Star Scientific: A pioneer in innovation

Been wanting to post on these guys for some time. Found this article on the TMA site.

What are your thoughts on Star Scientific? What do you think about their product? What are your thoughts regarding the future of the dissolvable tobacco offer? What does Star need to do to generate more sales? Should products like this be able to make claims regarding the relative harm of the product? What are your thoughts on the patent lawsuit coming to trial?

United States
Despite being about a decade old, Petersburg, Virginia-based Star Scientific Inc. represents just $500,000 of the nearly $5 billion smokeless tobacco market and the company posted a net loss of $18 million on sales of just $500,000 in 2008, but with its technological innovations that have made it a pioneer in the lower-carcinogen smokeless tobacco segment, Star has significant future potential, especially if it wins a patent infringement lawsuit against R.J. Reynolds, which is scheduled to go to trial in US District Court in Baltimore, Maryland in May, according to an April 12th Wall Street Journal article. (Wall Street Journal – WSJ 04/12)

9 comments ↓

#1 Bill Godshall on 04.13.09 at 3:41 PM

Star’s Ariva and Stonewall are nearly identical to GSK’s Commit nicotine lozenge, which is why GSK petitioned the FDA to ban the products back in 2001/02 (by reclassifing them as unapproved nicotine drugs). Thankfully, the FDA rejected GSK’s petition.

Since Waxman’s FDA bill bans all future smokefree tobacco products from being introduced, and also bans Camel Snus, Strips, Orbs, Strips and Marlboro Snus and MST, sales of Star’s Ariva and Stonewall tobacco lozenges may yet take off if the Senate approves Waxman’s bill (without a sound harm reduction amendment).

#2 Bertram52 on 04.15.09 at 10:03 PM

Star product tastes like crap. Camel did a much better job with Orb. Maybe these two can settle their differences and put Star tobacco into the Orb. That would be a better product for sure.

#3 Bill Godshall on 04.17.09 at 5:36 PM

With Tobacco-Patent Suit, Star Scientific Presses for Clout

By Kevin Helliker
The Wall Street Journal
April 15, 2009

[Photo cutline]: Federally funded research places the Ariva smokeless-tobacco brand, made by Star Scientific, at the top of a least-harmful list.

A decade of seeking traction in the tobacco market has produced little success for Star Scientific Inc. Last year it posted an $18 million loss on sales of only $500,000.

But its commercial failures belie some technological innovations that have made Star Scientific something of a pioneer in the industry’s hottest market: lower-carcinogen smokeless tobacco. And now its stock price is rising amid hopes of an imminent payoff for shareholders.

Those hopes — and possibly Star’s survival — hinge on the outcome of a patent-infringement lawsuit that is scheduled to go to trial in U.S. District Court in Baltimore in May. In the suit, Star charges that tobacco-purveyor R.J. Reynolds infringed on Star patents covering a carcinogen-lowering process for curing tobacco.

Since the suit was filed in 2001, Reynolds has filed a series of motions seeking its dismissal. But last month the U.S. Supreme Court declined to hear a Reynolds appeal of a lower-court ruling, prompting a federal judge to set a trial date of May 18.

A spokesman for Reynolds, which has disputed the charges in court filings, says it is “confident of our defenses in the matters” under dispute. Apart from the trial, Reynolds has persuaded the U.S. Patent Office to re-examine the validity of Star’s patents.

Star says it is seeking damages of “several hundred million dollars” in the case. It also says it is confident in the validity of its patents. (Its market capitalization is barely $500 million, even after a recent rise in its shares to nearly $5 apiece from $1.06 last July.)

With just $500,000 of the nearly $5 billion smokeless-tobacco market, Star is too tiny to have attracted much attention from independent financial analysts. But after researching the company, some fund managers have invested nearly $100 million in Star to prop it up amid the legal battle. “It’s a small company with a Fortune 100 legal team and some very, very promising intellectual property,” says Robert W. Scannell, a partner in Tradewinds Investment Management in Sausalito, Calif. At 14.3%, the fund’s Star Scientific stake — acquired since 2004 — is second only to the 17.1% stake of company founder Jonnie Williams.

In one measure of the importance of legal strategy to Star’s fortunes, its president is Paul Perito, a former senior partner in the law firm of Paul, Hastings, Janofsky & Walker LLP. And the lawyer who successfully represented Star in 2008 at the U.S. Court of Appeals for the Federal Circuit was Carter G. Phillips, a Sidley Austin LLP managing partner who has argued 56 cases before the U.S. Supreme Court.

Still, the merits of Star’s case against Reynolds remain to be decided. And if it prevails, Reynolds would almost certainly appeal, while even the most generous verdict would leave Star a David in an industry of Goliaths.

Founded last decade, Star set out to devise a way to reduce carcinogens in tobacco, and it came up with a curing process for which it received two patents. In 2001, it introduced a low-carcinogen tobacco tablet called Ariva that dissolves in the user’s mouth but still provides a nicotine fix. A couple of years later it introduced a second such product called Stonewall.

