Carried away by Phase II, devastated by Phase III
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Dear Mr. Berko:
A stockbroker has been trying to get me to invest, but I keep telling him that I’m a single mother with two children and don’t make enough teaching school to put money in a stock. But in January he told me of a company called Medivation that was $37 per stock share and had developed a cure for Alzheimer’s disease. He said it would make billions and eventually be bought out by Pfizer at more than $100 per stock share. He was so enthusiastic, certain and insistent that I cashed in my children’s savings bonds to buy 200 stock shares at $35. Several days later, it was selling at $38, and he was very excited and told me I could do a margin transaction. I didn’t have to put up any more money, but had to use my stock shares as collateral so I could buy another 200 stock shares. I bought more at $38.70 on March 2, and the next day, Medivation went down to $14. I had to sell everything, and I owe the broker money. Please tell me if there is any way I can get my money back and if I should talk to an attorney.
R.S., Indianapolis
Dear R.S.:
I would like to make a brief commentary on that broker’s parentage, his future and his personal habits. However, good manners plus the God-fearing readers of this newspaper would forbid it. But let’s hope that in his next incarnation, he’ll come back as a dung beetle.
But, R.S., as much as you would like to blame someone else (refusing to take responsibility for failure seems to be an American trait), please recognize that you were complicit, too. The broker couldn’t have bought that stock without your permission. You wrote a check, and you gave it to him. You let your greed exceed your common sense.
Medivation Inc. (MDVN-$11.35) develops small-molecule drugs for the treatment of Alzheimer’s and several other pernicious diseases. Your brokester was waxing eloquently about the unprecedented results from Phase II trials of Dimebon as a possible Alzheimer’s cure. The Phase II results were so spectacular that Pfizer invested $225 million in cash in MDVN and got 60 percent of future profits.
Well, last year, Dimebon entered Phase III trials, and investors were hanging on tenterhooks waiting for results. Then, BOOM, the detritus hit the fan. MDVN announced that the Phase III trials were an ignominious failure, and the stock crashed like a rock from a high Alp, wiping out more than a billion dollars in shareholder value in one day. And you lost nearly 24 points or $9,600.
Hiring an attorney is a waste of time. Your loss is too small; even the scrofulous ambulance chasers won’t waste time for such a niggardly amount of money. So I had a pleasant conversation with the manager of the brokerage where you bought those shares. He agreed that (1) You did not sign a margin form and (2) that MDVN was an unsuitable investment for you. Now you have your children’s money back and a real-life experience equivalent to an M.B.A. in finance.
If there are some riverboat gamblers out there, they might consider Elan Corp. plc (ELN-$6.30), an Irish biopharmaceutical company that has two Alzheimer’s drugs in clinical trials. Results are expected in the next 16 months, and Pfizer has a lot of bucks invested here, too. I guarantee ELN will not drop 2 points – but R.S., you stay away.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service
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