Given the strong slate of institutional investors involved here and an intriguing pipeline of programs for rare endocrine diseases, I’ve been looking forward to digging into this one for some time.
When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what’s going on. In the first chart (daily advanced), we can see shares made their way up to the $35 level twice and have long-term support just above $20. In the second chart (15-minute), we can see the stock continues to experience relatively boring price action as investors await the next catalyst.
In the case of Crinetics, I was first attracted to the stock due to its solid institutional following (Vivo Capital, Perceptive Advisors, Orbimed Advisors, RA Capital and more). From there, I appreciated that endocrine diseases being addressed were well understood (established biology) and lead program CRN000808 possesses significant advantages over currently approved treatments in a large multi-billion dollar opportunity.
Figure 3: Pipeline (Source: corporate presentation)
In the mid-$30s the stock seemed quite expensive, but at present levels my first thought is that it represents an ideal prospect for long-term investors to scoop up. Let’s take a look at recent events.
In June the company was awarded up to $3.2 million in Small Business Innovation Research (SBIR) grants from the National Institute of Diabetes and Digestive and Kidney Diseases (NIDDK) of the National Institutes of Health (NIH) to fund development of its congenital hyperinsulinemias and acromegaly programs.
Also in June, a key executive hire was announced with the appointment of Alan S. Krasner, M.D. as Chief Medical Officer (served prior as Senior Medical Director and Global Development Lead for Natpara at Shire (NASDAQ:SHPG)).
A track record of being able to advantageously access capital is a strong indicator, and in March a Series B financing raised $63.5 million and was led by Perceptive Advisors and included new investors RA Capital and OrbiMed (5 AM Ventures, Versant Ventures and Vivo Capital participated as well). Interestingly enough, as part of the financing an analyst at Perceptive Advisors (Weston Nichols, Ph.D.) joined the board of directors. Another member was replaced by Jack Nielsen, Managing Director at Vivo Capital.
For the third quarter of 2018, the company reported cash and equivalents of $169.7 million as compared to net loss of $7.6 million. Research and development expense nearly tripled to $6.9 million, while G&A rose to $1.7 million.
-Struthers wants to build vertically integrated endocrinology company that addresses a wide range of rare endocrine diseases with novel candidates (make drugs from scratch, develop them and commercialize them). The company is focusing on areas of high unmet need and he notes that a unique area is being targeted in that biology is established but the problem is that the drugs “aren’t there.” Biomarkers allow for establishing proof of concept in healthy patients and in some cases are approvable endpoints in late-stage studies that are feasible for a smaller company to run given that fewer patients are required.
-The pipeline is being advanced as fast as possible with all assets proceeding in parallel. The company retains global rights and owns all IP (first composition of matter patents start expiring in 2037). Long term there are lots of opportunities they can address via continued innovation. So far management has chosen to focus solely on peptide hormone receptors that control several aspects of physiology. All of them act through a class of receptors known to be a popular drug target (G protein-coupled receptors). 120 of these recognize peptide hormones, but specifically they are trying to modulate underlying dynamic behavior of these receptors.
-Lead program CRN00808 is a somostatin receptor agonist, following on a class of drugs that have been around for a while (injected peptide analogues of somatostatin sell around $2.7 billion annually). Sandostatin is Novartis’ (NYSE:NVS) #6 selling drug and Somatuline is Ipsen’s (OTCPK:IPSEY) #1 selling drug. However, the current generation of drugs has points which could be improved (administered once monthly intramuscular/deep sc injection, have limited efficacy so in many cases efficacy wanes toward the end of the month and symptoms return).
Figure 4: Market leaders and comparison of in vitro selectivity profiles (Source: corporate presentation)
-Acromegaly is caused by benign tumors of the pituitary gland which trigger excess of IGF-1. The first line of therapy is neurosurgery if possible but it can be quite difficult to get these tumors out sometimes. In terms of market opportunity, there are 10k to 15k patients in the US on medical therapy. 808 is non-peptide small molecule built in house (Struthers calls it the 808th molecule because first 807 weren’t good enough) that is orally available (get rid of injections) and the once-daily profile provides for consistent therapy (nice half life of about 2 days). It’s pointed out that Sandostatin causes receptor desensitization (Crinetics engineered that out of the molecule) which explains why currently in the field there are only about 50% control rates in acromegaly population (as 808 is more selective and more potent it could translate into better responder rates).
