Crinetics: An Orphan Disease Innovator On The Rise


  • As a potential big winner, Crinetics Pharmaceuticals executes prudent corporate strategies that focus on orphan diseases and established biological pathways.
  • The lead medicine (paltusotine) demonstrated strong efficacy in its Phase 2 (ACROBAT Edge) trial for acromegaly.
  • I expect superb data release for the Phase 3 (PATHFNDR 1& 2) study in 2023.
  • I do much more than just articles at Integrated BioSci Investing: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Young chemist in the laboratory.

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Crinetics logo


In what other line of activity could you put $10K in one year and ten years later be able to have assets worth from $40K to $150K? - Phillip Fisher (Warren Buffett's one of two mentors)

Biotech investing is a unique field that has tremendous profits potential. Concurrently, you're investing in a cause that is beyond monetary gains. That is to say, you are supporting the innovation that could lead to cures and stellar treatments for you and your loved ones. Despite that we're still in the thick of a biotech bear market, I strongly believe that the biotech future is brighter than ever. As such, I continue my research efforts to present to you more promising investment leads.

On that note, I want to introduce you to a new company, Crinetics Pharmaceuticals, Inc. (NASDAQ:CRNX). As an orphan drug innovator, Crinetics fulfills the dire need for more development in this niche. After assessing the company, I believe that it has a great chance of becoming an investment bonanza. In this research, I'll feature a fundamental analysis of Crinetics and share with you my expectation on this Phillip Fisher growth equity.

CRNX chart


Figure 1: Crinetics chart

About The Company

As usual, I'll provide a brief overview of the company for new investors. If you are familiar with the firm, I recommend that you skip to the subsequent section. Operating out of San Diego, California, Crinetics dedicated its laser-beam efforts to the innovation and commercialization of novel medicine to gap the unmet needs in orphan (i.e. rare) diseases.

Viewing the neurology-focused pipeline below, you can see that the company has three big molecules in development. As an SST2 agonist, paltusotine is being advanced in various phases of studies for acromegaly, carcinoid syndrome, and nonfunctional neuroendocrine tumors (i.e., NETs). The somatostatin receptor type 5 (i.e., SST5) agonist (CRN04777) is being developed for congenital hyperinsulinemia and syndromic hyperinsulinism. As to the ACTH antagonist (CRN04894), it's being assess for congenital adrenal hyperplasia and Cushing's disease.



Figure 2: Therapeutic pipeline

Orphan Disease Focus

As you can appreciate, nearly all Crinetics' drugs targeted conditions that have a prevalence of less than 200K. That satisfied its criteria for an orphan disease. Despite having a small number, the market for orphan molecules is ironically large due to the premium reimbursement. Now, you may say that is costly but it fosters innovation in a space that is in dire need of advancement. I noted in the prior research,

The industry witnessed a drastic shift as the Titan Henri Termeer launched activism against Congress. As tenacity and ingenuity fit Termeer like a pair of gloves, he knocked out any hindrance and thereby pushed for laws in favor of orphan disease innovation. With the spectacle of Termeer looms large over the orphan disease sector, innovators nowadays enjoy a premium reimbursement for orphan drugs. On average, an orphan drug can get reimbursed with $140K annually. Aside from being viewed favorably by regulatory authorities, the approach ensures profitability for the company and the availability of lifesaving medicine for patients.


As you know, paltusotine is an investigational first-in-class oral non-peptide SST2 agonist that is designed to treat rare conditions - acromegaly, carcinoid syndrome, and NETs. What makes paltusotine unique is that it is the first-in-class. As my general rule-of-thumb, the first of something is usually highly competitive and thereby garners market success.

Given that paltusotine for acromegaly is the most advanced franchise, you should focus your analysis on this franchise. As follows, there are 26K patients in the US who are afflicted by acromegaly. Due to a benign tumor in the brain, acromegaly causes an excessive release of growth hormone (i.e., GH) and thereby insulin-like growth factor 1 (i.e., IFG1). As clinical manifestations, the patient usually suffers from bone/cartilage outgrowth, organ enlargement, abnormal metabolic rate, and deformed hands/feet. Without treatment, the patients would have a substantially shortened life expectancy.

From the figure below, you can see that SST2 agonists can modulate the pathways for acromegaly as well as for the other two conditions (i.e., NETs and carcinoid syndrome). As such, paltusotine is strategically positioned to knock out three metaphoric birds with one stone.

SST2 mechanism of action


Figure 3: SST2 peptide agonists target

All the sound underlying science is one thing. The more important hurdle is how paltusotine is actually performed in clinical studies. On this front, the drug cleared its primary endpoint (i.e., IGF1 suppression) in the Phase 2 open-label (ACROBAT Edge) study with flying colors. In 47 adults having acromegaly, the patients who switched to oral paltusotine from injectable standard of care (i.e., SOC) enjoyed the sustained IGF1 and GH suppression. Moreover, the drug was well tolerated.


Phase 2 ACROBAT Edge study


Figure 4: SST2 Phase 2 ACROBAT Edge study

Riding excellent Phase 2 data, Crinetics advanced paltusotine into two Phase 3 (PATHFNDR 1 & 2) trials. In PATHFNDR1, paltusotine is switched from the SOC (i.e., either injectable octreotide or lanreotide). As for PATHFNDR2, it assesses paltusotine in untreated patients. Based on these designs, you can bet that Crinetics is positioning paltusotine to replace the current SOCs. Efficacy-wise, I believe that both the SOC and paltusotine are similar.

On efficacy, let us forecast the upcoming data release for PATHFNDR1. After all, Crinetics is set to release the top-line results in 2023. Leveraging my Integrated System of forecasting, I ascribed a 65% (i.e., more than favorable) chance of a positive data release. I based my rationale on prior data, my over two decades of forecasting experience, and my intuition. I noted in the prior research,

Don't let my 65% throw you off. My forecast is based on categorical rather than numerical per se. As such, my 65% equates to an 85% numerically. As I keep track of my forecasting over the years, you can see my records to get a feel for what to expect from the upcoming event.

PATHFNDR 1 & 2 study


Figure 5: PATHFNDR 1 & 2 studies

Of the market size, you're looking at $3B. With paltusotine entering this market, you can anticipate this market to expand significantly. Notably, I believe that paltusotine has the potential to capture at least a third of this segment (i.e., roughly $1B).

Asides from Acromegaly, Crinetics also advanced paltusotine into a Phase 2 open-label trial for carcinoid syndrome. The data here would be reported in 2023. And if positive, you can imagine that paltusotine would get another label expansion to foster long-term growth.

CRN0477 & CRN04894

Due to their developments still in the early phase, I will briefly mention these two franchises here. As an oral SST5 agonist, CRN04777 inhibits insulin secretions to treat hyperinsulinemia. On March 30, Crinetics reported positive Phase 1 data for CRN04777. That is to say, CRN0477 exhibited a rapid and sustained reduction in insulin secretion in a multiple-ascending dose (i.e., MAD) study of healthy volunteers. Moreover, there was insulin reduction in a model of congenital hyperinsulinism. Commenting on the development, the Founder and CEO (Scott Struthers, Ph.D.) enthused,

We are very excited to see the strong pharmacologic proof-of-concept data from the MAD cohorts that build upon the trial's single-ascending dose (SAD) cohorts that were presented at the Congenital HI International Virtual Research Conference in 2021. Consistent with the SAD findings, data from the MAD cohorts showed that CRN04777 inhibited insulin secretion when administered orally once daily over the course of 10 days and eliminated the need for glucose support in a model of hyperinsulinism. We plan to meet with global regulators to discuss the results from our Phase 1 study and plans for advancing the clinical program in HI patients.

phase 1 results for CRN04777


Figure 6: CRN04777 phase 1 results

Besides paltusotine and CRN04777, Crinetics is advancing CRN04894 for congenital adrenal hyperplasia and Cushing's disease. Similar to CRN04777, early data for CRN04894 was positive. In 2H2022, the company is set to further advance both of the latter molecules in clinical studies in the patient population.

Strong Management

As you know, management is an important criterion for investment success. Therefore, you should size up the management quality for Crinetics. From the Board's perspective, the company has executives with advanced degrees like MD and Ph.D. which is important for therapeutic innovation.

Just as important is the fact that they have tremendous leadership experience in other biopharmas. For instance, the Chairman (Wendell Wierenga, Ph.D.) brought over this leadership experience from Neurocrine Sciences (NBIX) and Pfizer (PFE). As Neurocrine has a strong emphasis on neurology and endocrinology, I believe this bodes well for Crinetics. After all, Crinetics is similarly focused on neuro-endocrinology. Having esteemed management, if the drugs fail they'll be able to in-license other molecules for development. Additionally, they can cut losses on the unfruitful franchise.

esteemed management


Figure 7: Esteemed management

Intellectual Property Protection

Moving on, let us analyze the intellectual property (i.e., IP) of Crinetics. From the figure below, you can see that all the big three compounds (paltusotine, CRN04894, and CRN04777) have strong IP protection that extends as far as 2043. Hence, the robustness of their IP protection transfer into profits for shareholders rather than competitors.

IP protection


Figure 8: Intellectual property protection

Competitor Landscape

About competition, Crinetics' drugs (paltusotine, CRN04894, and CRN04777) go toes-to-toes against conventional drugs. For Acromegaly, paltusotine competes against conventional medicines like octreotide (Sandostatin) of Novartis, lanreotide (somatuline) of Ipsen, and pegvisomant (Somavert) of Pfizer, and the oral octreotide (Mycapsa) of Chasma.

As you can imagine, the key advantage of paltusotine is that it's an oral drug that is much more convenient than having to get an injection. As you know, the other edge is that paltusotine is the first one of its kind (i.e., a non-peptide SST2 drug) to enter this market. Putting all that together, you can see that paltusotine is most likely to trump competitions. Nevertheless, there is plenty of room in this market to foster multiple blockbusters.

acromegaly competitors


Figure 9: Acromegaly market

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll analyze the 4Q2021 earnings report for the period that ended on December 31.

As follows, Crinetics procured $1.0M in total revenue compared to none for the same quarter last year. Given that Crinetics is still early in its developmental phase of growth, it made more sense for you to emphasize other metrics. On that note, the research and development (R&D) for the respective quarters registered at $24.6M and 16.8M. I viewed the 4.6% R&D increase positively because the capital invested today can turn into blockbuster profits tomorrow. After all, you have to plant a tree to enjoy its fruits.

Additionally, there were $30.7M ($0.68 per share) net loss compared to $21.6M ($0.66 per share) decline for the same comparison. On a per-share basis, the bottom line depreciation widens by 3.0%. You can see that the depreciation is due to more money being committed to R&D which is good for the long run.



Figure 10: Key financial metrics

About the balance sheet, there were $333.7M in cash, equivalents, and investments. On top of the $125.0M offering raised in April, the total cash position is increased to $458.7M. Against the $31.9M quarterly OpEx, there should be adequate capital to fund operations into 2Q2024. Simply put, the cash position is extremely robust relative to the burn rate.

While on the balance sheet, you should check to see if Crinetics is a "serial diluter." After all, a company that is serially diluted will render your investment essentially worthless. Given that the shares outstanding increased from 32.9M to 45.2M, my math reveals a 37.3% annual dilution. This falls within my ballpark of a 30% cut-off for a profitable investment. Keep in mind that my rule is not hard-and-fast but to give you a rough estimate. Now, if the company continues to go over 30% every single year, then you're most likely looking at a serial diluter.

Valuation Analysis

It's important that you appraise Crinetics to determine how much your shares are truly worth. Before running our figure, I liked to share with you the following:

Wall Street analysts typically employ a valuation method coined Discount Cash Flows (i.e., DCF). This valuation model follows a simple plug-and-chug approach. That aside, there are other valuation techniques such as price/sales and price/earnings. Now, there is no such thing as a right or wrong approach. The most important thing is to make sure you use the right technique for the appropriate type of stocks.

Given that developmental-stage biotech has yet to generate any revenues, I steer away from using DCF because it is most applicable for blue-chip equities. For developmental biotech, I leverage the combinations of both qualitative and quantitative variables. That is to say, I take into account the quality of the drug, comparative market analysis, chances of clinical trial success, and potential market penetration. For a medical diagnostic device, I focus on market penetration and sales. Qualitatively, I rely heavily on my intuition and forecasting experience over the decades.

Molecules and franchises

Market potential and penetration

Net earnings based on a 25% margin

PT based on 50.8M shares outstanding and 10 P/E

"PT of the part" after appropriate discount

Paltusotine for acromegaly, carcinoid syndrome, and NETs

$1B (Estimated from the $3B acromegaly market)

Market for carcinoid and NETs (will wait for more development until valuing)

$250M $49.21 $39.36 (30% discount because paltusotine is still in its Phase 3 study; however, I discounted less than 40% because the chances of positive study results are very high).
CRN04777 for congenital hyperinsulinemia and syndrome hyperinsulinemia Too early in development (Will assess with more advancement) N/A N/A N/A
CRN04894 for congenital adrenal hyperplasia and Cushing's disease. Too early in development (Will assess with more advancement) N/A N/A N/A

The Sum of The Parts


Figure 11: Valuation Analysis

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the main concern for Crinetics is whether paltusotine can pass it Phase 3 (PATHFNDR 1 & 2) trials in 2023. As I'm confident in its success, I ascribed the corresponding 35% chance of trial failure. In the case of a negative clinical binary event, you can expect Crinetics shares to tumble over 50% and vice versa. That aside, there is a similar risk of trial failures regarding other franchises.


In all, I recommend Crinetics Pharmaceuticals as a buy with 5/5 stars rating. On a one to two years horizon, I expect the $39.36 price target (i.e. PT) to be reached. Crinetics is an intriguing orphan disease innovator that is set for tremendous growth in the company. As you know, the orphan disease is a lucrative niche for shareholders while more innovation in this area would significantly benefit patients. Importantly, Crinetics' corporate strategy of leveraging established biological pathways to advance their drugs for these various conditions is practical and effective. The proof in the pudding to their upcoming success is that the early data for the crown jewel (paltusotine) is superb. You can anticipate similar results for their PATHFNDR 1 & 2 trials in 2023. That catalyst would substantially move the needle for this stock. On the longer horizon, you have the other molecules (CRN04777 and CRN4894) that are brewing.

Author's Note: This article is an abridged version of an article originally published for members of the Integrated BioSci Investing marketplace on April 25, 2022. My forecasting record link is also changed often.

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