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Star Scientific Inc. (NASDAQ: CIGX) Has Revenue Potential but it May be Coming from a Surprising Development

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Aside from the fact that Star Scientific Inc. (NASDAQ: CIGX) has been credited with developing smokeless tobacco products that are less harmful than any other form of tobacco currently on the market; aside from the fact that Star Scientific’s subsidiary, Rock Creek Pharmaceuticals, may be on the brink of introducing a new approach to treating inflammation, a treatment for “inflammation occurring in brain swelling or neurodegenerative disease such as Alzheimer’s disease, multiple sclerosis and Parkinson’s disease; and aside from the fact that Rock Creek has received institutional review board (IRB) approval from Roskamp Institute of Sarasota, Florida to conduct a three-month, multi-site clinical trial with their RCP-006 nutritional supplement formula, a trial that will focus on “the effect of RCP-006 on chronic inflammation in individuals who have elevated blood levels of C-reactive protein (CRP),” a “human serum protein that, when elevated, is an indicator of risk for a variety of diseases, and is a known marker for chronic inflammation”; the big ticket that many shareholders of CIGX are anxious to cash in on may be related to a pair of patent infringement lawsuits that have been ongoing for nearly a decade.

The reality is CIGX has done little for investors who have been banking on the financial rewards of a healthier alternative to smoking tobacco. While Big Tobacco continues to pull in billions CIGX, which was founded in 2000, has yet to generate revenue over $1 million in any year, leaving doubt among its shareholders that the company’s core business is actually a viable plan. Reducing health risks associated with tobacco may be admirable but at the end of the day shareholders want to see a return on their investment and right now CIGX is failing. Even with the company’s hopes that the FDA will certify their moist smokeless tobacco Stonewall Moist-BDL as a “modified risk” product, a designation they are still awaiting for two dissolvable tobacco products, it’s hard to see how CIGX will produce significant revenue in such a cutthroat market.

On to Rock Creek Pharmaceuticals, in early February they announced they had filed a provisional patent application with the Patent and Trademark Office for administering a pure form of a single isomer of anatabine which can then be administered in a composition containing a therapeutically effective dose of anatabine, a nutritional supplement formula known as RCP-006. This RCP-006 is now being billed as a potential Alzheimer’s cure as well as well as a treatment for several other neurodegenerative diseases that have been linked to chronic inflammation.

Star Scientific is trying to run with this patent application and is already working to structure a controlled auction for bidding by pharmaceutical companies for licensing and/or co-venturing relationships. This could obviously be huge for CIGX but there is still a long road to travel before RCP-006 is ever designated as a cure for Alzheimer’s.

That being said, RCP-006 is being tested by the Roskamp Institute of Sarasota, Florida as part of a three-month trial that is following the effects the nutritional supplement formula has on 200 patients suffering from chronic inflammation and have elevated blood levels of CRP. The findings will be significant because patients with elevated blood levels of CRP are said to be at greater risk for a variety of diseases, including Alzheimer’s. What shouldn’t be lost in this study is that Roskamp is among the top institutes studying Alzheimer’s and has invested $1 million in CIGX, a serious vote of confidence for the company as well as its shareholders.

CIGX announced the three-month trial on February 28 and in that same release it was revealed that Roskamp had already been testing RCP-006 and their findings were the basis of the new trial. According to Rsokamp those findings indicated that “the inflammatory response of human blood to a bacterial toxin (LPS) is shown to be markedly reduced by RCP-006.  These results hold promise for the control of the inflammation that plays a role in Alzheimer’s disease, and they also spurred the upcoming research to explore more broadly the ability of this compound to regulate inflammation.”

This would lead many to think that the real money for CIGX lies in RCP-006 but that would be ignoring the company’s most recent news, the announcement that they had received two notices and letters from the PTO confirming the validity of each of the claims involved in the reexamination of their 2001 and 2002 patents covering their tobacco-leaf curing process in a manner that largely prevents bacterial activity in the tobacco leaf. Of course two years ago RJ Reynolds Tobacco Company filed the request to have those patents reexamined and due to the manner in which the requests were filed the decision cannot be appealed by RJR. As part of that PTO’s decision it was determined that the claims made by Star Scientific are entitled to the earlier filing date of its provisional patent applications. Essentially the news validated CIGX’s claims that their StarCured process of tobacco-leaf curing dramatically reduces the levels of tobacco specific nitrosamines (TSNAs), “a group of carcinogens that have been identified for decades by researchers worldwide as one of the most lethal and abundant toxins in tobacco leaf and smoke.”

These two patents, ‘649 and ‘401, happen to be at the center of Star Scientific’s patent infringement lawsuits filed against RJR in 2001 and 2002. In July 2009 a jury ruled in favor of RJR but Star Scientific filed an appeal and is now awaiting a ruling on that appeal from the United States Court of Appeals. That appeal requested that the jury verdict be reversed, the case be remanded to US District Court for a new trial, and that it be reassigned to a new judge.

While this appeal is far from certain the fact that the PTO upheld the claims related to the two patents of Star Scientific could play a significant role in the decision of the United States Court of Appeals. That being said, a victory by CIGX would likely result in RJR countering with an appeal for a rehearing of this appeal before the full Federal Circuit Court and if CIGX wins that appeal the new trial could still be some 18 months away from starting anew.  Of course there is always the off chance that RJR looks to settle with Star Scientific but if it comes down to a court decision and it is found that RJR infringed on those patents it could cost them billions, and the shareholders of CIGX could finally celebrate.

There are a number of possibilities for CIGX to turn their poor revenue history around and what’s interesting about those possibilities is that they could all be blockbusters yet in the same light each one could prove to be nothing more than a hope and a prayer. As it stands shares are trading around 2.82, significantly higher than their 50-day moving average of 1.92 and 200-day moving average of 1.84 yet a serious drop from their 52-week high of 3.84 set just two days ago. CIGX has also seen their trading volume spike over the past five days, averaging 12.1 million a day, well ahead of their 50-day average of 2.6 million. The best way to look at CIGX is long term, realizing that each of their opportunities for revenue, whether through pharmaceutical development or the court system, won’t be achieved in coming days. Find a time to get in low and you may find the reward well worth the wait.

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