Trading Near Cash, Chimerix Has Some Upside

| About: Chimerix Inc (CMRX)

Summary

CMRX fell 80% last month on failed P3 SUPPRESS Topline Data for Brincidofovir.

A postmortem of the failed trial will be presented on 2/20/2016.

Details that suggest that Brincidofovir is salvageable could boost Chimerix's stock 25-40% from here.

Background on Chimerix (CMRX): Chimerix's lead drug, Brincidofovir or BCV, is the first broad-spectrum antiviral for double-stranded DNA (dsDNA) viral infections. BCV is a Phase 3 candidate being tested in two main indications: hematopoietic stem cells transplantation (HSCT) and solid organ transplantation (SOT). No drugs are approved for prevention of CMV in HSCT recipients.

Chimerix plunged about 80% on December 28th 2015, when news broke that their P3 SUPPRESS Trial for their lead drug candidate, Brincidofovir, failed. The trial for the indication of stopping Cytomegalovirus Virus (CMV) infections during hematopoietic stem cells transplantation (HSCT) not only failed to show a benefit but also showed a non statistically significant increase in mortality. The company attributed the failure to a higher than expected number of patients begin treated for GVHD with steroids (which boosts viral infection to a level that CMRX's drug couldn't control). BCV's on-going P3's in SOT were paused as a result of this disappointing data. Hence, nearly the entire value of CMRX rests on the details that will be disclosed at TANDEM on February 20th.

All might not be lost, however. At JP Morgan's Healthcare Conference the CEO floated the idea that doctors were administering steroids too loosely due to a high incidence of diarrhea (a side effect of the drug). If enough evidence is presented at the February meeting that supports the thesis that protocol error on the part of administering physicians was responsible for the P3 failure, it is possible that this drug could work as is or in another format (the CEO mentioned injectable administration as a possibility).

I am not suggesting that this stock is going back to $35 tomorrow, but that there may still be a place for Brincidofovir. No drugs are approved for prevention of CMV in HSCT recipients, due to the high threshold for safety and tolerability. But acute CMV infection drugs exist and compared with these drugs, CMRX's BCV appears to have advantages. Standard of care drugs Cidofovir and Valcyte (Roche) have kidney and bone marrow toxicity respectively, which limit their use in kidney and HSC transplants. Merck's (NYSE:MRK) letermovir, a P3 asset in the CMV prophy indication, is currently the sole competition. MRK's drug appears less efficacious and a higher pill-burden (1x day vs 2x week for BCV), though it does have lesser side-effects (neutropenia of 7% vs 23%). P3 data for MRK's Letermovir is coming in Q2 2017.

VALUATION: The discounted cashflow anaylsis, which I present in a table below, may be useful for investors to consider in understanding the various drivers of upside for Chimerix. I model that CMRX can sell roughly 300mm in the HSCT indication and >600mm in solid-organ transplant indication. Brincidofovir has IP in the US out to 2034 (and 2025 in EU). HSCT being the nearest at hand, I think the value of the stock would jump to 9-12 on highly positive news that diarrhea and not GVHD incidence hamstrung the trial. The company has stated that even if the HSCT indication is beyond salvage, the P3's for SOT kidney, which are now paused, could redeem the company, and the valuation for these indications are also listed. Though, to be fair, CMRX does not appear to have presented enough data to suggest that the SOT indication is going to work yet.

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Given the uncertainty, I've decided to apply a 20-25% discount which gets me pretty close to the 9-12 price, but I would acknowledge that those who want to get more of a "sellside" feel can apply 10% and get a $20 stock. The company has roughly 378mm of cash on hand and is burning about 100mm per year in operating cashflow, which amounts to a cash per share by YE 2016 of $6.

CONCLUSION: With shares trading near cash, CMRX seems to have interesting upside as an equity investment. Frustratingly the options calendar does not complement the data release. February options expire on the 19th a day before Chimerix's meeting date. May 2016 options seem less interesting at this moment given the cost of theta. By process of elimination buying CMRX shares appears to be the best strategy at the present time, and based on my DCF I think there is about 25-40% upside.

Disclosure: I am/we are long 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.