Update: $CIGX Is Definitely NOT a Buy (But I Won't Say It Is a Scam)



WC Varones astutely pointed out that something is amiss in CIGX's finances after I naively asked if it was a scam or a buy. I hadn't looked there yet, as I'd only just heard of the company the night I wrote that post (last night). I don't know what kind of life WCV has but a girl has to sleep and can't be combing through SEC filings until 3 in the morning.

So. Tonight I looked. Fuck it, it's early.

According to Star Scientific's August 2011 10-Q, it has 135,055,505 shares (in thousands) of common stock out there. Now that might seem like a big number if you have nothing to compare it to but allow me to compare it to a company that we can pretty much all agree is not a fraud, Merck (shady Big Pharma status aside, naturally).

Merck had 3,577 shares of common stock (in millions) roaming in the wild as of June 30, 2011.

If I were actually an accountant (I very clearly remind everyone that I am not), I'd be able to decode these numbers further.

While I go grab a remedial Financial Accounting textbook, can one of my accounting people please go unravel this mess?

I do know this much (I can barely read an income statement but sometimes it's so obvious even an accounting industry reject like me can see it). Star Scientific is bleeding money and shoving shares out there as quickly as it can while Merck is making their money the old fashioned way, by screwing the dumb sheep through pharmaceuticals (allegedly).

Still, I've gotten pretty good at trolling a 10-K (it isn't hard) and found this little item on Star Scientific's last one:

ITEM 1A.
RISK FACTORS
We have incurred losses for the past eight years and operating expenses are likely to continue to be greater than operating revenues in the foreseeable future.

Does that explain why they are diluting the hell out of their shareholders and trying to "sell" this product so hard?

Hey, you can't get mad at them, they actually disclosed it (pretty clearly, actually):

The recurring losses generated by our operations continue to impose significant demands on our liquidity. Over the last several years our liquidity demands have been met principally by private placements of our common stock and the cash exercise of related warrants and stock options. In 2010 our company received proceeds of approximately $27.8 million through private placements and we obtained an additional $11.0 million in private placement transactions subsequent to December 31, 2010. See note 15 to our consolidated financial statements included in “Item 15. Exhibits, Financial Statement Schedules” for further details of the latter transaction. Absent the exercise of outstanding warrants and options for cash or a substantial improvement in sales and revenues and/or royalties, we believe that the recent funding will support our operations through the first quarter 2012. Additionally, although options or warrants are currently or in the future may be in-the-money, there can be no assurances that holders of these derivatives will exercise these securitites [sic].

However, our business and operations may consume resources faster than we anticipate, and depending upon market conditions and the price of our common stock, we may decide to seek additional funds before that time. Additional financing may not be available on favorable terms, if at all. If adequate funds are not available on acceptable terms, we may be unable to fund the expansion of our sales and marketing and research and development efforts or take advantage of other opportunities, which could seriously harm our business and operating results. If we issue additional equity securities, existing stockholders will experience dilution.


Maybe Star Scientific products are great. It's funny that the "testimonials" I got on this site just hours after I wrote about CIGX all came directly through either Google Finance or Yahoo Finance. I love how Advil takes away my chronic back pain but I don't troll the Wyeth finance page on Yahoo finding sites talking about how great or horrible Wyeth stock is. The red flags pile up pretty quickly.

I still plan on picking up some CigRx to see if the hype is real. But if a product can really do what CigRx and Anatabloc "fans" say it does, why the suspicious red flags in its stock?

15 hours ago, an Anatabloc "fan" on Facebook posted the following:

Seriously how is Anatabloc going to get any exposure outside of FB, I have had real improvements in me happen but no way of providing proof outside of mentioning here. And i'm not some dude pumping the product.

Defensive much?

Whoever is behind the actual Anatabloc Facebook page posted a, uh, promotional note on the "Medical Profession, Wow I love it." page recently, whatever that is. It has to be some page not curated by native English speakers, as it is littered with grammar mistakes not often made, even by Americans (and we know how dumb they are). I get cross-pollinating through social media (it's OK, I work in Internet marketing) but really? Spamming some ESL medical page? WTF is going on here?

Right. So let's move right into this June 5, 2011 Seeking Alpha article by Martin Shkreli that says Star Scientific has had the shit shorted out of it because it deserves it:

Star has a diehard allegiance of retail investors who are attracted to the sub-$5 share price and seemingly large tobacco and Alzheimer’s markets. A sub-$5 share price is not the key to financial success. This optical illusion results in illogical investor losses--one is better off buying shares of undervalued companies like Biomarin (BMRN) or Onyx (ONXX). Always think in terms of market cap, not share price. Ask yourself: Is CIGX worth $700 million? Cover up the market cap and try to figure out what you think it is worth, independent of the stock market. If you guessed $2 billion, buy the stock. If you came up with less than $50m like I did, stay away or short.