Figure 5: Phase 1 multiple ascending dose PK/PD data analysis (Source: corporate presentation)
-A phase 1 trial in Australia measured the ability to inhibit growth hormone secretion, thereby mimicking acromegaly by giving patients growth hormone releasing hormone. Then they were rechallenged with 10mg 808, which was very efficacious (were able to suppress over 90% of growth hormone). Safety and efficacy were comparable to approved treatments. Two phase 2 trials are ongoing in the US and Europe. The EVOLVE study is taking patients who are on somatostatin agonists monotherapy and are responding (IGF levels under 1x upper limit of normal) who then get their last dose of drug and one month later are switched to oral 808 for 1 month. IGF levels continue to get measured (if adequately controlled patients stay on 10mg, if not dose can be increased). After achieving stable dose patients are then randomized one to one to continue that dose or get switched to placebo (responders on placebo will be compared to responders who continue on 808). On the other hand, the ACROBAT EDGE study is the same type of switch study but in patients who are not adequately controlled on somatostatin monotherapy (same type of design but no randomized withdrawal and can use higher dose if needed). The goal here is to see if 808 can do as well as existing therapies or potentially improve and convert some to full responders. A long-term open label safety study will be initiated later this year and even with positive data a separate phase 3 study will be required (pending discussions with regulators, could be accomplished with 100 to 150 patients).
Figure 6: 808 clinical development strategy and registration study designs for approved competitors (Source: corporate presentation)
-As for the next drug candidate CRN01941 for neuroendocrine tumors, it’s noted that NETs are a common GI malignancy with over 171,000 patients in the US (same type of tumors that killed Steve Jobs). Somatostatins are the standard of care for these patients – interestingly enough, 1941 was a backup molecule for 808 to mitigate risks which fortunately didn’t come to pass in phase 1. A phase 1 study could begin in the first half of 2019.
-As for the hyperinsulinism program, this is a rare disease which occurs in 1 in 30,000 to 1 in 50,000 people. The goal of treatment here is to get patients off of the “backpacks” they require 24/7, avoid pancreatectomy, avoid developmental and cognitive problems and essentially give them a more normal life. Multiple indications could be addressed with this drug candidate as well (still in preclinical). Unfortunately, obstacles were encountered in toxicology results and it looks like a backup molecule might be utilized instead.
-As for the company’s ACTH antagonist for Cushing’s and related diseases caused by ACTH excess, management seems quite excited despite the early-stage nature of the program. The company is the only one with a good ACTH antagonist according to Struther and IND enabling studies could be initiated in the first half of the year after the optimal candidate is chosen.
Institutional Investors and Management
As for institutional investors of note, RA Capital recently disclosed a 7.8% stake in the company. Versant Venture Capital disclosed a 12.4% stake. Around the same time FMR disclosed a 12.225% stake. Trends in insider buying over the past 12 months are also encouraging.
As for the management lineup, it appears quite experienced with decent depth. Struthers served prior as senior director and head of endocrinology and metabolism at Neurocrine Biosciences (NBIX). Other executives also came over from Neurocrine and hail from the likes of Shire, Abbott Labs (NYSE:ABT) and Pfizer (NYSE:PFE).
To conclude, 2019 appears to be a year of execution as phase 2 trials are enrolled for the lead program and a phase 1 study moves forward for 1941 in NETs. The company has multiple promising irons in the fire and appear significantly undervalued given prior data and blockbuster opportunities being targeted. Management is taking a logical approach to progressing the pipeline at a good clip and their track record of execution inspires confidence.
For readers who are interested in the story and have done their due diligence, I suggest initiating pilot positions in the near term and patiently accumulating dips in 2019. The stock is most appropriate for readers with a multi-year time frame as patience could be required until important catalysts loom.
Risks include disappointing data, setbacks with ongoing and planned trials, regulatory setbacks (i.e., IND filings, IND enabling studies), negative regulatory feedback for lead program and delays to selection of appropriate drug candidates to move forward into the clinic as in the case of hyperinsulinism program. Dilution in the near term appears unlikely given the current cash position and burn rate.
As for downside cushion and elements of derisking, the stock looks to be a fairly conservative pick at the present valuation (compared to more speculative alternatives in the biotech sector). Prior data, well established biology and large market opportunity for lead program plus cash position and several irons in the fire give us a decent cushion.
For our purposes in ROTY, I’ll likely revisit the thesis in a couple quarters or so (in the meantime preferring to stick to stocks with more near-term catalysts).
Author’s Note: I greatly appreciate you taking the time out of your day to read my material and hope you found it to be helpful in some form or fashion. If you are willing, I look forward to interacting with you in the Comments Section. Whether bull, bear or simply a skeptic, we all typically have something worth saying and feedback (plus community-driven due diligence) is one of the reasons I enjoy writing. Have a good one!
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