Chimerix, Inc (NASDAQ:CMRX), a biopharmaceutical firm, is rapidly approaching the end of the 180 day lockup period following its April 11 IPO. On October 8, a substantial number of shares held by private equity firms, directors, and executives will be unlocked and become available for sale, likely leading to at least a decline in the price of CMRX stock and presenting a shorting opportunity.
PRIVATE EQUITY UNLOCKING
3,720,737 shares of CMRX common stock will be unlocked for sale on October 8. There are currently approximately six million unrestricted shares, so this will represent a massive increase of available shares. Venture capital firms, which own huge portions of Chimerix, continue to experience pressure to return capital to their investors, and could sell significant portions of their stakes in the interest of raising capital. These firms include Sanderling Venture Partners V, a 19% owner of the firm; Canaan VII LP, a 13.9% owner of the firm; New Leaf Ventures II LP, a 14.4% owner of the firm; and A.M. Pappas Life Science Ventures IV LP, a 5.4% owner of the firm. Shares held by the executives and directors of the firm will also be unlocked; though they are not under similar pressure to raise capital, many may choose to sell in the interest of diversification, especially given the innate instability of pharmaceutical firms. This all spells a sudden increase in the supply of CMRX stock, and a possible corresponding decrease in price.
Chimerix is a biopharmaceutical firm that pursues the discovery, development, and sale of oral antiviral therapeutics in areas of under-addressed medical need. The firm's proprietary lipid technology has led to a pair of clinical stage compound, labeled CMX001 and CMX157. CMX001 is currently under development to help prevent cytomegalovirus infections in some stem cell transplant patients; eventually, Chimerix hopes to develop CMX001 as the first broad-spectrum antiviral against double-stranded DNA viruses. Chimerix holds worldwide rights to CMX001, which is set to begin phase three clinical trials in 2013, meaning that the treatment is at the point of final confirmation of safety and efficacy.
CMX157, which is being developed as a potential treatment for HIV, is far earlier in its development, and is currently in stage one clinical trials, meaning that it is still being screened for safety and has not yet been fully tested for efficacy. Even if Chimerix were to successfully develop CMX157, it is licensed to Merck & Co. (NYSE:MRK).
There is an exceptional degree of risk inherent in an investment in any pharmaceutical company, since their ability to turn a profit will always hinge on the successful development of new drugs. Even if a pharmaceutical firm manages to make a breakthrough discovery, it may never produce a drug that makes its way through the clinical trial process and gains federal approval. There is no guarantee that the resulting drug will be successful or profitable, as with any other product. Moreover, pharmaceuticals are an extremely competitive industry, and if another firm manages to produce a more effective treatment or simply beats Chimerix to a similar treatment, it could easily see little or no revenues out of products that it has taken years to develop. Immediate competitors to CMX001 include Merck & Co. , Viropharma (VPHM), and Vical (NASDAQ:VICL). That said, there is always the chance of a wonder drug propelling the firm's revenues through the proverbial roof - though CMRX has yet to get any drugs to market.
On a financial level, Chimerix is a shaky proposition. The firm has posted net losses every year since its inception; in fiscal 2010, 2011, and 2012, the firm posted net losses of $25.5 million, $25.6 million and $4.4 million, respectively.
Chimerix's President and CEO is Kenneth I. Moch, a highly experienced biomedical executive. Mr. Moch previously served as the President and CEO of Biomedical Enterprises and Alteon. He also founded Euclidean Life Science Advisers and serves as its President. CFO and Senior Vice President Timothy Trost is also quite experienced, having previously served in the same capacity for Argos Therapeutics, Inc., Intecardia, and Coastal Physician Group Inc.
Disclosure: I am short CMRX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article was written for informational purposes and partly based on the company's S-1. Investors should read the S-1 and consult with their financial adviser before making any investment decisions.