Rubric Capital Management Sends Letter to Chimerix Board of Directors

Rhea-AI Summary

Rubric Capital Management, owning about 8.5% of Chimerix (CMRX), has expressed concerns regarding the company's strategy and calls for a winddown process. The investment advisor highlights a significant discount of the share price to its liquidation value and urges management to conserve cash while exploring strategic alternatives for ONC201. They estimate a liquidation value of $2.95 to $4.36 per share, implying a potential return of 52% to 125% based on recent prices. Rubric emphasizes the urgent need for cost reduction and a change in direction to protect shareholder value.

Positive

• Potential liquidation value estimated between $2.95 and $4.36 per share, signaling possible returns of 52% to 125%.

Negative

• Current burn rate is high at approximately $20 million per quarter, indicating unsustainable spending with no ongoing clinical trials.
• Management's commitment to developing ONC201 internally may risk shareholder capital with high costs.

Calls for Company to Commence Winddown Process and Seek Strategic Alternatives for ONC201

NEW YORK--(BUSINESS WIRE)-- Rubric Capital Management LP (“Rubric”), an investment adviser whose managed funds and accounts collectively own approximately 8.5% of the common stock of Chimerix, Inc. (“Chimerix” or the “Company”) (NASDAQ: CMRX), today sent a letter to Chimerix’s Board of Directors (the “Board”).

In its letter, Rubric expressed a lack of confidence in the Company’s strategic direction and cited the share price’s substantial discount to liquidation value. Accordingly, Rubric calls on the Board to begin a winddown process and conserve cash to maximize liquidation value available to shareholders, while simultaneously exploring strategic alternatives for ONC201.

The full text of the letter follows:

November 10, 2022

The Board of Directors (the “Board”)
Chimerix, Inc.
2505 Meridian Parkway
Suite 100
Durham, NC 27713S
Attention: Martha Demski, Chair of the Board

Dear Members of the Board:

I am writing you on behalf of Rubric Capital Management LP (together, “Rubric”, “we”, or “our”), whose managed funds and accounts collectively own approximately 8.5% of the common stock of Chimerix, Inc. (the “Company” or “Chimerix”). On October 19th, we met with Mike Sherman, Mike Andriole, and Josh Allen in our office. As in past meetings, they professed a desire to engage on the path forward for the Company. During the meeting we explained why we thought the Company’s strategy was destructive to shareholder value. It seemed that, at least philosophically, Mike Sherman agreed with us. As a result, we were extremely disappointed to see Chimerix doubling down on the go it alone strategy with ONC201 when they reported third quarter results. We have tried to engage constructively. The Company has persisted in its strategy of spending all its remaining capital on ONC201, so we are forced to write this letter publicly.

Chimerix is on the wrong path and is being frivolous with shareholder value. Continuing to invest in ONC201 despite the likely need for an expensive phase 3 trial is not an appropriate course of action for a company of this size and with such an onerous cost of capital. Considering this, we believe the Board must simultaneously begin a winddown process to maximize liquidation value available to shareholders and commence a strategic alternatives process for ONC201. The market appears to agree with us, as simply liquidating the Company would result in a return of up to 125% from the close on Tuesday, November 8th. Beyond the share price, shareholders have clearly demonstrated their dissatisfaction via the most recent annual meeting. Despite there being no alternative slate, no board nominee received a majority vote of the shares outstanding. One candidate only received 29% of the votes cast. Clearly shareholders are dissatisfied.

Downside Protection is as Important as Upside Potential

During our October 19th meeting, we gave the management team an example of two potential hypothetical investments and asked them to choose the one that they would prefer to invest their personal money. In “Investment A”, a $1 investment is guaranteed to be worth at least $2. In “Investment B”, a $1 investment has a 20% chance of being worth $10, but an 80% chance of being worth $0. Both investments have an expected value of $2, or a 100% return. Our view is that if given the choice, we should absolutely invest in Investment A because we would be guaranteed to make money whereas in Investment B we would most likely lose all our money. Investment A has total downside protection, while Investment B will most likely result in a total loss of capital. We were very glad that Mike Sherman agreed with us that he would rather put his personal money in a hypothetical Investment A.

