Why We've Left Our Truck Backed Up For Chimerix

| About: Chimerix Inc (CMRX)


Management's attempts at communicating research findings have miserably failed.

Active major-firm analysts (save one) have failed to understand the CMRX story.

The reasons to be bullish on Chimerix's future are sundry.

This Seeking Alpha article was written to update the reasoning my wife (Aida) and I set forth in our first Seeking Alpha article, which was published on January 28, 2016.

Aida and I have found that, with investing (but not necessarily life), it's usually best to start a journey only after careful, objective, and extensive study of the likely paths ahead. Looking back, it is now apparent that our investment in Chimerix (NASDAQ:CMRX), while soundly reasoned and researched, was expensively premature. For obvious reasons, we'd like to have instead caught on the February 23, 2016, falling knife that was Chimerix's stock. But that didn't happen because we failed to anticipate that Management would so poorly communicate the corporation's research findings that the investing public and a handful of major-firm analysts actively following the stock (save one or two) would be left befuddled (More on that unfortunate reality below).

At the onset, though, one fact is crucial to understand: nothing material and entirely adverse to Chimerix has been disclosed by the corporation since its December 28, 2015, news release. Nothing. And yet, the stock price tanked precipitously in the hours and days following the corporation's February 20, 2016, presentation, and February 22, 2016, conference call (the audio and slides for which are archived at Chimerix's website).

Given the unchanged fundamentals concerning Chimerix and its pipeline, my wife and I remain confident in the corporation's future - and, quite frankly, will be looking to add to our position, perhaps substantially, in the coming weeks and months. We're happy to further detail some of our present thoughts and reflections, and do so below.

1. Management's attempt at communications failed in the February 22 call for the same reason so many other great researchers stumble badly when interacting with those of us who live a life primarily outside the laboratory: it regurgitated the corporation's BMT Tandem presentation as though the general investment community is as well-equipped to understand those slides as the research physicians at BMT. To borrow a Buffett simile, it's as though Management placed a "ROCK CONCERT TONIGHT!" sign in front of an opera house and is now disappointed that the audience didn't appreciate the opera's libretto. Even more frustrating, though, most of the major-firm analysts actively rating Chimerix don't seem to understand the corporation's underlying data and disclosures. Perhaps those folks have too much on their respective plates to set aside the time necessary to truly understand the findings? Perhaps a lack of medical school education and/or scientific research background leaves them ill-prepared to understand those findings? Regardless of the reason(s), it's our view that investors have really been done a disservice by those analysts' collective failure to dive into the data sets and better understand them.

The one analyst who has his brain fully around Chimerix's pipeline and trial results is Piper Jaffray's Joshua Schimmer. Namely, he writes:

"With multiple viable paths forward for the product, including smallpox and adenovirus indications and an intravenous (IV) formulation, our confidence in Brinci's outlook has actually increased. ... At the current valuation, the IV formulation alone supports upside in shares in our opinion since it creates a strong backdrop should, for some reason, the company not succeed in gaining approval for the smallpox/adenovirus indications (which, combined, we estimate can generate $150 million to $200 million per year in revenue."

In other words, Dr. Schimmer has quite courageously broken from the cacophony of his colleagues to repeatedly reaffirm his positive view of Chimerix's future (It is worth noting that Dr. Schimmer formerly worked as an internal medicine doctor and is now a senior stock analyst with many years of experience deciphering the medical and scientific jargon too often tossed out by junior biopharma companies). A small batch of kudos also goes to Jessica Fye at J.P. Morgan for seemingly understanding the underlying data - but, to our frustration, choosing to focus more on the "challenging path forward for the asset" than the data. Lastly, credit is also due to Jake King at Forbes and Randy Osborne at the BioWorld Blog for also making sense of the presentation. They're quite obviously both fine financial journalists.

All of that being said, let's not lose sight of the fact that Management is really the most to blame. The February 22 call was structured about as poorly as possible. Management appeared to be rushed, exhausted, and, quite frankly, it sounded a bit defeated. The presentation slides were, it seems, out of order in places, and contained some poorly structured sentences. Most damning, though, the presentation (both the call and the slides) lacked the most basic of all needs - a current, cogent breakdown of the pros and cons of the research findings; an itemization of the "key takeaways"; and the publication of concrete milestones with ascribed timelines. Those failures, while alarming and inexcusable, are unfortunately not uncommon in the biopharma space. My wife and I hope that Management will, moving forward, engage someone to help digest and reconstitute into lay terms the data points and findings it has to date just regurgitated in scientific-ese.

