Dr Faessel - CIGX Infomercials Hit Markets in NYC / Tri-State Area, Boston, Chicago, LA and San Francisco

CIGX – a Best Idea Update – (Part B)  

National Rollout Underway?

Star Scientific CIGX Infomercials hit markets in NYC / Tri-State Area, Boston, Chicago, LA and San Francisco

Star Scientific Inc. (CIGX) $1.78 Nasdaq

Market-cap $212 million

Recently I updated subscribers on the thrust of (CIGX)'s progress and research on a compound that may well be a new breakthrough treatment for Alzheimer's disease. If you missed the article, send a request to:Dr.Faessel@onthemar.com

Today I'll discuss another important driver of the (CIGX) story.

The new news (there for all to see - yet not officially announced) is that (CIGX), through its distributor (and partner) InVentive Health*, is introducing the CigRx™ product that reduces the urge to smoke to the major markets across the country. Infomercials are now hitting markets in NYC / Tri-State Area, Boston, Chicago, LA and San Francisco. You may recall that in July InVentivebegan a round of infomercial marketing and detailing to doctors and pharmacists in the first test market of Richmond, Virginia.

Clearly, InVentive must have been pleased with the CigRx's™ reception in Richmond. I'm sure that we will hear more official news about this rollout in the near term.

Much of the punch in the thickening (CIGX) narrative comes from this “partnership” with InVentive Health, a major drug / health product distributor with sales of over $1.1 billion, more than 6,500 employees, and 40 offices around the world. InVentive'sclientele are a “who's who” in the realm of pharmaceutical and healthcare companies. Its client list includes, to name just a few: Johnson & Johnson, Abbott Laboratories, Novartis, Merck, Pfizer, and Eli Lilly. 

Unquestionably the potential of CigRx™ to make it big is clear to InVentive, which has the know-how and the money to launch CigRx™ nationwide to the smoking public (40% of whom are trying to quit every year). Having witnessed the sales of nearly $1 billion generated by the troubledPfizer “quit” smoking drugCHANTIX, the folks atInVentive must see a big, if not huge revenue stream coming from sales of CigRx™. With this new nationwide rollout just underway, InVentive is now clearly willing to spend the many millions necessary to enter a market that does not yet have a truly effective stop smoking method. Gross cigarette sales are $325 billion a year so even a tiny percentage of an inroad in the immense market is an enticing, indeed compelling, target for InVentive and (CIGX).

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 Commitlozenge, and $336 for the 12-week regimen of theNicoderm patch. Critically, the “quit rate” on all of these treatments is a paltry 5%, but these replacement products make up about $1.2 billion in sales.

There are also a few doctor-prescribed drugs in the $2.5 billion “quit” market that have had some success, but a major glitch hit that part of the market in 2008. In studies ofPfizer's CHANTIX, 44% of smokers who were prescribed the drug during the weeks 9 to 12 of the treatment managed to quit and over 6 million people in the USA have been prescribed CHANTIX. Unfortunately, severe side effects came to light later—such as hostile behavior, suicide thoughts, diabetes, seizures and serious skin reactions—which have dramatically curtailed sales. Now the attorneys are all over it and are advertising for “claimants” in major markets throughout the country. That said, 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 likePfizer's next big thing, but after the news of the negative side effects was released U.S. sales immediately fell 49% to $96 million, and worldwide sales fell a dramatic 24% to $182 million by 2008.

 

The importance of the above data lies in the picture it paints of the mega-market for a smoking cessation product, and consequently the interest of InVentive Health in “partnering” with (CIGX).

Further amplifying the story, on August 4, 2010 the preeminent private equity firmThomas H. Lee Partners* paid $1.1 billion in cash to buyInVentiv Health Inc.  Story link at: www.cigrx.com 

About CigRx™: this “over the counter” Tic-Tac type, non-tobacco lozenge is said to temporarily reduce the urge to smoke using a unique combination of dietary ingredients. Most people who smoke really want to quit. Couple this “secret desire” with this product and there's a chance―it's worth a try. Think of it: for the first time some X person who's just “had it” with smoking can walk into a drugstore and buy this TicTac type lozenge over the counter or get them online. I can't imagine anything simpler ―anybody would give it a try.

Now―some “what ifs”:

If CigRx ™ achieved yearly sales of $100 million (CIGX) would earn about 0.30 a share in [EPS]; now introduce a 20x multiplier and you arrive at 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.

Once again you can see whyInVentive is all over this story—and you can see the reason why (CIGX) is garnering attention from major financial institutions interested in owning its shares.

Now, consider for a minute about the names that hover over this story: Harvard University, Johns Hopkins University, Roskamp Institute, InVentive Healthand Thomas Lee Partners, and not least the mighty and prestigious law firm Sidley & Austin orchestrating the patent infringement law suit.

Let me muse on and paw at just this aspect a bit more. Can you see the names mentioned above teaming and partnering with a company if it didn't have “the goods” (like my dad used to say)? Now recall InVentive, spending millions on a nation-wide CigRx™ rollout. 

I might also add that tobacco giant Brown & Williamson[now part of R. J. Reynolds(RAI)] paid (CIGX) $80 million some years ago for their efforts in developing (CIGX)'s dissolvable tobacco products. That's the lawsuit story—“for another time”…

* Thomas H. Lee Partners is one of the oldest and most successful private equity investment firms in United States. Since its establishment in 1974, Thomas H. Lee Partners has been the preeminent growth buyout firm, raising approximately $22 billion dollars in equity capital, investing in more than 100 businesses with an aggregate purchase price of more than $125 billion, completing over 200 add-on transactions and generating superior returns for its investors.

(CIGX) has a market cap of only $212 million with about 120 million shares outstanding, of which 34% are held by insiders and 5% by owners. About 17% is held by 79 institutions, and institutional ownership continues to grow. There are about 14 million shares short (and perhaps 20 or 30 million shares naked-short). And of note, (CIGX) has about $11 million in cash.

I believe that a forthcoming news flow will soon fire this already sumptuous quit smoking and new Alzheimer treatment story. I've also heard there is a “big-league” reporter involved to further bring the nation's and the world's eyes to (CIGX).

I have purchased shares ofStar Scientific in the open market.

My next report, “Part C”, on (CIGX)'s lawsuit against RJ Reynolds Tobacco Company (RAI) (that could well be one the largest patent infringement lawsuits ever) will be released soon.

The InVentive Health infomercial offers a toll-free number, 1-800-825-8051, through which adult smokers can order the product. Or purchase the CigRx™ product at their website: www.cigrx.com

It should be noted that Star Scientific, Inc. (CIGX) develops pharmaceutical products that have a botanical, tobacco-based component designed to treat tobacco dependence and a range of neurological conditions, including Alzheimer's disease, Parkinson's disease, schizophrenia, and depression. Further, CigRx™ is a non-prescription, over-the-counter, non-nicotine dietary supplement and has been found to temporarily reduce the desire to smoke. This likely is because the key ingredients in CigRx™, anatabine and yerba mate, are known to affect the balance of neurotransmitters in the brain. CigRx™ mimics some of the brain activity that takes place when smoking a cigarette. In combination, both of these actions help to reduce the desire to smoke without the use of nicotine or tobacco.