So? I AM going to buy the product to see if it puts a dent in my constantly aching back and will be thrilled if it works (and will tell you). I AM NOT going to touch this stock, not even with someone else's money. Fuck that.

Whenever a press release contains an entire disclaimer like this... :

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Star Scientific, Inc. and its consolidated subsidiaries (collectively, the "Company") has tried, whenever possible, to identify these forward-looking statements using words such as "anticipates," "believes," "estimates," "expects," "plans," "intends" and similar expressions. These statements reflect the Company's current beliefs and are based upon information currently available to it. Accordingly, such forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the Company's actual results, performance or achievements to differ materially from those expressed in, or implied by, such statements. These risks, uncertainties and contingencies include, without limitation, the challenges inherent in new product development initiatives, the uncertainties inherent in the progress of scientific research, the Company's ability to raise additional capital in the future necessary to maintain its business, potential disputes concerning the Company's intellectual property, risks associated with litigation regarding such intellectual property, potential delays in obtaining any necessary government approvals of the Company's low-TSNA tobacco products, market acceptance of the Company's new smokeless tobacco products, competition from companies with greater resources than the Company, the Company's decision not to join the Master Settlement Agreement ("MSA"), and the Company's dependence on key employees and on its strategic relationships with Brown & Williamson Tobacco Corporation in light of its combination with RJ Reynolds Tobacco Company, Inc.

... you need to walk away. No, back away slowly.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.

12 comments:

Anonymous said...

How about the 3 upcoming conferences this month Anatabloc breakthrough technology conferences with 2 of the top Doctors in the country from Johns Hopkins

Junior:
With 135 million shares outstanding and a current market price of $2.63 per share, CIGX's market cap is $355 million. With nominal sales and losing money, I wouldn't touch CIGX stock.
Is CIGX a scam? It's financials are not those of a scam operation. CIGX is losing money.
That's Pop's opinion.

IA

Anonymous:

I have more faith in Anatabloc at this point than I do, say, high fructose corn syrup... but that doesn't make this stock a buy (in my view), sorry. Like I said, I am looking forward to trying some and seeing how it works on my back.

Pop:

Their EBITD margin was -3290.21% for 2010. They have all but assured continued stock dilution to fund current operations. Anatabloc shows great promise but not enough to warrant taking a risk like that. The biggest red flag I see is the voracity of its fans. Any time I post about something that gets that kind of reaction out of people religiously checking its Google finance pages, something isn't right. I'm happy for those who are enjoying their positions in this company but respectfully decline to participate.

Long CIGX said...

Junior:
too late for respectful... don't ya think?
Seems that there are MANY companies that significantly mortgage future earnings while in developmental stages. With a good product, impactful marketing and widespread distribution, some have gone on to produce record-breaking revenues. That is the goal here, right? It takes alot of money to make alot of money.
Which company did you say that you had run?

Power to the people, Long CIGX. Congratulations and I really hope it works out for you.

This is one that I wish would pull through and prove itself to be the fantastic moneymaker its fans (like you) feel it is.

Do you think CIGX is doing the most effective marketing possible? I don't. Spamming non-English Facebook pages is not a good marketing plan. If the product works, I'll talk about it, that's a good marketing plan. If they are smart, they'll contact me and try to sell me on why this is a good product. Or they can keep blindly Facebooking in the dark. I do online marketing for a living, so I sort of know what I'm talking about. I don't own any companies (except this brand, which is an asset on my personal balance sheet) but I have made companies I've worked for a lot of money, does that count?

I won't buy the stock, but am glad you feel confident knowing you have. I'll buy the product. I might change my mind at that point, but for now, there is distressing financial information to acknowledge.

So don't hate because I asked a few almost logical questions.

W.C. Varones said...

Dude, shorts are paying 40% a year for the privilege of borrowing this sucker to short it. Shorts don't pay that kind of usurious rate unless they are certain they have a sure thing.

And sure, lots of early-stage companies burn cash for a few years, but can you name any that burned cash for a dozen years running, issuing shares the whole way, and then had a blockbuster product that made the shareholders rich? I didn't think so.

If you look around the poker table and can't tell who the sucker is, it's you.

Anonymous said...

hittoIts A Scam

Anonymous said...

It truly is a scam

Long CIGX said...

OUCH!

Have you toured Star Scientific? It's really quite impressive. This top-notch firm is located right here in my backyard in Glen Allen, VA.

