PETERSBURG, Va., - Star Scientific, Inc. (Nasdaq: STSI) filed its second-quarter report on Form 10-Q today with the Securities and Exchange Commission. The company reported net sales of $.2 million for the second quarter, significantly higher when compared with net sales of $.05 million for the same quarter in 2008. Net sales for the first six months of 2009 totaled $.38 million compared with $.2 million for the same period in 2008. Sales volumes rebounded strongly compared with lower volumes for first-quarter 2009, which the company believes was due to the passage of amendments to the Children’s Health Insurance Program bill that are financed by increases in the federal excise tax on tobacco products. The company reported a second-quarter net loss of $7.0 million compared with a $6.4 million loss for the same period in 2008. This increase was due primarily to additional costs associated with the May, 2009 jury trial of the company’s patent infringement lawsuit against RJ Reynolds Tobacco Company. Total operating costs for second quarter 2009 of $6.4 million increased from $5.8 million for the same period in 2008.
The research and development portion of those expenses included $.1 million in product development work to enhance the company’s dissolvable smokeless tobacco products, Ariva(R) and Stonewall(R). As part of that effort, the company recently completed successful focus group testing for several new versions of Ariva(R), including additional blends. The company also is in active discussions with another tobacco company regarding an agreement aimed at expanding distribution and marketing of Ariva(R) and Stonewall(R). If an agreement is achieved, Star anticipates it will be able to achieve both cost reductions and broadened product distribution for its dissolvable tobacco products.
Second quarter R&D expenses also included expenditures of $.4 million by the company’s Rock Creek Pharmaceuticals subsidiary. These expenditures related to assessing the applicability of low-TSNA tobacco and certain MAO agents for several applications, including in a non-nicotine nutraceutical product designed to minimize nicotine cravings.
Rock Creek now has completed two preliminary studies to assess the viability and safety of the active components for a non-nicotine nutraceutical (a dietary supplement product). Curtis Wright, MD, MPH, Chief Medical Officer of Rock Creek, stated he is pleased with the preliminary results of the safety studies now being conducted at two independent research institutions. “There is increasing evidence in recent years that the association between nicotine addiction and MAO reduction in smokers is important. It is one thing to read research reports and publications but it is quite another to see primary data showing that tobacco can decrease human MAO B to levels similar to those seen in strong antidepressants.” Rock Creek’s research program is central to its evolving strategies and to the continued development of products for the treatment of cigarette addiction, including a non-nicotine nutraceutical that would be marketed under the brand name CigRx(TM). At the same time Star continues its efforts to identify a pharmaceutical or health-related entity that could assist in the distribution and consumer acceptance of a nutraceutical product such as CigRx(TM).
General and administrative expenses for the second quarter, which totaled approximately $5.1 million, included $2.7 million of increased legal expenses for the jury trial referenced above and the ongoing patent reexamination process before the US Patent and Trademark Office. Star’s counsel filed a motion with the US District Court on July 7 for Judgment as a Matter of Law or, In the Alternative, For a New Trial. That motion currently is pending: RJR must file a response to the motion by August 24. If the District Court does not grant Star’s motion, the company will appeal the verdict to the US Court of Appeals for the Federal Circuit. As the company previously announced, Carter G. Phillips, who successfully represented Star in its 2007 appeal to the Federal Circuit Court, has been retained to represent Star Scientific in any upcoming appeal.
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”), the effect of state statutes adopted under the 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. The impact of potential litigation, if initiated against or by individual states that have adopted the MSA, could be materially adverse to the Company.
Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. See additional discussion under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC on March 16, 2009, and other factors detailed from time to time in the Company’s other filings with the SEC, available at www.sec.gov. All information in this release is current as of August 10, 2009, and the Company undertakes no obligation to update or advise upon any such forward-looking statements to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.