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Best Idea UPDATE for 2010



Star Scientific Inc. (CIGX) $1.86 Nasdaq

Market-cap $222 million



TOBACCO ADDICTION CURE LOOMS



STUNNING RESULTS FROM TOBACCO STUDIES LEAD TO LAUNCH OF CigRx™



(Reuters) - Tobacco could kill one billion people this century if current trends hold.



We all know the terrible health implications of tobacco use. And the statistics are indeed appalling. Tobacco use will kill 6.5 million people in 2010 from cancer, heart disease, emphysema and other diseases. Amazingly, over 40% of smokers try to quit at least once a year. Gross cigarette sales are $325 billion a year.



The current nicotine replacement market that encompasses patches, lozenges and gum is about $1.2 billion and has a woeful failure rate of over 95%. And they are expensive.*



Just imagine the market for an inexpensive over-the-counter, product ― IF it would actually quell the urge to smoke. Just what if?



Enter CigRx™ Star Scientific's new non-nicotine, nutraceutical (dietary supplement) that's set to hit store counters shortly. The launch will be undertaken and shepherded by InVentive Health Inc. (VTIV), a major drug / health product distributor with sales of $1.1 billion.



From what I hear the launch will first consist of a rollout in a test city immediately followed by a national campaign. The launch would include, among other things, already completed infomercials running in that city, representatives contacting the local doctors in the area, and delivery of the CigRx™ product to pharmacies and other health-related outlets in the region. InVentive Health is chomping at the bit to aggressively market this product, having seen the huge sales of nearly $1 billion generated by Pfizer’s CHANTIX.



The clientele of InVentive Health are a “who's who” in the realm of pharmaceutical and healthcare companies and the firm has marketing and sales capabilities in 40 countries around the globe. This client list includes, to name just a few, the companies Johnson & Johnson, Abbott Laboratories, Novartis, Merck, Pfizer, and Eli Lilly. So you get the picture―InVentive Health has the muscle and know-how, sees a big if not huge revenue stream, and has the money to push CigRx™ out to a nationwide public.



* The costs of “quit treatments” that now rule the market are: $475 for a 12-week regimen of Nicorrete gum; $300 for 12-weeks of Commit lozenge, and $336 for the 12-week regimen of the Nicoderm patch. Crucially, the “quit rate” on all of these treatments is a paltry 5%.



I believe that the cost of the non-nicotine “tick-tack like” dissolvable CigRx™ tablets will be substantially lower than cigarettes because of the tax factor (depending on where the smokers buys their cigarettes). As you may know, the state, federal and even city taxes send the costs of cigarettes thru the roof. Several states tax over $3.00 a pack, yet Missouri only taxes $0.17 per pack. Hence, without these taxes, and considering a price-point somewhat below cigarettes, the margins on CigRx™ should be terrific for (CIGX). One single carton of cigarettes in NY City now costs $150.00 in some outlets where there is also a municipal tax of $1.50 per pack plus the huge $4.35 state tax per pack. Because one cartons of CigRx™ has the equivalent in “punch” of two cartons of cigarettes, from the perspective of the smoker this represents another big savings. So for the smokers who are largely from the lower economic strata the CigRx™ product brings a great savings indeed.



There are also a few doctor-prescribed drugs in the $2.5 billion "quit" market that have had some success. In studies of Pfizer’s CHANTIX, 44% of smokers who were prescribed the drug during the weeks 9 to 12 of the treatment managed to quit, but severe side-effects came to light later—such as hostile behavior, suicide thoughts, and serious skin reactions—which have dramatically curtailed sales. Over 6 million people in the USA have been prescribed CHANTIX. The first year out of the box the drug did $200 million in sales, $400 million the second year and then peaked at worldwide sales of $883 million a year.  Three years ago CHANTIX looked like Pfizer’s next big thing, but after the negative news of the side effect was released U.S. sales immediately fell 49% to $96 million, and worldwide sales fell dramatically 24% to $182 million by 2008. The importance of this data is that it paints the picture of the mega-market for a smoking cessation product, and subsequently the interest by InVentive Health in “partnering” with (CIGX).



NOW HERE ARE SOME “WHAT IFS”:



If CigRx ™ achieved $100 million in sales the first year, (CIGX) would earn about 0.30 a share in [EPS]; now introduce a 20 times multiple and that equates to a $6 stock.



If CigRx ™ could achieve an $800 million run rate (CIGX) would earn $2 to $3 a share and have a potential $40-$60 stock.



But actually there are other looming, potentially hugely market moving dimensions to the (CIGX) story that are percolating and ready to pop, like the Roskamp studies related to a potential Alzheimer cure / treatment, plus the mega lawsuit against tobacco giant RJ Reynolds, that is being orchestrated by the powerful law firm Sidley and Austin (a major patent law impresario that has lost just a couple of patent suits over their long history) that alone drove the stock to just below $6 last year... Add all this together and you can hear the cash register ring. It is why I have included Star Scientific (CIGX) is one of my Best Ideas for 2010.



Think about this a bit: smoking is well known to be the leading cause of preventable death. So, if all the smokers who purportedly tried to quit find that this product works for them and indeed do quit, it becomes pretty clear that not only would CigRx put a substantial dent in cigarette sales, but significantly add years to the lifespan of many people. In a way CigRx could become one of the important discoveries of the century. Just imagine its life-saving potential in total… Obviously, more will be revealed, but the simple apparent fact that if smokers have CigRx in their “diet” they will no longer have the desire to smoke speaks enormously for the social good.



To go further on this theme, what looks to be evolving here may well represent a potentially stunning change in the behavior of smokers. When one measures the vice and its harmful ramifications on society, family, the health industry, lost hours on the job, costs associated with prevention, ad dollars spent on education, etc.―the totality of the problem becomes palpable. With big Pharma 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 may even have an interest. Who knows?



I perceive important and wide-ranging publicity from all media sources as this story gains traction. I also believe that the immense "headline potential" of this story could bring colossal mainstream interest to Star Scientific and the (CIGX) shares.



(CIGX) has a market cap of only $218 million and with about 120 million shares outstanding (of which 34% are held by insiders and 5% owners), it wouldn't take much to ignite this potential blockbuster story into an eruption on the national / world scene. One can only imagine how high shares could go if the "maybes" come to fruition.



Institutional ownership continues to grow. Currently 80 institutions hold 16% of the shares. And of note, (CIGX) has $20.6 million in cash.



I have purchased shares of Star Scientific in the open market.