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Star Scientific, Inc. (CIGX) Message Board

  • izof_texas izof_texas Aug 11, 2013 1:06 PM Flag

    Royalties? WHAT Royalties??

    (In 2 parts ... GOD I hate yahoo).

    Let's look into the revelation talked about here much about the attorneys seeking "royalties" instead of something like $1.8M in cash. What might that mean?

    Shortly after the terms of the settlement with RJR were announced I began speculating the following. The bad news was that Star got only $8M or so, plus a dropped (counter)suit for something like $35M for RJR's costs. The bad news also seemed that for that small recompense, RJR got permission to use Star's technology to the fullest, with Star's promise that there would be no more infringement suits.

    However I pointed out the following (few but bashers paid attention to it). IF RJR at any time hence began curing their tobacco using "StarCure" process, with extremely low TSNA values, then for liability reasons it is possible and perhaps likely that all of major tobacco in the U.S. would be forced to follow ... and THEY DON'T HAVE A DEAL WITH STAR ... so they would have to negotiate a royalty deal with Star to do the same.

    I noted then and several times since that it may begin to be apparent mid summer this year if RJR is indeed doing this.

    (continued)

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    • If I understand your question correctly, why would attorneys who worked on the RJR tobacco case opt to accept payment in future royalties vs. taking $1.8M cash? Good Question.

      First, I would assume future royalties paid to the tobacco attorneys would be limited to any royalties that would be derived from future tobacco curing licensing, not anything related to future anatabloc sales. Anatabloc sales do not generate revenues from royalties (at least under the current business model).

      Second, I would guess the FDA's forced mandate of reporting harmful constituents, including TSNA levels, would be the primary motivation for any tobacco company to use the best tobacco curing process possible, because the tobacco companies will be forced to report those harmful constituents to the public in the future.

      Third, even if it is assumed RJR will never have to license anything from Star again, as you point out what about all the other tobacco companies? Apparently, if the tobacco attorneys have decided they would rather accept payment in future royalties vs. taking $1.8M cash, those attorneys must believe the FDA's mandate of reporting harmful constituents will lead to royalty revenue in the future which will exceed $1.8M cash.

      I think the tobacco attorneys opting for royalty payments vs $1.8 cash is a very good sign the FDA's mandate is going to ultimately be positive for Star in the future.

    • (continuation)

      It appears that the time that the agreement on "royalties" instead of cash for the lawyers that everyone is talking about was made about three weeks ago ... mid summer.

      All this may just be coincidence. However, "the lawyers" were on the tobacco case. That is what they know. It seems less likely that they would be thinking of something much less certain at this time, future royalties from pharma.

      I'm still strapped for time and no time for research, but if some of you old tobacco folks are out there and read this, you may want to check on the industry journals and trade papers to see if you can sniff out if this may be happening. If it is, you might want back in at this level, because I estimated that such royalties may be worth $50-90M for Star based on the worth of the RJR settlement (but perhaps a one-time gain).

      Were that anywhere near right, the stock could rise say $1 - $1.50 from here just on that. With + trials then off we go. I'm just saying.

      Note: this is a CONTINGENCY discussion, NOT a prediction of future events. As always I am not recommending a buy, sell, or hold ... I'm just considering possibilities.

      • 2 Replies to izof_texas
      • BY the way, in my original two part post, hastily done, I forgot to mention the significance of the mid-summer time period. THAT is when the tobacco curing season begins. My speculation, pure speculation, is that perhaps word is that RJR has begun using a very low TSNA cure this year.

        If not this, perhaps next. I feel the arrangement of the lawyer's fees being contingent on "royalties" from the curing technology almost a SURE SIGN that something is up, and THAT WOULD SURE EXPLAIN the reason for the very strictly observed confidentiality agreement between Star and RJR ... and explain the seeming strange mention that Star would continue to defend the IP in the settlement agreement (which in fact, the mention of that in the settlement agreement seeming strange, led to my original speculation about all of this).

        HOWEVER, I EMPHASIZE THAT ALL OF THIS IS SPECULATION based on curious but sketchy facts.

      • izof, as much as I want to be optimistic, where is the reference to this agreement being 3 weeks ago in regards to royalties.

        In the 10q, it specifically states:

        "The Company had a contingent fee arrangement with its outside counsel representing it in the R.J. Reynolds patent litigation matter. Upon the settlement of this matter in September 2012 the Company recorded a $ 1.2 million liability per the contingent fee arrangement. In July 2013 outside counsel and the Company reached an agreement whereby this amount would only be paid in the event the Company receives royalty payment from the licensing of the two patents at issue in the R.J. Reynolds litigation between the date of the agreement and the expiration of the patents, and then only from royalty payments actually received by the Company on those patents. At this time the Company does not have any such license agreement in place. Because this payment is contingent on the future receipt of licensing fees as discussed above, the Company reversed the direct liability and will be accounting for this item as a contingent liability beginning in the third quarter of 2013."

        That's in Section 8, Subsequent Events.

        it clearly states that the agreement on royalties was from long ago and that they still have no such license agreement in place.

        To me this sounds like the lawyers were pretty darn confident in themselves when they took the case but as of now, there's nothing that has happened to help them realize the results of their bravado and it took until now for Star to say, "Um, yeah... that was our deal... now you have to stick to it"

        As I have said... I'm an anatabloc user, but this tobacco thing has never felt right to me. I am glad that the 10q maintains that they maintain an exclusive license agreement with Regent Court Technologies, but there's a part of me that still thinks that whatever deal was made is very pro management and not so much for the shareholders.

      • Another blow to shorty's gut!

 
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