Chimerix (NASDAQ:CMRX), like most clinical-stage biotech stocks, is without question a high-risk play. Yet in contrast to other biotechs, where high potential rewards can outweigh this high risk, that is not necessarily the case here with CMRX stock.
Sure, on paper, Chimerix’s future prospects appear very promising. Last year, the company sold a treatment that it successfully brought to market.
Even after selling the commercial rights to this treatment, Chimerix is in line to receive additional milestone payments and royalties.
Alongside this, there’s another treatment in the pipeline that, down the road, could produce another massive windfall.
Still, while on the surface CMRX may seem to have all the ingredients to be a worthwhile asymmetric wager, there’s a good reason the stock has declined by more than 45% so far this year.
Taking a closer look, it’s clear that avoiding Chimerix is your best move. Here’s why.
Why Some are Going Contrarian on CMRX Stock
CMRX has been steadily dropping in price, but some contrarians keep buying. Again, on the surface, it makes sense why they are doing so.
As mentioned above, one candidate in Chimerix’s pipeline has made it to market. That would be Tembexa, which is a treatment for smallpox.
Tembexa got regulatory approval from the U.S. Food and Drug Administration in June 2021.
In September 2022, Emergent BioSolutions (NYSE:EBS) bought the rights to this treatment from Chimerix, for an upfront payment of $238 million, with the potential for an additional $124 million in milestone payments, along with royalties.
As a result, the company now has a large cash position ($205.7 million), more than double the company’s market cap ($93.9 million).
This why contrarians see opportunity with CMRX stock. In their view, this war chest provides a margin of safety, as well as plenty of funding for the development of Chimerix’s flagship pipeline candidate (ONC201, a treatment for glioma).
In turn, if ONC201 gets full regulatory approval, it could pave the way for a massive move higher for shares. However, as I’ll explain below, the market has not gone overboard with its de-rating of this stock.
Big Caveats With the Bull Case
CMRX stock bulls are right that ONC201 has high potential. Per the company’s latest investor presentation, ONC201 represents a $750 million opportunity for Chimerix.
As Baird analyst Joel Beatty argued back in May, this treatment has a 65% chance of making it to market. Citing these strong chances, Beatty gave the stock a price target of $7 per share.
However, a solid bull case notwithstanding, there are big caveats. These caveats to the bull case justify the market’s discounting of CMRX down to just over $1 per share. For one, it’s not as if Chimerix is just a year away from bringing this treatment to market.
Phase 3 trials are still ongoing, with interim data not expected until 2025, with final results only arriving in 2026. Subsequent trial data could show decreasing chances of this treatment making it to market.
Second, as the company burns through cash, it’s not for certain that Chimerix’s cash position will be enough to fully fund further development of ONC201 and the rest of its drug pipeline.
CMRX may have to down the road raise more capital, resulting in shareholder dilution.
Bottom Line: Avoid Even a Speculative Position
Giving credit where credit is due, Chimerix has made far more progress compared to the scores of clinical-stage biotechs that have achieved no commercial success.
Yet while the company scored big with Tembexa, that has little-to-no bearing on ONC201’s chances of getting the regulatory green light. Instead of producing another massive windfall, the company could easily deplete its entire cash position (and then some), and end up having little to show for it.
If you’re interested in rolling the dice with this stock, no one’s stopping you. However, keep in mind that, until more comes out about ONC201, shares could continue to perform poorly, trending lower in line with the company’s dwindling cash position.
While the story could change down the road, for now your best move is to avoid CMRX stock, even as a small, speculative position.
CMRX stock earns an F rating in Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.