Is Star Scientific the Perfect Penny Stock?

There's been a fairly vocal group of people who've offered up lots of anecdotal evidence about the positive benefits they've derived from Anatabloc, the anti-inflammatory formulation from Star Scientific , but there hasn't been as much science behind it to prove it. Until now.

The dietary supplements maker released a preliminary study that analyzes the impact of anatabine on thyroid health. Anatabine is at the core of Star's formulation, and it's thought that it could be used for treating chronic inflammation associated with disorders such as thyroiditis, cancer, arthritis, Alzheimer's disease, and multiple sclerosis. While its Alzheimer's claims have generated a lot of controversy, the just-released results seem to back up the claims for it for treating the thyroid gland.

Indeed, although the full study is not yet ready, one of the doctors working on it was all but enthusiastic about what it portends: "To see antibodies that may have been elevated for years beginning to come down in a significant way after three months of supplementation is exciting." If it works this good after just three months, he said, he can't wait to see what happens with longer periods of supplementation. They've already had a few individual cases showing better results, with some even having their thyroglobulin levels return to normal.

While it would seem to provide some vindication to investors who have hung by Star's side through thick and thin (and there's seemingly been more thin than thick at times), it should be noted that the breathless doctor is someone who works for the supplement maker's subsidiary, Rock Creek Pharmaceuticals. It's not like we'd expect to him say the supplement's a dog.

Up in smoke
Anatabine is a naturally occurring chemical that's found in tobacco, and it formed the basis for Star Scientific's original product, CigRx, that reduced a smoker's cravings for tobacco. It also developed the StarCured curing process that prevents the formation of carcinogenic toxins in tobacco called TSNAs, and used that to create various very low-TSNA products. Interestingly, that ended up causing Star to bite that hand that fed it.

Reynolds American was previously tobacco company Brown & Williamson -- a subsidiary of British American Tobacco and the makers of Kent, Lucky Strike, and Pall Mall -- and had loaned Star money to buy curing barns for its StarCured tobacco. When the two cigarette companies merged, Star severed their business relationship and ended up suing Reynolds for patent infringement and subsequently wrangled a $5 million settlement from them. While that ought to have been a cause of celebration, Star's stock actually fell because the payment was seen as too small, particularly when some investors were expecting $1 billion or more.

About face!
Following what can only be described as a phyrric victory for Star, it changed its outlook and business model from being one focused on tobacco and cigarette derivatives to one more akin to being a biotech and pursuing dietary supplement advances, hence the development of Anatabloc. It also changes its peer group from one that included Reynolds, Altria, and Lorillard, to one that pits it against other supplement makers like Nu-Skin, Herbalife, and Usana Health Sciences.

Considering the pyramid scheme charges being thrown at the supplement purveyors, it's not surprising that some look at Star's colorful past and wonder whether it's also leading investors astray.

No doubt investors are counting on the advances it's been reporting to put those allegations to bed at last. Originally Anatabloc was marketed exclusively toward physicians, but earlier this year Star sought to bring the supplement to a more mass-market audience and signed an agreement with GNC to sell Anatabloc through its online store.

Penny for your thoughts
The anecdotal evidence continues to mount in Star Scientific's favor, and if it can get unbiased confirmation that Anatabloc is all it's been made out to be, there's little doubt it will end up smoking the naysayers and short-sellers. While Anatabloc believers have let me know the supplement's worked for them, is there any concern Star's just blowing smoke up our butts? Let me know in the comments section below.

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The article Is Star Scientific the Perfect Penny Stock? originally appeared on Fool.com.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $50 Calls on Herbalife Ltd.. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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