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Should I go all-in on this penny stock in a bankrupt company?

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Since 2010, the FDA has withhold the stem cell treatment I need for my joint condition. In 2012, the doctors who invented the cell culturing technology sold it to a publicly traded company called Biorestorative Theraputics (BRTXQ), who intended to pursue FDA approval. The doctors continue to use the technique at a private clinic in the Cayman Islands, where I have been treated with it successfully.

Biorestorative completed a Phase I trial with good results and was approved for a Phase 2 trial in 2017, but since then has been unable to raise the millions in funding needed to begin the trial. It’s unclear why, but I suspect it’s because the economics of regulation will make it very expensive to commercialize the final product, and investors aren’t interested in taking a chance on it when they don’t know that it will work.

In 2020, the company declared bankruptcy and their stock crashed to $0.0001-$0.0002.

I check on the company periodically to monitor its progress toward approval. I’ve also considered investing in its stock, but had not done until a few days ago so despite my belief in their product because I don’t know if the company is viable for the reasons stated previously. In April I noticed their stock collapse and considered buying it, on some level recognizing a potential opportunity, but didn’t because I simply had no clue what I would have been doing, and couldn’t find out much about what was going on with the company. I’m trying not to dwell on not having made more effort to figure it out at the time, because if I had put that $500 in then, it would now be over $10M. 

Last Wednesday night I did my periodic check up of the company on a whim, which led to my discovery of a small community of penny stock enthusiasts going manic over a 1000+% rise in the company’s stock in the last few weeks. In July their largest debt holder, an investment group who believes in the product’s potential, agreed to pay off all their other debt and provide the funding for the Phase 2 trial. I don’t understand the details, but people on the internet seem to think this is a huge, game-changing development. There is a bankruptcy reorganization plan that is expected to be approved Sept 10.

I had several thousand in a Fidelity account that I was waiting to put into gold stocks if I decided that it was warranted, but decided to put it into BRTXQ immediately because it looked like the recent move are based on real, positive changes, and the stock price is climbing radically every day. Fidelity blocked my trade at $0.011, and told me it was because the company was delinquent with its SEC filings, and they consider it too risky for their clients. I scrambled to get funds settled in another brokerage, and the stock almost doubled before I could buy it, but I finally got my shares on Friday at $0.019.

I invested a few thousand $$, which I can stand to lose if this turns out to be hype, but I don’t think it is. I say this because of my first-hand knowledge that the product works and fills a major unmet medical need, which is why investors are stepping up to save the company. There is hype to be sure, including a few social media accounts I found that were set up in the last few weeks on reddit, Twitter, and ihub just to hype the stock, but I don’t think it’s the dominant element of what’s happening.

So while I’m in, I’m not sure I’m in enough. This may warrant a greater risk. If the company achieves its goal of getting relisted and returns to its pre-bankruptcy prices, I could make 100x. I see it as an opportunity to profit from the evil that was done to me.

But the fart remains that I am not an investor nor a financial analyst and just plain have no idea what the Hell I’m doing. I have only ever invested in a small number of things that I know about or believe in. I know nothing about how to judge the stock of a company coming out of bankruptcy. All I know is their stuff works, and will be approved if the trials proceed. I have much more in savings than I invested, but due to circumstances, can’t stand to lose too much if this doesn’t work out.

Here are the notes from my very amateur analysis (formatting copied and pasted, emphasis not mine):

 

To buy, or not to buy?

  • PRO/upside

    • May have tremendous upside

      • The product works

    • The recent recovery seems to be based on actual positive developments,

      • Biorestorative and Auctus have developed an bankruptcy reorganization plan.

        • Supposedly, they will eliminate the debt and fund the trial.

      • The company will be in a strong position.

  • Cons/Risks

    • The whole thing could be some kind of hype scam.

      • Multiple social media accounts set up just to hype it.

        • @WenChunChenn claims to be responsible for the summary posted by mammoth_package.

      • A bankruptcy pump is something that frequently occurs so debt holders can get the most money possible during settlement, so be careful here holding too long. On ihub they are flat out saying they are working on “spreading the word” on Reddit and social media, which is a bit of a “pump and dump” red flag to me. Looks like they have a shit ton of toxic debt and no feasible way to effectively pay it currently (hence the bankruptcy obviously).

        • Yeah but most bankruptcy cases dont have hedge funds bailing funding them out and fighting for them in court. Most bankruptcy plays dont involve biotech stem cell drugs with patents and FDA trials.

    • COULD crash again.

      • THE COURT COULD REJECT THE BANKRUPTCY REORGANIZATION PLAN.

      • The company could continue to have the same financial problems that led to bankruptcy: no investor interest and lots of DEBT. 

        • The trial could fail. 

        • Even if the trial succeeds, the product might not be financially viable due to the economics of regulation. 

    • I JUST DON’T KNOW WHAT I’M DOING.

 

  • QUESTIONS

    • Has its funding problem been solved?