Chimerix is in the unique position of being able to choose between these two investments right now. On the one hand, the Company could partner out ONC201 and return cash to shareholders for a guaranteed positive return. While this strategy would forgo the potential upside of developing ONC201 internally, it protects the downside and eliminates the possibility of investors receiving zero on their investment. It also ensures the continued development of ONC201 and would allow shareholders to participate in its success, albeit in a smaller way. Thoughtful capital allocators would never choose to invest in a lottery ticket instead of an investment with a substantial guaranteed return. The Board has provided bad incentives for this management team resulting in a misalignment of interests.

Chimerix Trades at a Substantial Discount to Liquidation Value

Chimerix is currently trading substantially below its liquidation value. In other words, the market is ascribing a negative value to management’s ability to allocate capital going forward. The Company has essentially no significant clinical trials ongoing and no in-house manufacturing infrastructure. As a result, committed spend and thus wind-down expenses should be limited. We believe the liquidation value of the Company is between $2.95 and $4.36 per share, depending on how much the Company receives in milestone payments from the sale of Tembexa. That represents a 52% to 125% return to Tuesday November 8^th’s closing price of $1.94. This liquidation value excludes any consideration for ONC201 which is likely quite conservative.

Chimerix Liquidation Analysis
Q3 Ending Cash Balance		284.6
Estimated Winddown Expenses1		(25.0)
Liquidation Value ($mm)		259.6
Share count		88.0
Liquidation Value per Share		2.95
Return		52%
Tembexa Milestone Payments		124.0
Upside Liquidation Value ($mm)		383.6
Upside Liquidation Value per Share		4.36
Return		125%
____________________
1 Rubric estimates

Current Burn Rate is Extremely High; Time is of the Essence

In the most recent quarter, the Company’s burn rate was approximately $20mm. Going forward, the Company has guided that it expects the quarterly burn to come down to about $15mm. At year end, the Company disclosed it had 87 employees. Every quarter the Company continues to operate reduces the value that can be returned to shareholders by ~7%. This is an unconscionably high spending level for a company with no ongoing clinical trials. In order to maximize value to shareholders, the Company should immediately begin reducing costs and head count as much as possible.

Closing Thoughts

Chimerix is currently in a unique position to create value for shareholders while preserving the value of ONC201. It is completely within the Company’s control to give shareholders a compelling total return with almost no risk. Choosing to develop ONC201 without a partner would be completely foolhardy as the Company has an effectively infinite cost of capital. Management must immediately begin winding down operations and conserving cash. We hope you act on this advice in the constructive way it is meant. We reserve our rights to take further action.

Sincerely,

David Rosen

Rubric Capital Management LP

View source version on businesswire.com: https://www.businesswire.com/news/home/20221110005658/en/

Jonathan Gasthalter/Sam Fisher

Gasthalter & Co.

(212) 257-4170

Source: Rubric Capital Management LP

FAQ

What are Rubric Capital Management's concerns regarding Chimerix (CMRX)?

Rubric Capital Management has expressed a lack of confidence in Chimerix's strategic direction, urging for a winddown process to maximize liquidation value for shareholders.

What is the estimated liquidation value per share for Chimerix (CMRX)?

The estimated liquidation value for Chimerix is between $2.95 and $4.36 per share, which could represent returns of 52% to 125% based on recent share prices.

How does the burn rate impact Chimerix's shareholders?

Chimerix's burn rate, currently around $20 million per quarter, reduces potential returns to shareholders and indicates unsustainable financial management.

What action has Rubric Capital Management suggested for Chimerix (CMRX)?

Rubric has suggested that Chimerix begin a winddown process to protect shareholder value and explore strategic alternatives for ONC201.