CRNX - Crinetics Pharmaceuticals: Creating Next-Generation Treatments In Acromegaly

2023-08-28 18:07:28 ET

Summary

• Crinetics Pharmaceuticals, Inc. is my latest long position.
• The company has two Phase 3 data releases for Paltusotine in treating acromegaly over the next 7-8 months.
• Acromegaly is a disorder caused by excess levels of growth hormone, and current treatments have side effects.
• Crinetics Pharmaceuticals stock is undervalued just considering the revenue opportunity for the drug in the U.S. target market.

I initiated a long position in Crinetics Pharmaceuticals, Inc. ( CRNX ) last week.

The company has two Phase 3 data releases for its drug Paltusotine in treating acromegaly over the next 7-8 months. Data from the first Phase 3 trial (PATHFNDR-1) in treating acromegaly is expected in September. The second Phase 3 trial (PATHFNDER-2) will be read-out in Q1 2024.

Current acromegaly treatments are mostly injectable and have side effects

Acromegaly is a disorder caused by excess levels of growth hormone in the body, usually due to a benign pituitary tumor (adenoma). It is characterized by the overgrowth of body tissues, including the broadening and enlargement of facial features, and an increase in the size of the hands and feet. If untreated and associated with diabetes and heart failure, the life expectancy is reduced by 10 years.

The annual incidence of acromegaly globally is 3-4 cases per million or approx. 32,000 new cases worldwide per year (1320 new cases in the U.S. every year). In addition, the existing prevalence of the disease is 24,000 cases in the U.S. at any given time. The diagnosis is confirmed by high levels of insulin-like growth factor, IGF-1, and/or growth hormone. MRI brain is done to diagnose a pituitary adenoma.

Surgery (usually by transsphenoidal route) is usually the first choice for acromegaly caused by a pituitary adenoma, especially if small. It is always performed if the tumor is large and causing symptoms like persistent headache, and impaired vision (by pressing on the optic nerve, etc.). The levels of growth hormone and IGF-1 will return to normal in about 80% of people with small adenomas (less than 1 cm). On the other hand, IGF-1 levels will return to normal in <40 percent of patients who have adenomas that extend beyond the pituitary area.

Medications are used as an initial treatment, especially when an adenoma is too large to be removed completely with surgery. They can also be used as a secondary treatment for patients who have remaining adenoma tissue and an elevated blood growth hormone or IGF-1 concentration after surgery. These drugs usually act by blocking the release of growth hormone from the tumor cells. These include Somatostatin analog medications (normalize growth hormone levels in 30-40% cases) like Octreotide (a synthetic form of hormone somatostatin, IM injection every 4 weeks), Lanreotide (another synthetic form of somatostatin, IM injection every 4-6 weeks), Pasireotide (Somatostatin analog, given as IM injection every 4 weeks), oral octreotide capsules (Mycapssa by Chiasma, taken orally twice daily). Side effects of these somatostatin mimetic medications include abdominal symptoms like nausea, diarrhea, bloating, cramps in the first month of treatment, gallstones in approx. 20% of patients in the first 6 months of treatment (which may require surgery in some patients), and elevated blood glucose especially with Pasireotide. Growth hormone antagonists like Pegvisomant act by blocking the growth hormone receptor but may cause liver function abnormalities (effective in 65% of patients). Dopamine agonists like Cabergoline can be taken orally but are effective in only one-third of patients.

Paltusotine, an oral, efficacious, and safe treatment for acromegaly

Crinetics Pharmaceuticals' drug Paltusotine acts as a SST2 agonist. In the Phase 2 data, IGF-1 levels were maintained in patients who were switched from a SOC medication and treated for 13 weeks. There were no discontinuations and no safety issues. In the longer-term open-label Phase 2 study, patients who were switched from SOC injections to this drug maintained IGF-1 levels for up to 2 years.

Phase 3 PATHFNDER-1 trial is evaluating the drug in acromegaly patients who are controlled on SOC medications and switched to the new oral drug (targeting FDA guidance of controlled disease maintenance therapy) compared with a placebo (target=30-40% of 8000 patients treated/year in the U.S. with somatostatin analogs). The treatment duration is 9 months and the primary endpoint is the proportion of patients with IGF-1 level <= 1 ULN (mean of IGF-I at weeks 34, 36) (data in September this year).

The second Phase 3 PATHFNDER-2 trial is evaluating the new oral drug in untreated acromegaly patients who are uncontrolled (targeting FDA guidance of 'treatment' in uncontrolled patients, a larger target market of 8000 patients/year in the U.S.). The treatment duration is 6 months with a placebo comparator, and the primary endpoint is the same as the first Phase 3 trial given above (data in Q1, 2024).

Crinetics Pharmaceuticals stock is undervalued just considering Paltusotine in acromegaly

The target market for the drug is 8000 U.S. patients with acromegaly which are treated with Somatostatin analogs every year. The Somatostatin analog market is a $6 billion/year global revenue opportunity. The U.S. revenue opportunity for Paltusotine is $500 million/year (8000 patients/year, the estimated annual price=$60,000/year (similar to Mycapssa). Mycapssa is the closest competition to Paltusotine, however, it has a low 40% efficacy rate and interactions with several common medications, which is why it has failed to gain sales traction. Paltusotine doesn't have these issues, so it has a higher probability of gaining market share from injectable somatostatin analogs.

The company had $265M of cash reserves at the end of Q2 this year, which are adequate till mid-2024 at operating cash use of $160M in the last 12 months. I don't anticipate any capital raise at least till the September Phase 3 data. There is no long-term debt.

The company is also working on other indications like neuroendocrine tumors, carcinoid syndrome and Cushing's syndrome and has several shots at the goal. Phase 2 data for Paltusotine in carcinoid syndrome due to neuroendocrine tumors will be released in Q4 this year, another near-term catalyst.

The company has an enterprise value of just $722M. Just the acromegaly indication could be worth $1 billion in enterprise value (peak revenue of $250M U.S. revenue, at 50% market share from somatostatin analogs, 4000 U.S. patients and $60K/patients/year X 4 = $1 billion. The average EV/sales ratio for pharmaceuticals is 4-5 per NYU-Stern data from Damodaran). Adding other indications with large target markets, the stock appears undervalued.

The mean Wall Street analyst price target on the stock is $44 (155% upside potential) in a 1-year timeframe (Seeking Alpha).

Rating Buy, timeframe= minimum 1-year.

Risks in the investment include lackluster data from the acromegaly Phase 3 trials and other indications, unexpected side effects, etc. which may cause Crinetics Pharmaceuticals, Inc. stock to fall. This note represents my own opinion and is not investment advice. Please conduct your own due diligence before investment decision. Investing in developmental-stage biotech/pharma stocks is risky and may not be suitable for all investors.

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