Junior, while one must acknowledge the distressing financial information, there is no scam here. One must also consider the number of shares owned by Tradewinds Investment(20+ million), Goldman Capital(5.6 million), Barclay Global(2.4 million), Blackrock Fund(2.2 million), State Street(1.4 million) and Dimensional Funds (1 million). Unless these institutions are all part of a very large and elaborate hoax, we'll be OK.

As for the marketing efforts you've not yet seen, inVentiv Health(a name you've surely heard) is managing the product rollout campaign for CigRx and Anatabloc. A few new commercials have aired locally.

WCV, you're right!... about the shorts, that is. It's hard not to make money with the exceptional market volatility these past few months. Short sales have produced nice profits on alot of tickers.

As for the blockbuster products for SS, all that's left is the marketing and distribution. The client list for inVentiv Health includes Johnson & Johnson, Abbott Laboratories, Novartis, Merck, Pfizer and other top-rated pharmaceutical/biotech companies. They have marketing and sales capabilities in 40 countries around the globe. SS and inVentiv are preparing new state-of-the-art call centers to handle the volume of sales they anticipate.

Rock Creek Pharmaceuticals, a subsidiary of Star Scientific has expanded shipping options for purchases of Anatabloc. On Friday, September 23, capacity for shipments to Canada, the United Kingdom, Australia and New Zealand was launched. Recently, Rock Creek initiated an international shipping process for the following countries around the globe: Italy, Belgium, Israel, Singapore, Ireland, France, Switzerland, Netherlands, South Africa, Argentina, Spain, Norway and Japan. The company has indicated that it will continue to explore options for shipping to additional countries during the next few months based on consumer demand for Anatabloc. As new countries are added, they will be included in the listing on the product website, which can be found at www.anatabloc.com, or by calling the customer center at 1-800-778-2031. Paul L. Perito, Rock Creek's Chairman and CEO, recently commented: "Although the Anatabloc introduction was less than a month ago, we nonetheless are very pleased with the number of website visitors and the global interest in our product."

Future revenues should be adequate.

As mentioned before, there is plenty of opportunity to profit from short sales in this volatile market. You're entitled. However, you're unfounded pessimism regarding SS is both unwarranted and unappreciated... DUDE!

Justin said...

The real scam here is fairly evident.

Spreading pessimism in an attempt to profit from shorting a company's stock is quite easy to recognize as a scam.

If you've thoroughly researched Star Scientific, then you're already aware of the magnitude of this emerging success story.

The jury's already out on this one guys. Beware of the short squeeze.

factfinder said...

Have you toured Star Scientific? It's really quite impressive. This top-notch firm is located right here in my backyard in Glen Allen, VA.

Junior, while one must acknowledge the distressing financial information, there is no scam here. One must also consider the number of shares owned by Tradewinds Investment(20+ million), Goldman Capital(5.6 million), Barclay Global(2.4 million), Blackrock Fund(2.2 million), State Street(1.4 million) and Dimensional Funds (1 million). Unless these institutions are all part of a very large and elaborate hoax, we'll be OK.

As for the marketing efforts you've not yet seen, inVentiv Health(a name you've surely heard) is managing the product rollout campaign for CigRx and Anatabloc. A few new commercials have aired locally.

WCV, you're right!... about the shorts, that is. It's hard not to make money with the exceptional market volatility these past few months. Short sales have produced nice profits on alot of tickers.

As for the blockbuster products for SS, all that's left is the marketing and distribution. The client list for inVentiv Health includes Johnson & Johnson, Abbott Laboratories, Novartis, Merck, Pfizer and other top-rated pharmaceutical/biotech companies. They have marketing and sales capabilities in 40 countries around the globe. SS and inVentiv are preparing new state-of-the-art call centers to handle the volume of sales they anticipate.

Rock Creek Pharmaceuticals, a subsidiary of Star Scientific has expanded shipping options for purchases of Anatabloc. On Friday, September 23, capacity for shipments to Canada, the United Kingdom, Australia and New Zealand was launched. Recently, Rock Creek initiated an international shipping process for the following countries around the globe: Italy, Belgium, Israel, Singapore, Ireland, France, Switzerland, Netherlands, South Africa, Argentina, Spain, Norway and Japan. The company has indicated that it will continue to explore options for shipping to additional countries during the next few months based on consumer demand for Anatabloc. As new countries are added, they will be included in the listing on the product website, which can be found at www.anatabloc.com, or by calling the customer center at 1-800-778-2031. Paul L. Perito, Rock Creek's Chairman and CEO, recently commented: "Although the Anatabloc introduction was less than a month ago, we nonetheless are very pleased with the number of website visitors and the global interest in our product."

Future revenues should be adequate.

Long CIGX said...

We'll see.