Rubric Capital Management Sends Letter to Chimerix Board of Directors
November 10 2022 - 9:00AM
Business Wire
Calls for Company to Commence Winddown
Process and Seek Strategic Alternatives for ONC201
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 8th’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
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Jonathan Gasthalter/Sam Fisher Gasthalter & Co. (212)
257-4170
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