The volume over the past seven trading days is up by a factor of almost three, compared to the seven days prior (~820K shares/day as compared to ~2.3 million shares/day).

Some analysts who follow tobacco stocks still think of Star Scientific as a tobacco company, but that is not accurate. Star is transforming into a biotech/pharma company before our eyes. Star's patents to reduce the Tobacco Specific Nitrosamines (the primary cancer causing agent in tobacco) were recently validated by the highest patent court in the country, the Court of Appeals of the Federal Circuit.

While the above-mentioned patents are still an important part of the story, the new nutraceutical that Star discovered (anatabine citrate) that is now marketed as Anatabloc is the more compelling part of the story. Anatabloc reduces inflammation and is now in human trials for a variety of ailments, including Thyroiditis, Crohn's Disease, MS, Alzheimer's etc. The clinical trials on Anatabine Citrate (Anatabloc) are ongoing.

Anatabine is a nutraceutical compound found in peppers, green tomatoes, and cucumbers (in much smaller quantities). The patents have been applied for and Anatabloc is now being sold by Star Scientific's subsidiary called Rock Creek Pharmaceuticals. Anatabloc is available directly from its website and it is also now available at almost all GNC stores in the US, and sales are ramping quickly.

It is no wonder the stock is on a run. Well, I have asked myself the question..."who is buying and who is selling"? Here is my best guess:

Who is selling?

  1. Market Makers trying to balance their derivatives positions and maintain an orderly market
  2. Shorts and Naked shorts who are trying to keep the stock from running into double digits
  3. A few daytraders who are flipping the stock for a few pennies in profits

Who is not selling?

  1. Institutional holders who appreciate the upside of Star Scientific's position in the patent litigation with big tobacco companies and who also appreciate the potential sales growth of Anatabloc
  2. Retail investors who appreciate the upside of the tobacco litigation (billions of $$ in past damages and hundreds of millions in ongoing tobacco royalties)
  3. Insiders who understand the significance of anatabine citrate for stopping NF-kB inflammation in the body

Who is buying?

  1. Retail investors who follow the tobacco litigation and the sales growth of Anatabloc.
  2. Institutional investors who follow the tobacco litigation and understand the significance of Anatabloc.
  3. Smart Hedge Fund Managers.
  4. Anyone who attended Star's Anatabloc presentation in NYC on May 8th.
  5. The Physicians who are conducting human clinical trials on Anatabloc and know how well it works (as well as their friends and families). Fortunately for us, the word got out early thanks to an enterprising TV reporter.
  6. Thousands of other physicians who have attended conferences or reviewed data with those doing Anatabine Citrate research. Physicians understand the significance of stopping the abnormal transcription of NF-kB.
  7. Tobacco Company executives (who know that some day they will be forced to sign a patent license with Star Scientific for the TSNA patents).
  8. Pharmaceutical company executives who understand the significance of Star's Anatabine discovery and significance of its Anatabine patents and who want to team with Star and develop new combination drugs.
  9. Readers of Patrick Cox's newsletter. Here's one article he wrote.
  10. People who have read my Seeking Alpha articles: Star Scientific is One Up On Wall St., Top Ten Reasons Star Scientific is headed higher.
  11. Technical traders who know how to read a chart.
  12. Anyone who has sold naked calls on CIGX.
  13. Anyone who has had their shares called away when they sold calls, and now they are afraid they will miss the run.
  14. Anyone who follows the comments about CIGX on
  15. GNC Executives and store managers.
  16. Folks in the legal community that understand the likelihood of a settlement with big tobacco this summer.
  17. Senior PGA Tour players who are taking Anatabloc.
  18. Anyone with close ties to the Roskamp Institute physicians who are researching Anatabloc for MS, Alzhiemer's,etc.
  19. Anyone with close ties to Johns Hopkins Department of Endocrinology and Metabolism and the Thyroid studies.
  20. Institutions and hedge funds that know the size of the short interest in CIGX and the potential size of the pending short squeeze.
  21. Any of the ~40,000 people that are currently benefiting from taking Anatabloc.

The list of buyers goes on and on, so you get the idea. There are lots of buyers, but not many sellers.

Anyone who wants to get in the stock had better get in while the stock is in the $5 range. When any major news hits (like positive results of clinical trials, announcement of an Anatabloc skin cream, etc.), you might look up and the stock could be in the $7-10 range and headed higher.

Disclosure: I am long CIGX.

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