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Amorfix: Tiny Biotech With Insider Buying

|Includes: Promis Neurosciences Inc (ARFXF)

Amorfix (TSX:AMF, ARFXF.PK) is a tiny Canadian biotech company with a market cap of about $20 million. It has essentially zero cash and has lately been selling stock in dribs and drabs to stay afloat.
So why am I interested in Amorfix and in fact own shares in the company?
Although there's no doubt that Amorfix is a very high risk bet, I think the potential reward makes it worth taking on that risk with a limited investment. Here's why:
Dr. Neil Cashman, a co-founder of Amorfix, is a major shareholder and is its current Chief Scientific Officer. Dr. Cashman is one of the leading researchers in the exciting field of protein misfolding, which has recently caught the attention of biotech investors. In fact, a much larger company involved in protein misfolding research, Prothena (NASDAQ:PRTA), has a market cap of about $330 million and over $100 million in cash. And, unlike Amorfix's stock performance, Prothena's stock has done exceptionally well this year. PRTA closed near its 2013 high on Friday, 8/23/13, at $18.76, for a YTD gain of over 150%.
Prothena has been a hot stock because of the prospect protein misfolding research has to yield significant advances in the treatment of neurodegenerative diseases such as ALS, Alzheimer's and Parkinson's. Plus, according to some recent findings, misfolded proteins may even be linked to cancer. But, likely because of its struggle to stay solvent, none of that enthusiasm has rubbed off on Amorfix.
However, there is a connection between Amorfix and Prothena. Dr. Cashman is on Prothena's Scientific Advisory board and they are well aware of his expertise in protein misfolding and the IP he and Amorfix hold. So, in my view, the best scenario for both companies is for Prothena to acquire Amorfix. And, if so, I expect the buyout price will be at a substantial premium to Amorfix's current share price of about $.30.
The risk, of course, is that Prothena will simply let Amorfix go bankrupt and pick up the pieces at next to nothing. But I believe it unlikely a major Amorfix shareholder will let it go bankrupt or agree to a sale of the company at a heavily discounted price. That deep pocketed shareholder, Hans Black's hedge fund, Interinvest, holds over 10 million Amorfix shares (about 17% of the company) and continues to regularly buy additional shares as can be seen here:
canadianinsider.com/node/7?menu_tickersearch=amf
For more info on Amorfix and Prothena, be sure to check out their websites here:
amorfix.com/
prothena.com/
Finally, I should again emphasize, an investment in Amorfix is a very high risk gamble. So, if you're willing to take that risk don't bet more than you can afford to lose. That certainly was my consideration in making my personal Amorfix bet.
Good luck!

Disclosure: I am long OTCQB:ARFXF.