Further, use of the needlessly aggressive forward-looking statements in the recent news releases, and the oral disclosure thereof at the conference calls' onset, is a recipe for the stock price disaster of the past few months. Almost as bad is Management's decision to bury amidst the corporation's most recent earnings release the positive clinical trials information more than deserving of a dedicated release. These sorts of "business of the business" missteps are not acceptable. We hope (and, frankly, expect) that Management will, moving forward, proceed in a more informed and measured manner.

2. As of the end of Q4 2015, the corporation had on hand $342.9M of available capital. That's $7.42 per share. Given Chimerix's pipeline outlook, and the corporation's now substantially lessened burn rate because of the discontinuation of the P3 trials, that seems to us to scream "Buy me, dummy!" How could Chimerix not be seen as an ideal target given that it could be outright purchased for substantially less than $0 - and has no debt on its books? Granted, the corporation's poison pill provisions would make an unfriendly acquisition a bit more challenging than would be the case in a friendly takeover, but Lord knows such an expression of interest would bring new eyeballs and positive sentiment to a corporation in need of both.

3. We've discussed in the "author replies" to our original article quite a few of the actual takeaways that we believe should be drawn from the previously disclosed data. Accordingly, we won't restate those thoughts here. Some bullet points are probably helpful, though. So, here goes:

