Why We Backed Up Our Truck For Chimerix

| About: Chimerix Inc (CMRX)


Major purchases have taken place recently.

The corporation's available capital exceeds its market cap.

Brincidofovir likely has a broad applicability far in excess of CMV infections, with various studies well underway.

Originally published Jan. 28, 2016; updated thereafter, primarily as and where noted.

This is a first SeekingAlpha post for my wife and me. We'll keep it concise, as we each have a hard time digesting the rambling posts of others (and expect you might have that issue, as well).

Here are the reasons we bought into Chimerix (Nasdaq: CMRX) at an average acquisition price of about eight bucks per share. The presented reasons are set forth in no particular order.

1. On December 30, 2015, Steve Cohen and his Point72 collectives disclosed their purchase of 2,454,943 of Chimerix's 46.1 million shares (a 5.3% position). It is unclear whether those purchases were before, after, or before and after the corporation's December 28 market valuation meltdown; but, given Cohen's stellar ROI history, we're (admittedly) speculating his buy-in occurred during that December 28 sell off. And, based upon a lack of filed disclosure, it does not appear at this time that Cohen's position has been reduced - let alone liquidated.

Update: Cohen and his cohorts appear to have held the bulk of their position for only the last three days of 2015 - as their holdings were reduced to an aggregate of less than 1% of the corporation's outstanding stock by the end of the year. However, UBS beneficially held a 7.42% position (3,425,999 shares) at year-end;* and the Fidelity parent company beneficially held a whopping 14.999% stake (6,921,915 shares) at the end of 2015.

*Interestingly, perhaps, UBS' Schedule 13G filing expressly notes that its disclosed 7.42% position "does not reflect securities, if any, beneficially owned by any other division of UBS Group AG". This disclaimer may be innocuous; or it could indicate that additional CMRX shares are held under the UBS umbrella. We're not sure which is the situation here.

Additionally, we know that, as of December 31, 2015, T. Rowe Price beneficially held 160,198 CMRX shares, while Vanguard maintained a 6.25% stake (2,789,909 shares) in Chimerix on that date.

2. On January 7, 2016, Bob Mignone's Bridger Management disclosed its purchase of 2,967,186 shares (a 6.4% position). No disclosures have yet been filed to indicate that any of those shares have been sold.

Update: Just an hour or two after originally posting this, BlackRock, Inc. disclosed that, during 2015, it, through its affiliates and subsidiaries, purchased more shares -- for a total of 2,985,780 shares of Chimerix stock. We say "during 2015" because the disclosure appears to have been filed under Rule 13d-1(b), which seems to require that disclosure be made upon the ownership of 10% position in a given month OR, within 45 days after the end of a calendar year, the disclosure of any position of 5% or greater. Given that BlackRock doesn't own a 10% position, it seems to follow that its shares were purchased during 2015.

3. At the times we bought in, Chimerix's market value was about $370,000,000. That's less than the corporation's on-hand, available capital; and the corporation has very little debt, almost none of which is due in the short term. With an annual burn of about $100,000,000, that'd leave more than $6 per share in available capital at the end of this year (and that's assuming this year's burn rate doesn't diminish as a result of the failed SUPRESS trial discussed below, as would seem likely).

4. We believe the unnecessarily curt December 28 SUPRESS trial 8-K and resulting, obtuse press release have largely been misunderstood and Chicken Little'd by the dozen or so analysts assigned to cover Chimerix. Regardless, though, we investors just don't yet know enough to extrapolate to any supportable, long term conclusions. The corporation has disclosed that a broad analysis of all available SUPRESS trial data is being conducted, and that the results of that in-depth analysis will be presented on February 20, 2016. Accordingly, we're only a few weeks away from knowing a lot more as to why the initial results of the Phase 3 trial were not as anticipated from the promise shown in the Phase 2 trial (the results from which, it's interesting to note, were so well received that they were published in the September 26, 2013 edition of the gold-standard for clinical research, the New England Journal of Medicine). Based upon my research to date, we are confident that the forthcoming explanations will be positive -- and that we would have paid a significant premium to our $8 per share buy-in if we'd have waited for the results of that analysis to be presented.