      • Following the Effective Date, the Reorganized Debtor intends to become current with its securities filings, maintain itself as a publicly traded company and seek to become up-listed onto the NASDAQ stock exchange. The Reorganized Debtor will further seek to raise additional financing, pursuant to Section 5.2 of the Plan, to proceed with clinical trials for its ThermoStem™ Program and for BRTX-100 program. 

      • Yes. Autucus is paying off there 15 mil debt and has given them 3 mil to resume there FDA trails”

    • Why were they unable to obtain funding?

Facts

I would like to hear any thoughts you may have on this situation. 

Edited by happiness
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39 minutes ago, Ninth Doctor said:

Why go "all in"?  Throw some play money at it, no more.  If it goes up 100X, then you turn $1K into $100K.  Not bad at all.

He did write, "I have much more in savings than I invested." 

Common advice in cases like this is to not invest any more than you can afford to lose. 

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57 minutes ago, merjet said:

He did write, "I have much more in savings than I invested." 

Common advice in cases like this is to not invest any more than you can afford to lose. 

He (She?) also wrote "So while I’m in, I’m not sure I’m in enough. This may warrant a greater risk. If the company achieves its goal of getting relisted and returns to its pre-bankruptcy prices, I could make 100x."  The thread title asks about going "all-in".  That's what I was addressing.  Common advice, as you say. 

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  • 3 months later...

This is an embarrassment. It turned out to be a pump and dump. I got excited by the initial hype, solely because I knew of their product's medical legitimacy, but as the days went on I realized the narrative around the stock was totally irrational and got out. It's been an interesting episode to follow. I've been publicly predicting that the stock would crash for the three months, and it just did. I credit Objectivist epistemology for allowing me to spot he scam. 

Edited by happiness
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8 hours ago, happiness said:

This is an embarrassment. It turned out to be a pump and dump. I got excited by the initial hype, solely because I knew of their product's medical legitimacy, but as the days went on I realized the narrative around the stock was totally irrational and got out. It's been an interesting episode to follow. I've been publicly predicting that the stock would crash for the three months, and it just did. I credit Objectivist epistemology for allowing me to spot he scam. 

Here's a book recommendation:

https://www.audible.com/pd/What-I-Learned-Losing-a-Million-Dollars-Audiobook/B00NC8XVVC?qid=1608398808&sr=1-1&ref=a_search_c3_lProduct_1_1&pf_rd_p=83218cca-c308-412f-bfcf-90198b687a2f&pf_rd_r=4WECEZR851PZHMKRRJZY

The co-author is a big Rand fan.  Nassim Taleb highly recommends this book. 

Penny stocks are very volatile.  This one has had some wild swings.  You can make money but only if you have a sell discipline.  And not mind paying short term capital gains tax.

At year end people sell just to lock in losses to offset gains made elsewhere.  The price capitulation you're seeing now might be a buy signal.  This company is out of bankruptcy (hence the Q being removed from the ticker), and that's a really good sign.  But don't go "all in" on anything, even Amazon (which is my biggest holding). 

Full disclosure: I put this on my watch list back when you first posted about it.  I had a limit order that executed on 11/17, then I immediately put in a sell order that executed on 11/18.  Doubled my money in one day.  Mind you only about $2K, play money.  Turns out this coincided with the announcement that they'd emerged from bankruptcy. 

Now I see it's at .00635.   Glad I got out, but now I feel like I have house money to play with. 

BTW, I don't see what Objectivist Epistemology has to do with this.  This company seems to not be a scam at all, it's just very speculative.  If you follow investment discussion forums (I assume that's where you encountered hype around this stock) then you have to be mindful that everyone posting there has an agenda.  Some have Options such that they profit if the stock moves (up or down) within a certain timeframe.  They have no fiduciary duty to you.  They can lie with no consequences.  They're anonymous.  Trust no one. 

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7 hours ago, Ninth Doctor said:

Here's a book recommendation:

https://www.audible.com/pd/What-I-Learned-Losing-a-Million-Dollars-Audiobook/B00NC8XVVC?qid=1608398808&sr=1-1&ref=a_search_c3_lProduct_1_1&pf_rd_p=83218cca-c308-412f-bfcf-90198b687a2f&pf_rd_r=4WECEZR851PZHMKRRJZY

The co-author is a big Rand fan.  Nassim Taleb highly recommends this book. 

Penny stocks are very volatile.  This one has had some wild swings.  You can make money but only if you have a sell discipline.  And not mind paying short term capital gains tax.

At year end people sell just to lock in losses to offset gains made elsewhere.  The price capitulation you're seeing now might be a buy signal.  This company is out of bankruptcy (hence the Q being removed from the ticker), and that's a really good sign.  But don't go "all in" on anything, even Amazon (which is my biggest holding). 

Full disclosure: I put this on my watch list back when you first posted about it.  I had a limit order that executed on 11/17, then I immediately put in a sell order that executed on 11/18.  Doubled my money in one day.  Mind you only about $2K, play money.  Turns out this coincided with the announcement that they'd emerged from bankruptcy. 