  • Brinci has been shown to have "a clear antiviral effect" in the prevention of CMV reactivation in those patients at highest risk of that happening.
  • The administration of Brinci via IV will likely address many of the GI instances that occur when it is orally dosed to patients still admitted for the transplant procedure and immediate, in-patient aftercare.
  • Much more is now known about early dosing of oral Brinci. That data will no doubt prove helpful.
  • AdVise trial results are due in just a couple of months. Accordingly, we'll soon know even more about Brinci's effectiveness against adenovirus - which has become the corporation's focused first-to-market application. For now, the path forward is as follows (direct from Chimerix's President and CEO): "With the observation of a day 90 mortality of less than 40 percent in the approximately 100 patients with disseminated adenovirus disease in the AdVise study, and the anticipated spring readout of the historic controlled data, we strongly believe that there is a near-term path forward for this antiviral, and are well-capitalized to conduct any additional confirmatory study required for an adenovirus treatment submission."
  • Brinci has been shown in animal studies to be effective as a smallpox-equivalent treatment.
  • The planned P2 trial for Brinci's effectiveness against, among other things, the BK virus, in kidney transplant populations, is, in our view, a wise expenditure of resources and time - as Brinci may very well help prevent BK viremia in at least some of those patients.
  • We believe the SUPPRESS trial end-point failure was largely driven by clinicians' failure to follow the SMMP, a belief supported by the accumulated data. In yet another communication failure, though, Management failed in the February 22 call to breakout in any detail the data for those clinicians that DID follow the SMMP (more on this below). That data would, of course, be extremely helpful to the investment community. It may also be that breakout data regarding site-specific GVHD prevention techniques, which include, depending upon the medical center, T-cell deletion, cyclosporine, methotrexate, and even antibody use, may give a clear indication that Brinci works best (or better) with one than the other(s). That information needs to be segregated, analyzed, and understood. Not only just by Chimerix, but also by its shareholders. We hope and trust that such data will be released in the coming month or two. For now, though, we do have this concise synopsis from Chimerix's CMO: "Number one, brincidofovir's antiviral activity was clearly demonstrated as measured by the significantly lower rate of detectable CMV in the blood compared to placebo throughout the 24 weeks of study. Number two, the failure to meet the primary endpoint was driven by the use of high dose corticosteroids in the setting of presumed graft-versus-host disease. Number three, we're continuing to evaluate the subsets of high risk patients who had better outcomes in order to inform future development options. And number four, we have confirmed many of the key attributes of Brinci in this (the SUPPRESS) study, including its high barrier to resistance and its lack of bone marrow or kidney toxicity - attributes that distinguish it from currently available options."
  • We believe (nay, hope) that Management has learned from the missteps of the past months, and, moving forward, will communicate more clearly. Even though it was nonsensically buried in the February 29 earnings-related news release, the following information was set forth in a relatively cogent, comprehensible manner (so kudos for that): "As we presented at the BMT Tandem meetings, analyses of the SUPPRESS data have confirmed the antiviral effect of brincidofovir for preventing CMV infections in HCT recipients during the on-treatment period. We also saw improved outcomes for patients who were managed according to the safety monitoring and management plan with dose interruption for gastrointestinal side effects. The positive outcomes in certain subsets of high-risk patients are helping us better understand how the timing of initiation of brincidofovir in the post-transplant period and management of GVHD risk need to be addressed in future clinical studies. ... With this data in-hand, we look forward to discussions with the FDA as we consider our clinical paths forward. ... We expect to provide a broad clinical update during the second half of 2016 for the development plans for each of our potential indications."
  • We believe that 2016 or 2017 Fast Track approval of Brinci for one or more applications is likely (and yet, it appears the irascible Mr. Market has priced that likelihood at less than zero). Additionally, given the substantial safety and efficacy data on hand, relatively broad off-label prescription use remains, in our view, quite likely in the near future. Here's a great summary from Chimerix's CMO (taken from the February 29 call): "We are evaluating our options for the development of both oral and intravenous brincidofovir for the prevention and treatment of CMV in stem cell transplant recipients. The development of an IV formulation of brincidofovir is progressing towards clinical testing for the first time in human study (slated to begin in the second half of 2016). It's important to note that we expect the development timelines for the IV formulation will be significantly shortened based on the extensive body of data from the oral molecule. ... (T)he IV formulation could be incorporated into late stage studies in patients as soon as 2017." Note that, as my wife I long ago predicted, the IV formulation is being contemplated for use primarily during the patient admission period - with oral dosing to follow thereafter (once GI issues in the patients are better under control). More succinctly, Chimerix's CMO said in the February 29 call: "Intravenous brincidofovir could potentially provide a means of preventing CMV and other DNA viral reactions in the first weeks post-transplant, with the opportunity to step down to oral brincidofovir at the time of hospital discharge."
  • Management is acting prudently in downsizing the corporation's workforce to right-size for Chimerix's post-P3 life of the near future. This will also materially help the corporation's burn rate; and it can always up-staff when and as needed. The most recent related summary (from Chimerix's CFO) is as follows: "We remain well-capitalized with $343 million on hand at the end of 2015, and plan to use this financial strength to efficiently fund the development of brincidofovir and our other pipeline programs based upon a careful portfolio analysis and discussion with regulatory leaders in the months ahead."
  • At its most basic, we view the SUPPRESS trial's failures as likely being mostly driven by inadequate job performance at the trial administrator level. Clinician turnover without re-education as to the SMMP was almost certainly the major error that caused the primary endpoint failure. Moving forward, Management has promised to do a better job of continuous clinician education. We realize that's an insignificant consolation to those investors who lost a fortune due to that most basic lack of follow through. But an acknowledgement of the error is a start, and a promise from Management that it will never happen again is about the best we can reasonable expect (and ask for) at this time.
  • We believe the unmet need that could be largely addressed through Brinci is far more expansive than is currently thought by analysts - as DS viruses of all sorts tend to plague the various transplant communities. It seems the corporation agrees with this assessment by my wife and I, as Chimerix's CCO recently announced that the corporation is planning to better educate the clinician and scientific community on the vast need for Brinci. More specifically, Mrs. Richardson said: "We are planning a series of abstract posters and publications. In fact, we will be sharing new data starting with the upcoming European BMT Tandem meeting in April that will begin to highlight the healthcare burden associated with treating pediatric allogeneic stem cell transplant patients, including hospitalizations and co-infections. This will complement our previous educational initiatives regarding increasing [the] awareness of the cost and impact of CMV and DNA viral infections." A collateral, ROI benefit of those educational efforts will, of course, be an increase in accurate diagnosis rates and greater Chimerix's pricing power.
  • We believe Chimerix's compound and chemical library carries significant and broad efficacy. It may be, in fact, that one such compound, CMX669, which has a substantially different profile than Brinci, is a game changer for one or more of the target, troublesome viruses, like, for instance, norovirus. In other words, as great as we believe Brinci is, Chimerix is more than just any one compound. In that regard, CMRX's CMO recently said, in response to a question: "CMX669 does have a different profile than Brinci ... and does have very potent efficacy in vitro against CMV and the BK virus. The dosing of 669 is likely to be more frequent than Brinci, and because of that, it may be a better antiviral to begin in the context of active CMV infection because you can get a study state much more quickly with a drug that has a shorter half life. We've not seen evidence of GI side effects in our preclinical models [for CMX669], and, as you are aware, the pre-clinical studies for oral Brinci did give us an indication of the likely GI side effects that we have seen [with oral Brinci]."

There are other reasons that we find Chimerix's stock extremely attractive at its present levels - like, for instance, the fact that the corporation's law firm and securities counsel (Cooley LLP) is downright outstanding, its accounting firm (Ernst & Young LLP) top-notch, and Management is well educated, significantly experienced, and equity motivated (as opposed to just salary compensated). But many of those factors are largely intangible - and we therefore don't ascribe any demonstrable weight to it. But, in our experience, it does bode well for the corporation's overall success.

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.

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