5. Brincidofovir ("Brinci", for short) is a compound meant to fight a broad spectrum of viruses, and it is the corporation's main drug focus. In fact, Brinci is so sought after that Chimerix' last CEO received death threats for not immediately capitulating to media-driven pressure to open a compassionate use study for Josh Hardy, a little boy who was then on the verge of death from the adenovirus. Josh eventually got the Brinci treatment, and, it seems, is alive and well today.

At worst, it seems that there exists an extraordinary Brinci curiosity from within the affected patient populations and their loved ones. At best, there's a huge unmet need for the curative effects Brinci has to offer. The initial, approved market for Brinci under the SUPRESS trial alone would likely include 105,000 hematopoietic cell transplants and/or solid organ recipients in the US and EU alone.

6. Brinci's known side effects are minimal (principally, it seems, moderate lower gastrointestinal distress), and are, in any event, far less significant than those of Brinci's father drug and main competition, Gilead's cidofovir, the dosage of which is limited by the resulting kidney toxicity. (Brinci was created by, among other things, attaching lipids (a/k/a fatty acids) to the cidofovir compound.) Additionally, Brinci, unlike cidofovir, can be administered orally, allowing for easier administration, transport, and storage. (Intravenous administration is also being evaluated, though, as an alternate option.) Brinci's non-toxicity to the kidneys is likely due to the lipids formulation; however, this is still under investigation. Why Brinci is not toxic to other cells in the body (given that it targets DNA synthethis) is also not understood. Accordingly, those questions need to be closely examined and, hopefully, soon answered - as, among other things, those answers may offer up uses for presently unknown sibling compounds. In July 2012, Chimerix licensed to Merck (NYSE:MRK) one such sibling compound, CMX157, an HIV antiviral conjugate of Brinci (meaning, the two compounds share some electrons and are separated by only a single bond). In return, Chimerix received $17,500,000 up front, with $151,000,000 promised in license fees during the term. Unfortunately, Merck ultimately abandoned the CMX157 sibling compound, and all rights to it reverted back to Chimerix (which apparently at this time does not have the intent to further develop the compound).

7. Brinci has been shown to have broad efficacy, and potential use approvals are varied. It is, for instance, already the subject of an open-label trial ("open-label" traditionally indicating a control-free trial; but in this case, the trial had historical controls, and was therefore a full Phase 3) for the adenovirus (which is what little Josh Hardy had when he was administered Brinci). That study is referred to by the corporation as its "AdVise" trial. There is no other known treatment for the life-threatening adenovirus, so the potential impact of Brinci in that treatment sphere is significant. That being said, the open-label trial results will not, no matter how stellar, by themselves result in Brinci's immediate approval as the first adenovirus treatment. More data will need to be collected, all in continued concert with regulators, and likely as a result of a single or double blind trial.

UPDATE: On February 20, 2016, the corporation revealed that it expects to receive the AdVise trial results within the next few months.

8. Chimerix suspended new patient enrollment in its SUSTAIN and SURPASS trials (intended to test the usefulness of Brinci for certain at-risk kidney transplant patients, studies which are being conducted independent of the SUPPRESS trial), but not the trials themselves - which remain ongoing for all patients already on the regimen. Accordingly, data is still being collected, and will be available and telling. However, without resumption of the SUSTAIN and SURPASS trials, that extrapolated data will perhaps concern too small of a patient sample set to be sufficient for regulatory approval.

UPDATE: On February 20, 2016, the corporation revealed that it has closed the SUSTAIN and SURPASS trials based, at least in part, upon the results of the SUPPRESS trial.

9. Brinci has been evaluated in an animal study for its effectiveness against smallpox. The Biomedical Advanced Research and Development Authority is largely funding the project, as weaponized smallpox remains a threat almost 40 years after it was "officially" eradicated. As a result of that study's findings, one or more significant orders for Brinci might be received in the coming months from the Defense Advanced Research Projects Agency. In fact, the corporation has disclosed that orders from DARPA for as many as 1.7 million doses were contemplated for our country's bioterrorism defense medication stockpile - but that an order was not placed last fall (2015) because a budget for the federal government had then been adopted.

Update: The corporation has reported positive results from the animal study.

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. I have no business relationship with any company whose stock is mentioned in this article.