Why Star Scientific Inc. Shares Were Clobbered

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Star Scientific (NASDAQ: STSI  ) , a developer and marketer of non-nicotime nutraceutical dietary supplements, tumbled as much as 22% after confirming the receipt of an FDA warning letter on Dec. 24 concerning two of its consumer products that utilize anatabine.

So what: According to Star Scientific's press release, which came out on Tuesday, the FDA has issued a warning letter regarding the marketing of Anatabloc and CigRx which both utilize anatabine, a substance which the Food and Drug Administration believes should be regulated since it is a new ingredient that would have necessitated "premarket notification to the agency." The FDA's contention is that Star Scientific is marketing two currently unapproved drugs/products on its website. Star Scientific has pledged to cooperate fully to resolve these issues.

Now what: It's bad enough that Star Scientific has been burning through cash for years, but to add the potential to remove its best-selling products from market might be the straw that breaks this camels' back. On Tuesday, the company also announced a $15 million credit facility, which should help the company finance its operations with only $8.4 million in cash left as of its most recent quarter and the company burning through more than $20 million in cash each year. Keep in mind that FDA warning letters don't always end poorly, as Star Scientific may just wind up with a slap on the wrist and be allowed to continue to market its products while obtaining all appropriate licensing. On the other hand, the company could also face hefty fines and the withdrawal of its products. Until we know exactly what sort of punishment the FDA is going to levy, I don't see any other recourse aside from avoiding Star Scientific altogether.

Here's a stock that could turn that frown upside down in 2014!
There's a huge difference between a good stock, and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 02, 2014, at 3:55 PM, Brinks2 wrote:

    found at fda.gov:


    "Can a Dietary Supplement Treat a Concussion? No

    On this page:

    The Claims

    Exploiting the public's rising concern about concussions, some companies are offering untested, unproven and possibly dangerous products that claim to prevent, treat or cure concussions and other traumatic brain injuries (TBIs).

    In December 2013, FDA issued a warning letter to Star Scientific, Inc., for marketing its product Anatabloc with claims to treat TBIs. FDA continues to monitor the marketplace for products with similar fraudulent claims, and will take appropriate regulatory action to protect the public health." END


    What is really strange is that the Department of Defense was co-sponsoring some of the Traumatic Brain Injury studies using Anatabine SEE http://tinyurl.com/qg2qy76

    Department of Defense award (W81XWH-07-01-0759) to Dr. Crawford

    The Roskamp Foundation

    Department of Veterans Affairs

Add your comment.

DocumentId: 2781469, ~/Articles/ArticleHandler.aspx, 4/17/2014 2:58:45 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...