Now I see it's at .00635.   Glad I got out, but now I feel like I have house money to play with. 

BTW, I don't see what Objectivist Epistemology has to do with this.  This company seems to not be a scam at all, it's just very speculative.  If you follow investment discussion forums (I assume that's where you encountered hype around this stock) then you have to be mindful that everyone posting there has an agenda.  Some have Options such that they profit if the stock moves (up or down) within a certain timeframe.  They have no fiduciary duty to you.  They can lie with no consequences.  They're anonymous.  Trust no one. 

In August, social media accounts appeared out of nowhere to promote the stock, and essentially spun the narrative that all that had to happen for the share price to return to its previous multi-dollar values was for the company to get out of bankruptcy. These voices neglected to mention that the share structure has been massively diluted in the year leading up to bankruptcy, and that the company failed because they were unable to raise investor funding for their Phase 2 clinical trial in three years from 2017-2020. Based on that misleading hype, the share price increased radically in August, and settled at between 0.01 - 0.04 in early September. 

From there, the pumpers relentlessly hyped key events along the the timeline to their emergence from bankruptcy as "catalysts," when in reality everyone already knew the court would approve the reorganization plan, and the high likelihood of these events was already baked into the then-existing trading channel. People could not grasp that something isn't a catalyst if everyone already knows it's going to happen, and some truly thought they would become millionaires just because the "Q" came off. These things came and went and the share price did nothing apart from convulse a bit for a matter of days before crashing again.

The whole bankruptcy episode was just a spectacle to distract people from the company's fundamental issues. The only thing that matters to this stock is whether the company can fund its Phase 2 trial. Neither the company nor the pumpers have ever given a reason why this likelihood is any higher now than it was 2017-2020, so thinking they can do so is nothing more than an act of blind faith on the part of the stock's fans. They are all hapless retail investors who know nothing about the product or industry and can't fathom how econo-regulatory complications (the cost of FDA approval) destroys life-changing technologies.

As it turns out, in the final version of the reorganization plan, the authorized shares was increased from 2B to 300B, and the toxic creditor who "rescued" them in bankruptcy, Auctus Fund, got warrants to buy billions of dilutive shares for 0.001 and 0.0005. Based on that incentive, I can't prove, but speculate, that Auctus itself was responsible for driving the misinformation and hype online to pump up the share price so they can exercise those warrants. Thanks to the impracticality of FDA regulations, this company with a vital technology in its hands has degenerated into a pump and dilute scam by shady toxic penny stock financiers. 

 

 

Edited by happiness
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It was between .031 and .033 back in late August when you first posted about it.  Now it's about one fifth that price.  Hope you didn't lose too much on it.  

In bankruptcy the common shares are typically wiped out, so it's no surprise that the new investors are getting compensated via share dilution.  The debtors had to be paid too.  Authorized isn't the same thing as issued, BTW.  

I'm putting in a limit order a bit below the current price with the after tax amount I pocketed in November.  I did really well with this one, at least in terms of IRR. 

On 8/30/2020 at 10:41 AM, Ninth Doctor said:

Personally, I've never gotten a penny stock tip that turned into anything but a loss.

And I believe in self-fulfilling prophecies.

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Thanks for bumping this thread.

On 12/20/2020 at 10:37 AM, Ninth Doctor said:

I'm putting in a limit order a bit below the current price with the after tax amount I pocketed in November.  I did really well with this one, at least in terms of IRR.

I put in for 300,000 shares at .0052, which executed on Monday.  So last night I put in to sell once it hit .0102.  That happened today.  I (nearly) doubled my money in one day...again! 

BTW I've made my share of investing blunders.  No genius here.  This was luck. 

By way of payback, a tip: look at EQD.U.  It's an SPAC associated with Sam Zell.  They haven't announced what they're acquiring, so the stock has been in bed.  3 months, no movement.  Sam Zell is a legend in distressed real estate, and COVID lockdowns ought to turn out well for that strategy.  I know a lot more about real estate than the value of back pain therapy patents.

 

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On 12/20/2020 at 10:37 AM, Ninth Doctor said:

I did really well with this one, at least in terms of IRR. 

While the numerical value of an IRR calculation is true, it may be unrealistic for a short holding period. Suppose an investment returns 10% in ten days. Then the IRR is:

1.10^(250/10)-1 = 9.83470594338839 = 983.47%  or

1.10^(365/10)-1 = 31.421492863532 = 3142.00%

I used 250 in the first calculation because there are only 250 trading days per year.

Suppose an investment returns 20% in ten days. Then the IRR is:

1.20^(250/10)-1 = 94.3962166440689 = 9439.62%  or

1.20^(365/10)-1 = 775.453551462582 = 77545.36%

It’s easy to see that IRRs get more spectacular as the return rate is even higher (or way negative if the return rate is < 0) or for fewer than 10 days.

Thus professional investment people usually look at the simple return rather than IRR for a holding period of less than one year. On the flip side, IRR is the standard for a holding period of one year or many years, and the simple return is abandoned.

 

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