A Tale Of Woe
by FlixRoxWell, it's not like you asked or anything, but let me tell you a story.
Once upon a time (well actually, it was the early 80s), I had a new stock broker. He was the desk partner of an old friend who had been my broker, but who left to get a "real" job. This broker, Bob, convinced me to buy into a company called Xytronyx. Now Xytronyx was an interesting story. This was the time when bio-technology was just getting off the ground held immense promise.
Instead of looking for a cure for cancer, however, Dr. Peter Baram decided to look for a more prosaic way to make money in this new field. He teamed up with a big state university research lab (Illinois?) and cut a deal where he would develop interesting discoveries in return for the patents and exclusive rights. The university got royalties and a piece of the company.
Well, to fast forward, the university discovered an enzyme that reacted to the specific bacteria which cause periodontal disease. Now periodontal disease had, until then, always been discovered by direct observation by the dentist, usually when it had progressed a fair amount. It is a major dental problem, both in the developed and developing worlds, and is expensive (and painful) to treat. It is most prevalent in older populations and there was NO TEST for the disease, and our population is getting older every day. EUREKA! Dr. Baram got to work and formed Xytronyx to raise the money to get this thing off the ground.
Well, I began to buy small amounts at 2. Then more at 3, then 4. The clinical trails were very successful. . . 7. . . 10. . . the thing became a sky-rocket. It moved from the NASDAQ to the AMEX. The stock just kept going up. Some days a half, some days a point, but always up.
They signed a distribution deal with Colgate, thus removing a big worry from my shoulders. . . 12. . . 13. . . they did a successful private placement from some big European venture firm. . . 14. . . 15. Finally, they went before the FDA for approval. Now, this test is not a food or a drug. It consists of rubbing some litmus-type paper on a patient's gums, putting the paper in a solution and doing a color match test. Total time: 5 minutes.
The FDA is sort of like Congress. There is a committee that screens everything before it goes to a vote by the full group. The periodontal kit was UNANIMOUSLY approved by the committee, with only a request for some language changes in the directions included with the kit. . .16. . . 18. . . 20. Finally, I ended up with 20,000 shares with a cost basis of 10. I was fat, I was happy, I was confusing luck with smarts!
Then Bob calls. "The FDA rules tomorrow. The stock is going to get a big 'pop,' so lets play the pop." "But, I have no money, Bob." "No problem---we'll just margin it for a couple of days. Just a quick trade." So I bought 8,000 shares at 25.
Well, the rest is obvious. The FDA sent the kit back for "further testing." The stock opened the next day at 13. But, I was smarter than the rest. I wasn't going to panic and sell. "Look at the gap that has to get filled". . .12. . . 10. . . 9. . . 8. Colgate pulled out of the deal. . . 7. . . 6.
By the time the dust settled, my broker had lost his job, and his house. Seems he had taken out a second mortgage to buy the stock. At least he put his money where his mouth was. I was in debt up to my ears trying to meet margin calls. I learned a Life Lesson. Lucky me.
[Editor's Note: FlixRox's fribble comes to us from the ~My Dumbest Investments~ folder, located on America Online on our Talk With the Editors message board.]