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    Stock Alert for Star Scientific Inc. (CIGX)

    Star Scientific Inc. (CIGX) is a technology-oriented company with a mission to reduce the harm associated with tobacco at every level. It is engaged in the development of dissolvable smokeless tobacco products that deliver fewer carcinogenic toxins, principally through the utilization of the innovative StarCured tobacco curing technology. StarCured interferes with the formation of tobacco specific nitrosamines (TSNAs) that occurs in traditional curing methods. The Company markets dissolvable hard smokeless tobacco products made with tobacco that is 100% Virginia StarCured tobacco, with TSNA levels that it believes are the lowest anywhere in the world.  Its subsidiary, Rock Creek Pharmaceuticals Inc., is involved in the development of nutraceuticals as well as products to address neurological and mood disorders.

    CIGX maintains corporate and sales office in Glen Allen, Va., an executive, scientific & regulatory affairs office in Bethesda, MD, and a manufacturing facility in Chase City, Va.

    Share Statistics (14-Mar-11) FY

    2008

    FY

    2009

    %

    Chg

    Q3

    2009

    Q3

    2010

    %

    Chg

    Symbol CIGX Revenue, $Mn 0.45 0.71 57.8% 0.23 0.21 -8.7%
    Current price $3.48 Gross marg. 371.1% 270.4% -27.1% -173.9% -100.0% -42.5%
    52wk Range: $1.07-$3.84 Oper. margin -3229.0% -2245.5%
    Avg Vol (3m): 1,784,780 Net margin -4075.6% -3211.3% -21.2% -2130.4% -2295.2% 7.7%
    Market Cap. 415.87M
    Shares Outstanding 119.50M EPS, $ -0.20 -0.22 10.0% -0.05 -0.04 -20.0%

    Source: Reuters.com, SEC Filings.

    Investment Highlights

    Shares of CIGX jumped 18% Monday, extending a surge on Friday as the tobacco company announced it received two notices and letters from the U.S. Patent & Trademark Office (USPTO) confirming the validity of each of the claims involved in the reexamination of the ’649 and ’401 patents. These patents are central to patent infringement case filed by CIGX against North Carolina-based tobacco giant RJ Reynolds Tobacco Company Inc. (RJR) in 2001 and 2002.

    According to CIGX, the patent office reexamination, which had been requested by RJR in January 2009, rejects the prior-art challenges of the StarCured process, and since the requests were filed on an “ex parte” basis, they cannot be appealed by RJR.  The patent office also made other specific findings, including a determination that the claims are entitled to the earlier filing date of its provisional patent applications.

    CIGX stated that the ‘649 and ‘401 patents were issued in 2001 and 2002, and they cover the tobacco-leaf curing process in a manner that largely prevents bacterial activity in the tobacco leaf. That activity results in the formation 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. The StarCured process, as described in the 649 and 401 patents, results in tobacco leaf with TSNA levels that CIGX believes are the lowest found anywhere in the world. The Company more recently filed a patent application, in December 2008, for a further innovated curing process that results in TSNA levels in the tobacco leaf are below levels of detection by conventional standards of measure.

    “The notices from the Patent & Trademark Office are enormously gratifying to all of us at Star Scientific,” commented Jonnie R. Williams, CIGX CEO and the inventor of the StarCured process.  “We have believed from the beginning in what the StarCured process achieves, and in its potential to significantly reduce tobacco users’ exposure to tobacco toxins.”

    CIGX currently awaits a ruling from the U.S. Court of Appeals on its appeal of the June 2009 jury verdict in favor of RJR. Oral argument on the appeal was heard by a three-judge panel of that Court on January 11, 2011. The appeal requests that the jury verdict be reversed, the case remanded to U.S. District Court for a new trial, and that it be reassigned to a new judge.

    CIGX jumped as high as $3.84 Monday, a new 52-week high, before settling for close at $3.48. Approximately 23.76 million shares have traded hands during the session, versus the average daily volume of 999.20K.  CIGX is trading above its 50-day moving average of $1.85 and its 200-day moving average of $1.86.  Market capitalization currently stands at $415.87 million and it has 119.50 million outstanding shares.

    Visit CIGX at www.starscientific.com

    Financial Summary

    CIGX reported $695,000 in net sales for the nine months ended September 30, 2010, compared with $618 thousand for the same period in 2009. Net sales for the third quarter totaled $211,000  compared with $232 thousand for third quarter 2009. The decrease in third-quarter 2010 sales was due primarily to volume decreases. However, this was partially offset by both decreased product promotional spending and price increases on Ariva and Stonewall dissolvable smokeless tobacco pieces. Early sales of the Company’s CigRx product also contributed to offset the sales decline.

    The Company reported a third-quarter net loss of $4.8 million compared with a net loss of $4.9 million for third-quarter 2009. Marketing expenses increased during the third quarter as efforts were intensified in the lead-up to the market introduction of CigRx.

    Source: www.starscientific.com


    Financial Strength (14-Mar-2011) Company Industry Sector S&P 500
    Quick Ratio (MRQ) 1.16 0.27 0.65 0.66
    Current Ratio (MRQ) 1.69 0.48 0.89 0.97
    LT Debt to Equity (MRQ) 356.27 23.88 21.49 116.72
    Total Debt to Equity (MRQ) 517.38 31.48 31.33 167.02
    Interest Coverage (TTM) -69.27 0.57 0.53 16.07

    Source: Reuters.com, SEC Filings.

    Analyst Consensus

    There is no recommendation data available.

    Source: markets.ft.com

    Consensus Estimates Analysis


    # of Estimates Mean High Low 1 Year Ago
    SALES (in millions)
    Quarter Ending Mar-11 1 0.22 0.22 0.22
    Quarter Ending Jun-11 1 0.28 0.28 0.28
    Year Ending Dec-11 1 0.96 0.96 0.96
    EARNINGS (per share)
    Quarter Ending Mar-11 1 -0.04 -0.04 -0.04
    Quarter Ending Jun-11 1 -0.04 -0.04 -0.04
    Year Ending Dec-11 1 -0.14 -0.14 -0.14

    Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=CIGX.OQ

    Technical Analysis

    Source: http://stockcharts.com

    CIGX is trading above its 20-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

    CIGX’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility.

    The MACD for CIGX currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above 0, which implies that the underlying moving averages are trending higher.

    Comparative Analysis

    Company Name Ticker Price per Mrkt. Cap. P/E P/S
    Mar14-2011 symbol Share, $ $ Mn 2010 2011 2010 2011
    Lorillard Inc. LO 78.84 11.48B 10.57 9.59 2.50 2.52
    Reynolds American Inc. RAI 33.54 19.56B 12.61 11.81 2.24 2.22
    Altria Group Inc. MO 24.99 52.28B 12.25 11.41 3.08 3.02
    Cigarettes Median n/a n/a n/a n/a
    Star Scientific Inc. CIGX 3.48 415.87M n/a n/a n/a n/a

    Source: Thomson Financial

    Source: Yahoo Finance

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