http://seekingalpha.com/article/197650-did-star-scientific-just-find-a-cure-for-alzheimer-s-disease
By James Altucher
April 8, 2010
Fundamental Analysis page for CIGX:
http://finviz.com/quote.ashx?t=cigx
Company website:
http://www.starscientific.com/
Daily chart:
A few weeks ago I wrote about CIGX (Nasdaq) when it was trading around $1.60. Currently it's at $2.50, having gone as high as $3.67 Tuesday on the news that the Roskamp Institute, the premier institute for the study of Alzheimer's Disease, had found evidence that the Star Scientific (CIGX) product breaks down the beta-amyloid plaque that causes Alzheimer's. I've written in the past about Alzheimer's for the WSJ and for thestreet.com and to my knowledge no product out there breaks down this plaque. For the reasons below, I think this new news could ultimately drive the stock to the $15-20 range.
In my earlier article I mentioned the Roskamp Institute because I was trying to connect the dots as to why Robert Roskamp, the guy who finances the institute, would buy $1mm worth of CIGX stock. The dot-connecting paid off for readers and proved accurate as Tuesday the institute came out with a press release that announced the institute is exploring a cure for Alzherimer's with a component developed by Star Scientific (CIGX) .
Why is this institute important? Michael Mullan, the chief scientist for the institute is the guy who made the discovery that the beta-amyloid chemical is what causes the plaque to build up in the brain, causing Alzheimers.
Most drugs that have gone through FDA trials since then for Alzheimer's have revolved around different techniques for bringing down this plaque. None of the trials have succeeded but clearly the search for a cure, even prior to an FDA approval, is sufficient enough to drive billions of dollars in value:
Examples:
Medivation (MDVN) - The company was trading at a $1.5 billion dollar market cap and lost over a billion dollars in valuation when the FDA put a stop to their trials.
Johnson & Johnson (JNJ) - JNJ pushed back results until 2012 for an Alzheimer's trial they were doing for Elan (ELN). $5bb in market value was lost in a day.
Pfizer (PFE) - Wyeth: In a Barrons article from 2008, the writer states that Wyeth (now bought by Pfizer) could go up in value about 20% (about $10bb in value at the time) if their Alzheimer's vaccine came to market. Their initial attempt at a drug failed in 2002.
As I wrote in my worst selling book, The Forever Portfolio (which, by the way, the publisher now informs me will be coming out in paperback shortly), Alzheimer's is the third largest killer in the United States, behind heart disease and all cancers combined. If you live long enough, you will get Alzheimer's.
So what do we know now?
From the press release:
Preliminary tests performed by the Roskamp Institute show that when the compound developed by [CIGX] is applied to cells, B-amyloid is reduced. Also, the compound appears to encourage new neuronal cell growth.
This is why I believe the stock initially jumped 20% higher within seconds of the release coming out. When comparing this to companies that have drugs in FDA trials (but no success yet) those companies usually have a market cap in the billions even if its unknown whether or not the drug will actually work. CIGX's market cap is about $250mm.
The release goes on to say:
Results in cells do not necessarily translate to human testing, and additional work needs to be completed to determine whether the compound will have significant B-amyloid lowering effects in humans.
I think this was the critical line that got short-term traders to sell. As one fund manager IMed me, "It could take 5-7 years to put together and FDA approved clinical trial on humans and a hundred million dollars or more."
However, there's a critical difference between CIGX and the companies that need FDA approval for their drugs. CIGX's product is approved already to be sold as a nutraceutical. All that means is that the FDA has deteremined it's safe on humans and it's made in a safe environment. More on this in a second.
CIGX also put out an 8k filing Tuesday at 11:02am discussing their partnership with Inventiv (VTIV). None of the articles on CIGX mentioned this 8k filing. Inventiv markets drugs, vitamins and nutraceuticals to doctors, supermarkets, pharmacies, etc. The 8k states:
[Inventiv]...will provide sales and marketing services to the Company relating to CigRx™. CigRx™ is a non-nicotine nutraceutical that is intended to temporarily reduce the desire to smoke.
Presumably this is the same compound that Roskamp is testing. In CIGX's profile they state they:
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.
In other words, this is NOT a drug. Its a nutraceutical. So it can be easily tested in humans. Roskamp can give it to humans today. And, since a sales and marketing agreement has already been signed with one of the largest distributors out there there this product can be in the market in 2-3 months. Will it have "CURES ALZHEIMER's DISEASE!!" written all over it? No, of course not. But bottles of wine do not have "may cure heart disease" written on them either but people often swear by a glass of wine for this reason (and, of course, a few other reasons). Diitto for aspirin which generically sells billions of bottles a year for uses not specified on its container.
I'm also curious about this line in the Roskamp press release:
the compound is being explored further for its application to treat a variety of neurological conditions, including Alzheimer's.
What other neurological conditions are they testing? Two weeks ago an article came out in the Wall Street Journal suggesting that smokers often delay the onset of Parkinson's disease. Here's a similar article in Reuters. In this list of clinical trials that the Roskamp Institute participates in, Parkinson's is listed.
So what do we have? A company that could potentially test on humans and have a nutraceutical out in 3-12 months that is already deemed safe by the FDA and a third party clinic is already seeing independent validation that an off-label use might be to prevent or reduce the risk of Alzheimer's disease.
Again, MDVN lost $1bb in value in a day when they lost the ability to claim they have a product that cures Alzheimer's. JNJ lost $5bb in value. The size of the overall Alzheimer's market is estimated at over $15bb a year.
Tuesday saw a classic "sell the news" reaction on the stock. The Roskamp Institute basically upped their commitment to the idea that there might be a cure here. Not only have they invested in the company, but the premier researcher on Alzheimer's on the planet suggests that this might be the cure in their press release. Additionally, the 8K filing that came out late morning Tuesday affirms the sales and marketing relationship with Inventiv for the CigRx product, which I assume is the "botanical, tobacco-based component designed to treat ..." listed in CIGX's profile on Yahoo Finance.
This stock reminds me a little of Dendreon (DNDN). The company still does not have a product out to treat prostate cancer (waiting for all approvals) but investors never knew how to react to their news. The stock went from $4 to $20 back to $2.50, and is now up to $40. If the Alzheimer's market is truly a $15bb a year market and this company will have a product out there even distantly related to that market and will have a product out there before any other Pharma has a product, then we can easily see a $15-20 stock at some point.
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