From Sept. 10 to Sept. 15, Crinetics Pharmaceuticals (CRNX -0.40%) stock price gained 83%, and it's still climbing rapidly. The pre-revenue biotech's lead candidate, called paltusotine, reported some great phase 3 results, suggesting that the once-daily oral pill is likely as effective as the existing standard of care for treating acromegaly, which is delivered via injection. Now the company plans to submit a request to regulators to commercialize the medicine sometime in 2024.
That begs the question of whether the stock might be worth a purchase in advance of the regulatory catalyst, which could see it bringing in sales for the first time before the end of next year, or perhaps in 2025. Let's start to answer that question by taking a look at the medicine it might get approved, then checking out its balance sheet to see if it has a chance at success.
The acromegaly market may not allow for a quick hit
Crinetics' near-term prospects rest on how long it takes until paltusotine sales make it profitable, assuming it gets approved to treat acromegaly.
In case you're unfamiliar, acromegaly is a rare hormonal disorder that causes people to experience slow but continuous growth of their bones and certain organs. Benign tumors in the pituitary gland are the most common cause. With the exception of about half of severe cases, it's typically curable with surgery, and it's also treatable with injection medications that are already approved for sale. Management thinks that there are about 11,000 patients in the U.S. who could benefit from its drug, and it estimates that the addressable market for its therapies for acromegaly is worth around $800 million annually. But that's just a small slice of the $2.8 billion market comprising the existing medications.
Knowing a bit about the disease tells us several other things about the market that Crinetics is looking to enter with paltusotine. First, patients may not know they even have acromegaly for many years, and its negative health impacts are unlikely to be fatal on their own. Therefore it is reasonable to assume that it will take time to onboard a significant number of patients for treatment, as the slowly building burden of symptoms is unlikely to make seeking treatment a critical health priority at any given point in time. Second, as there are already invasive interventions that can cure patients, and also minimally invasive interventions that can stabilize the disease's progression, the biotech will be facing a market share fight from day one. The company may struggle to reach profitability.
It's true that taking one pill per day is less of a burden than getting a one-time surgery or monthly injections, so most patients will probably be willing to switch to taking the pill. But switching patients from one therapy to another requires at least a doctor's visit, which means that adoption of paltusotine will be slowed by more than one factor. Plus, the market simply isn't very big to begin with. It could still be a commercial success in the long term, of course, but investors should keep their growth expectations guarded, especially for the first few quarters of the drug's rollout.
There's plenty of gas in the tank for now
Now that we've covered the competitive environment that Crinetics will face, it's time to see whether its resources will stack up to those of the competition.
As of Q2, it had $264 million in cash, equivalents, and short-term investments, and negligible debt. On Sept. 12, it announced a new stock offering that it anticipates will raise another $350 million, which will leave it with $614 million in total. Its trailing 12-month (TTM) operating expenses are $197 million. So it looks like it has around three years' worth of cash at its present rate of spending, which is quite good.
That should be more than enough to get paltusotine out the door, even if regulators have an issue that needs addressing. Furthermore, it should have an abundance of time for paltusotine sales to pick up if it struggles to find a defensible market share initially. It's also important to note that Crinetics has a trio of mid-stage programs in development for other conditions. Over the next few years it'll be reporting data from those candidates, which could buoy its share prices alongside its growing revenue. All of the above are bullish factors, to say the least.
Right now it does indeed look like Crinetics is a decent stock to buy for investors who are comfortable with the standard biotech stock stock risks (which is to say a high level of risk). It won't need to raise money again anytime soon, and if it does, it will probably be able to do so using debt rather than by issuing stock. Just remember that commercializing paltusotine probably won't deliver big earnings overnight.
