CRNX - Crinetics Pharmaceuticals: Some Caution Warranted

2023-11-28 15:36:20 ET

Summary

• Today, we take a deeper look at Crinetics Pharmaceuticals, Inc., which has seen a significant increase in its stock price in recent months.
• The company's primary drug candidate, paltusotine, looks like it could become a best of breed treatment for the rare disease acromegaly.
• Crinetics is also evaluating paltusotine for the treatment of Carcinoid syndrome and has other compounds in development for different diseases.
• An analysis around Crinetics Pharmaceuticals follows in the paragraphs below.

Does the walker choose the path, or the path the walker ?”? Garth Nix.

Today, we put Crinetics Pharmaceuticals, Inc. ( CRNX ) in the spotlight. The stock of this developmental concern has shot up in recent months. This was mostly the result of outstanding trial results in September. Can the rally continue? An analysis follows below.

Company Overview:

This clinical stage biotech firm is headquartered in San Diego. The company is focused on the development and commercialization of therapeutics for endocrine diseases and endocrine-related tumors. The stock currently trades just under $32.00 a share and sports an approximate market capitalization of $2.1 billion.

Recent Developments:

Crinetics primary drug candidate is called paltusotine. This compound is the first oral, once-daily, selectively targeted somatostatin receptor type 2 (SST2)

On September 11th, the company announced results from a late stage 58 patient trial called PATHFNDR-1. The study achieved its primary endpoint and all secondary endpoints in this Phase 3 trial for patients with acromegaly. This 36-week trial was designed to evaluate paltusotine for patients that had been previously treated with the current standard of care or SOC against placebo. The outstanding data from this study fully supported the initiation of the pivotal Phase 3 trial that is just enrolling now. The current SOC for this rare disease is peptide drugs that require painful monthly or daily injections, or a strict twice-a-day oral dosing regimen. At the close of trading on Tuesday, September 12th, the stock was trading for nearly twice its levels at the end of Friday, September 8th.

The company currently has another trial called PATHFNDR-2 that is evaluating paltusotine for previously untreated acromegaly patients. Those results should be out sometime in the first quarter of 2024. Provided they are positive, Crinetics plans to file a marketing application for paltusotine to treat acromegaly soon thereafter.

Crinetics is also evaluating paltusotine to treat Carcinoid syndrome which it defines on its website as:

A group of symptoms some patients may present when they have a specific type of cancer called neuroendocrine tumors, or NETs. NETs are a rare, slow-growing type of cancer – they only represent about 1% of all cancers – and can occur in any number of places in the body, most often in the digestive tract ."

A phase 2 study to evaluate the safety, pharmacokinetics, and exploratory dose response of paltusotine in patients with carcinoid syndrome should announced interim results sometime before the end of 2024, according to the last update from the company.

The company is also developing a compound called CRNO4894, an oral ACTH antagonist to potentially treat Cushing's Disease and Congenital Adrenal Hyperplasia or CAH. However, those efforts are in an earlier stage of development and will not be germane to this analysis.

Analyst Commentary & Balance Sheet:

Since the company posted its Q3 results on November 7th, eight analyst firms including Oppenheimer and Piper Sandler have reissued/assigned Buy/Outperform ratings to the stock. Price targets proffered range from $33 to $57 a share. JPMorgan reiterated its Buy rating and $35 price target on CRNX on November 25th as it

" sees Crinetics potentially benefitting from several catalysts over the next 12 months, adding it was bullish on the company in the wake of 'robust' topline Phase 3 data for its lead candidate paltusotine ."

Approximately 11% of the outstanding shares in this name are currently held short. The recent rally in the shares has triggered some notable insider selling in the stock. Since October, several insiders have sold just over $6.6 million worth of shares collectively. This includes a nearly $6.1 million sale by the company's CEO on November 2nd, which represented more than half his stake in the firm.

The company ended the third quarter with cash and marketable securities of approximately $550 million after posting a net loss of $57.5 million for the quarter. The company raised just some $350 million via a secondary offering in September, and management has stated current funding is sufficient to fund its current operating plan into 2026.

Verdict:

The stock has had a huge run over the past few months following positive trial results. This is especially true if you factor in the dilution from the large secondary offering in September.

Acromegaly would be a significant market for Paltusotine where it looks like it could be a " best of breed" product. Success in Carcinoid Syndrome could unlock an even bigger market and make Paltusotine a blockbuster drug ($1 billion or more of sales).

That said, Paltusotine is unlikely to be on the market for acromegaly until early 2025, assuming all goes on schedule. Any potential Carcinoid Syndrome treatment is years down the road from that. Given a now north of $2 billion valuation, if I owned Crinetics Pharmaceuticals, Inc. shares, I would follow the company's CEO and take some profits off the table.

That said, this is an interesting story developing, if the stock did see some profit taking and moved back down into the $20 to $25 a share range, I would probably initiate a small starter position in CRNX. Most likely via covered call orders.

Life is not like water. Things in life don't necessarily flow over the shortest possible route. ”? Haruki Murakami

For further details see: