Crinetics Pharmaceuticals (CRNX) has a lead molecule, paltusotine, that may be best in class. Phase 2 testing is on track to be completed in Q4 2020 and may act as a catalyst for the stock to move up if the data is positive. Peak sales potential for paltusotine, if approved, could reach $1.5 billion annually. Results are somewhat binary in that failure of the lead molecule would significantly impact the company’s value. Crinetics offers a reasonable risk reward profile in that it has a pipeline of molecules, its lead program has produced favorable data thus far, is well capitalized and has the support of seasoned, successful institutional investors.
Acromegaly is a rare condition usually caused by a benign tumor in the pituitary gland. These tumors produce excess growth hormone (GH) which leads to the production of insulin like growth factor one (IGF-1). This causes bone growth, organ enlargement and disruptions in glucose and lipid metabolism. Hand and feet tend to enlarge, facial features enlarge and bones thicken while patients can also develop arthritis, diabetes, hypertension, cancers, carpal tunnel syndrome, headaches and joint aches. The disease results in a 2-3 fold increase in the mortality due to the vast consequences of this “benign” tumor.
Surgery to remove the tumor is the first strategy in combating the disease and for some patients, it is curative. Radiation can also be used to destroy the tumor, however, it works very slowly, cannot be used in some cases, can have serious side effects and very few patients achieve a normal growth hormone level after radiation. Radiation is often used when surgery has failed, is not feasible or as an adjunct to medications.
Often medication is needed even after surgery or radiation. There are more than 25,000 people in the US with acromegaly of which about half are candidates for chronic medical treatment. Somatostatin receptor ligands (SRLS) or somatostatin analogues (SSAs) such as octreotide, lanreotide and pasireotide are commercially available. These drugs have proven to reduce GH and IGF-1 levels but levels only return to normal in 30 to 40 percent of patients. Moreover, with the exception of a newly approved oral octreotide formulation, Mycapssa, these drugs are injections, some of which are monthly, and they often wear off leaving patients highly symptomatic towards the end of the month. The injections are often painful for days and can cause other symptoms such as GI side effects. Furthermore, even with treatment, 70 percent of patients still experience acromegaly symptoms such as joint pain, fatigue, snoring, excessive sweating and headaches being most frequently reported. This suggests there is a real need for better treatments.
Another type of treatment for acromegaly is Somavert which is a growth hormone receptor agonist that directly stops the production of IGF-1. Studies have shown Somavert returns IGF-1 production to normal levels in 65 percent of treated patients while leaving GH levels unchanged. However, Somavert needs to be injected daily. Dopamine agonists such as cabergoline may help a minority of patients by decreasing GH production but they rarely bring IGF-1 levels within the normal range.
Paltusotine (CRN00808) vs the Competition
Crinetics has developed a novel molecule, paltusotine (CRN00808) which is a new class of molecule, an oral selective SST2 agonist. Paltusotine differs fundamentally from octreotide, (which is the most commonly used drug for treating acromegaly), because of its non peptide structure. This non peptide structure results in a lower molecular weight allowing for oral administration and high levels of bioavailability. The 42 hour half life enables once daily dosing and consistent drug levels. The consistent drug levels versus a monthly injection that wears off towards month end may translate into better symptom control for patients. In pre-clinical studies, it was observed that paltusotine reduced desensitization of SST receptors which may result in better clinical responses. Furthermore, the molecule is highly selective for the somatostatin type 2 receptor, rather than the type 5 receptor which may limit hyperglycemia which can occur with somatostatin analogues. Lastly, there are no known drug interactions with paltusotine. Mycappsa interacts with common drugs such as oral contraceptives, insulin and other anti-diabetic drugs, many antacids and proton pump inhibitors, and many common heart medications such as lisinopril and digoxin. The lack of interactions with paltusotine simplifies prescribing for Doctors and protects patients by reducing the risk of adverse effects.
In April, results of an interim analysis of the Acrobat EDGE phase II study suggested that paltusotine may be a highly effective oral therapy for the treatment of acromegaly. Patients enrolled had not achieved normal IGF-1 levels despite previous treatment with injections of SRLs or combination therapy. Patients in the study were taken off the monthly injections of somatostatin receptor ligands and began taking once daily paltusotine. It was demonstrated that oral therapy was able to maintain IGF-1 levels within 15 percent of their baseline level in 10 out of 11 (91%) percent of the patients. None of the patients needed rescue therapy with an injection and no patients discontinued treatment due to side effects. This study showed that paltusotine was as effective as the standard of care monthly injections at maintaining IGF-1 levels. The full results of this study are due in Q4 2020 and a phase 3 trial will begin in early 2021 if the data readout is positive.
The most relevant competitor in the treatment of acromegaly may be Mycapssa, a drug marketed by Chiasma which was recently approved by the FDA as an oral formulation of octreotide. ( I would recommend reading Boston Biotech Advisor’s excellent article on Chiasma.) In the Phase 3 Chiasma OPTIMAL study, which met its endpoint, 58 percent of Mycapssa treated patients maintained their IGF-1 response vs.19 percent in the placebo group. Despite showing superiority over placebo, in this study, 25 percent of the patients required rescue with injectable SSA therapy. Mycapssa has a several year lead in being the first oral to market and offers an alternative to injections for some patients.
In the longer term, Mycappsa may not be the most effective treatment available to patients. An analyst from SVB Leerink provided context on how Mycapssa may compared to paltusotine (formerly called ‘808). He wrote that, “Due to low bioavailability which leaves some patients poorly treated with Mycapssa (16% of pts in the first Ph.3 discontinued due to treatment failure, and only 65% of patients on Mycapssa had their IGF-1 controlled at month 7), patients must trade off efficacy for convenience with Mycapssa, whereas ‘808 may be better on both counts. As a result, we believe that ‘808, which was developed in-house leveraging CRNX’s biology and chemical expertise, has a differentiated target product profile and has limited read-through from Mycapssa.”
The data on paltusotine is very limited due to small cohort size so it is not possible to ascertain whether paltusotine is superior without the results of larger trials. However, if the data presented so far is replicated, paltusotine may be a superior oral treatment option. There will be a data readout by year end in the EVOLVE trial which will assess the efficacy and safety of paltusotine in patients who are responders to octreotide LAR or lanreotide depot monotherapy. The EDGE trial will also provide clarity in that it is designed to assess paltusotine in the treatment of acromegaly in patients who are not full responders to the standard therapy. Crinetics found the data so promising so far that they announced plans to initiate a phase 3 trial in 2021 which likely would be completed by 2022. If results are positive, an FDA approval could occur in 2023.
Another analyst, Tyler Van Buren, from Piper Sandler also had a very positive view of the data Crinetics has presented so far. He noted that, based on early results of the Acrobat Edge study, “the results should translate to the full patient population, and that while management is “too modest to say it,” he believes paltusotine is likely to deliver superior efficacy relative to the other oral programs he’s seen to date.”
Market Opportunities in Acromegaly Chiasma estimates there are approximately 8000 people per year in the US who are treated for acromegaly and they have competitively priced Mycapssa at approximately $60,000 per year. The lower end of prevalence estimates indicate that approximately 3 per 100,000 people worldwide suffer from acromegaly. Analyst Tyler Van Buren estimates the size of the acromegaly market to be $1 billion. Crinetics owns worldwide rights to paltusotine and if the product profile does confer advantages over currently available treatments, and if it is approved, paltusotine is likely to capture a significant part of that $1billion of sales.
Crinetics will be initiating clinical studies for paltusotine in the treatment of carcinoid syndrome associated with neuroendocrine tumors in 2021. According to Dr. Daniel Halperin of MD Anderson Cancer Center, these tumors come from endocrine cells and commonly develop in the lungs, small intestines and pancreas. These tumors are often very difficult to diagnose and diagnosis is common only after they become metastatic. About 80 percent of neuroendocrine tumors have somatostatin receptors and thus drugs like paltusotine can be useful. According to Andrew Hendifar, MD, somatostatin analogue drugs are part of the standard of care of neuroendocrine tumors even in patients without carcinoid syndrome.
Carcinoid syndrome occurs as a result of the tumor releasing substances that cause flushing, heart valve issues, difficulty breathing and diarrhea. According to the National Comprehensive Cancer Network, somatostatin analogues are considered a first line treatments for patients with carcinoid syndrome. 50 to 70 percent tend to report improvement in symptoms using somatostatin analogs while also reaping the benefit of inhibiting the proliferation of tumor cells. Initially SST’s were used to treat the symptoms but it has been well established in the literature that they also slow tumor growth.
These tumors typically over express SST2, somatostatin type 2 receptors. According to an article published in Endocrine Abstracts, “Stimulation of SST2 cannot only inhibit hormone release from the tumor, but also tumor growth. Both SST2 and 3 are involved in apoptosis of neuroendocrine tumor cells.” Paltusotine’s high level of selectivity for the SST2 receptor may translate into better efficacy in the treatment of neuroendocrine tumors given the role of the SST2 receptor. In fact, Crinetics describes paltusotine as an “oral selective SST2 agonist” differentiating it from existing molecules lacking this selectivity. Clinical trials scheduled to begin in early 2021 will determine whether this selectivity translates to improved efficacy in the treatment of neuroendocrine tumors.
Market Opportunity in Neuroendocrine Tumors.
There are 12,000 cases of neuroendocrine tumors (NYSE:NETS) diagnosed annually in the US with 175,000 patients chronically living with the disease. Piper Sandler analyst Tyler Van Buren believes the carcinoid syndrome/NET market is approximately $2 billion.
Sales Potential for Paltusotine
Worldwide sales of lanreotide and octreotide in 2019 were approximately $3 billion and these drugs are prescribed both for acromegaly and for neuroendocrine tumors/carcinoid syndrome. Paltusotine, if it offers superior efficacy, and given its oral route of administration and global opportunity has the potential to achieve $1.5 billion in sales between the two indications. There is a precedent for top selling drugs in these indications to reach sales of $1.5 billion in worldwide sales.
Figure 1: Crinetics Corporate Presentation, August 2020
Crinetics early stage pipeline
In preclinical development is an ACTH antagonist for the treatment of Cushing’s Disease and congenital adrenal hyperplasia. Crinetics Pharmaceuticals also has a molecule which is a SST5 agonist for hyperinsulinism. Both molecules are oral medications that were developed in house and wholly owned. Both candidates will be moved into phase 1 clinical trials in late 2020 or early 2021.
The biggest risk for shareholders of Crinetics Pharmaceuticals is a poor data read out on their main pipeline molecule, paltusotine. Given the significant market opportunity for paltusotine and the early stage of their other molecules, this would make the company significantly less valuable. Analyst Tyler Van Buren believes the early results demonstrating paltusotine’s ability to maintain IGF-1 levels in biochemically uncontrolled acromegaly patients “should translate to “solid efficacy” in the broader patient population, and the full data in the fourth quarter from over 50 patients should be validating.” However, investors should be aware that data sets from larger cohorts do not always show the same pattern as earlier data sets.
Acromegaly and neuroendocrine tumors have known biology and perhaps more importantly, it is known that drugs with this mode of action, (somatostatin analogues) are effective for treatment. This somewhat mitigates the risk of failure due to a lack of efficacy and increases the chance of an approvable product. It also should be noted that efficacy in acromegaly likely reads through to efficacy in neuroendocrine tumors given that the mechanism of action would be validated.
For investors, it is an advantageous situation when it is known what the drug needs to do, drugs exist that do it, but they can be improved upon. Paltusotine fits this description and this makes an investment in Crinetics more compelling. The open question, which is only answerable via clinical studies, is whether Crinetics has achieved the endpoint of improving on available treatments.
Paltusotine, if approved is likely to be almost exclusively prescribed by endocrinologists. It is a market where a small number of prescribers write the vast majority of prescriptions so marketing is straightforward and requires limited resources. Given the very limited treatment options, endocrinologists are likely to be highly interested in a new oral product. Marketing a product to a small, likely well informed market, is an easier path relative to many other products.
CRNX stock trades at approximately $15 per share and has a market cap of approximately $500 million. Quarterly spending for R & D, clinical trials and general expenses is approximately 15 million a quarter so given the $205 million of cash on hand, there is likely adequate capital until 2023.
Analyst Price Targets /Institutional Ownership
Piper Sandler analyst Tyler Van Buren reiterated an Overweight rating and $40 price target on Crinetics stock while Charles Duncan of Cantor Fitzgerald has a price target of $38. Institutional owners include Perceptive Advisors (41%), RA Capital (19 %), Baker Brothers (81%) each increased their position in the last quarter by the amount indicated in parenthesis. All are seasoned biotech hedge fund investors with excellent track records and their votes of confidence should not be overlooked.
Crinetics Pharmaceuticals potentially has a best in class molecule that could realistically achieve peak sales of $1.5 billion if approved. Moreover, the company is making steady progress advancing their other pipeline molecules. The company is well capitalized with $205 million in cash and a $305 million enterprise value. A $500 million market cap is a reasonable valuation given that by 2023, Crinetics has a significant chance of having a blockbuster product approved or nearing approval. In my estimation, there is approximately a 65 percent chance of highly favorable data reading out for acromegaly and NETs given the profile of paltusotine thus far.
If we look forward to 2023, and envision favorable Phase 3 data for paltusotine in acromegaly and neuroendocrine tumors and at least one of the two early stage molecules having advanced, the valuation of Crinetics Pharmaceuticals would more likely be at least $1 billion reflecting a doubling of the stock price. Investors face a substantial downside if data is not favorable for paltusotine and should be fully aware of the binary nature of investing in Crinetics Pharmaceuticals. Investors who find this risk reward profile acceptable may wish to consider an investment in Crinetics Pharmaceuticals.
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Disclosure: I am/we are long CRNX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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