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Star Scientific shares drop on government investigation, 2012 loss.

Associated Press – Tue, Mar 19, 2013 12:44 PM EDT


NEW YORK (AP) -- Shares of Star Scientific Inc. tumbled Tuesday after the company said it is being investigated by the federal government.
THE SPARK: Star Scientific said the company, its directors, and others received subpoenas from the U.S. Attorney's Office for the Eastern District of Virginia. The company said it believes the main focus of the investigation is its securities, including private placements and related transactions dating to 2006. In a form filed with the Securities and Exchange Commission, Star Scientific said it is responding to the subpoenas and plans to cooperate fully with the investigation.

The Richmond, Va., company received the subpoenas in late January and February. It has hired a law firm to conduct an internal investigation.
THE BIG PICTURE: At the end of 2012 Star Scientific stopped selling smokeless tobacco products so it could focus on dietary supplements, cosmetics, and experimental pharmaceuticals. It sells the anti-inflammatory product Antabloc and CigRx, a supplement intended to reduce the urge to smoke.
Star Scientific said Monday that its product sales grew to $6.2 million in 2012, up from $1.2 million the previous year. Almost all of that revenue came from Antabloc. Star lost $22.9 million last year, compared with a loss of $38 million the year before.

The company used to sell dissolvable smokeless tobacco products. It said researchers were reluctant to perform clinical studies related to Antabloc and other products because of Star's tobacco business. The company said it is exploring licensing options for its tobacco curing process, intended to prevent the formation of carcinogenic toxins in tobacco, and for its dissolvable tobacco products.

SHARE ACTION: Star Scientific shares fell 33 cents, or 16.7 percent, to $1.65 in afternoon trading. The stock has lost 26 percent of its value in 2012.