Star offers only smokeless products. Its entry into that market preceded a turn among the cigarette giants toward the category. With cigarette sales declining every year amid a rise in sales of smokeless tobacco, Altria Group Inc.’s Philip Morris unit and Reynolds’s parent, Reynolds American Inc., began acquiring the nation’s largest smokeless purveyors. Early this year, Altria completed its $10.3 billion acquisition of UST Inc., the nation’s biggest smokeless player and the owner of the Copenhagen and Skoal brands.

Meanwhile, as evidence mounted that smokeless tobacco posed fewer risks than smoking, public-health officials began debating whether smokers ought to be urged to switch. In Sweden, where men are more likely to get their nicotine fix from smokeless tobacco than cigarettes, rates of tobacco-related illness among men are significantly lower than in other Western nations.

But even advocates urging smokers to switch have focused their arguments on smokeless-tobacco brands that are particularly low in nitrosamines, the class of tobacco-specific carcinogens that most worries public-health officials. And here is where Star Scientific has an advantage.

Federally funded research into the nitrosamine levels of leading smokeless brands places Star’s Ariva and Stonewall brands at the top of the least-harmful list. Respectively, the brands carry 0.19 and 0.28 nitrosamine part per million, compared with 3.1 for General Snus, according to articles published in a public-health journal called Nicotine & Tobacco Research in 2008 and 2006. General Snus is made by Swedish Match, a Stockholm-based purveyor of the top brands in Sweden.

In recent years, both Reynolds and Altria Group Inc.’s Philip Morris USA unithave launched their own low-carcinogen smokeless products. Reynolds’s Camel Snus and Philip Morris’s Marlboro Snus — at 1.75 and 1.98 nitrosamine parts per million — fall short of the achievements of Star Scientific, according to the 2008 Nicotine & Tobacco Research article. But both carry significantly fewer nitrosamines than, for instance, Skoal Long Cut, which was found to have 7.96 parts per million.

While most smokeless products still consist of loose tobacco, Star Scientific’s move toward dissolvable tablets is also being emulated. Just this year, Reynolds introduced Camel Orbs, a dissolvable pellet of tobacco.

Star has lacked the resources to market or distribute its products beyond a big pharmacy chain and some convenience stores. But some Star investors are hoping a legal victory against Reynolds will give it some marketing clout or make it an acquisition target.

“Obviously I’m biased, but we feel very optimistic about Star’s future,” says David McClary, general partner of Willowbrook Fund of Franklin, Tenn., which says it owns a six-figure number of Star Scientific shares.

Write to Kevin Helliker at kevin.helliker@wsj.com

#4 FEDUP on 04.19.09 at 12:56 AM

Bertram,

What you talking about – Reynolds product is horrible and has no kick.

#5 Tom on 04.19.09 at 1:04 AM

Something must be new at Star as I saw a patent notice regarding Star the other day? Any one know what’s up?

#6 Walter Raleigh on 04.20.09 at 12:30 AM

Star will be introducing a new product. I saw this product…it was pretty cool..small mint called CigRX..tasted pretty good and packed a punch. Finally looks like a break through! Taste & effective!

#7 Desert Dude on 05.01.09 at 2:10 AM

Unfortunately, it seems that any new advancement in the tobacco industry is discouraged. It ends up being tested at measures that cigarettes are not held to as it is so obvious of how strong PM has the government, the industry and the anti movement in it’s controls. I find it amazing that no matter what the product is that if it attacks the known very dangerous cigarette that it must be scrutinized and attacked or negated by retail leader contracts!

#8 TAZ on 06.22.09 at 10:49 PM

United States: Jury Rules In Favor Of RJR In Patent Infringement Lawsuit
A US District Court of Maryland jury on June 16th decided in favor of R.J. Reynolds Tobacco Co. in the patent infringement lawsuit filed against the company by Petersburg, Virginia-based Star Scientific Inc., ruling that RJR did not infringe on Star’s patents for a tobacco-curing process aimed at reducing tobacco-specific nitrosamines and that Star’s patents were invalid. Star was seeking several hundred million dollars in damages from RJR and hoping to reach lucrative licensing agreements with other tobacco companies if the verdict was in its favor. Star’s lawsuit against RJR was originally filed in 2001. In August 2008, the US Court of Appeals for the Federal Circuit reversed the US District Court of Maryland’s 2007 ruling, which said that Star Scientific’s patents on tobacco curing technology were invalid. RJR appealed the ruling to the US Supreme Court, which however refused in March 2009 to hear the appeal, sending the case back to US District Court for a new trial. In the fresh trial that began May 18th, Star argued that its “StarCured” tobacco curing process was a revolution in the tobacco industry, but RJR encouraged its farmers to practice the invention without Star’s permission, while RJR contended that it had invented its own tobacco-curing method that reduced TSNAs and did not need to use Star’s. Following the jury’s verdict, Star’s shares declined by more than 80% in after-hours trading to 80 cents. RJR’s chief patent lawyer August Borschke said the company was pleased with the decision, while Star spokeswoman Sara Machir said the company will soon file a motion for a new trial and will immediately appeal if that fails. Elliot Favus, an analyst with Favus Institutional Research who attended the month-long trial, said the company would have a tough time raising enough money to support itself (Dow Jones 6/16).

#9 OTP Kid on 08.07.09 at 2:23 PM

I think the Blog should be re-titled as “Star Scientific – A pioneer in Lawsuits”. Or “Failed Lawsuits” might be better.

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