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About Crinetics

In going back to my biopharmaceutical ways, I am excited to learn more about and present on a company with the mission of developing effective therapies for diseases and disorders that impact millions upon millions of people each and every single day.

Headquartered in San Diego, California, Crinetics Pharmaceuticals is focused on best tending to those that struggle with endocrine diseases, including Cushing’s disease and acromegaly along with some more specific metabolic disorders as well, aiming to best treat obesity and diabetes, the company also dedicating a less sizable yet impactful portion of its research and development (R&D) towards oncology, or research geared towards curing cancer.

While most of these ailments speak for themselves, I’ll add just a little more on endocrine diseases, as the body’s endocrine system itself is described as a network of glands that produce hormones, and these hormones play an integral role in regulating a number of bodily functions, largely relating to a human’s growth, reproduction, metabolism and mood.

Suffice it to say Crinetics Pharmaceuticals is working on some very important stuff.

Like practically any other pharmaceutical company, the team at Crinetics spends the vast majority of its time, energy and resources on researching, designing, developing and manufacturing drugs, subsequently having them approved (that is, if they are ready or should actually be approved) by the Food and Drug Administration (FDA), eventually selling them to doctors and pharmacies across the globe, so as to ultimately put solutions in the hands of consumers.

In the past, I’ve had the pleasure of analyzing both seasoned pharmaceutical companies and much younger, pre-revenue, clinical trial companies, and given the relatively small amount of information I know about Crinetics, everything I have researched thus far hints that it is more of the clinical trial persuasion. 

Upon initially looking to verify whether or not I am barking up the right tree, according to the company’s website it has a lot of potential drug candidates in its pipeline, some much further along the approval process than others, but it does not yet have any drugs out and about in the marketplace today. Furthest down the line is paltusotine, an advanced drug candidate aiming to treat acromegaly, a rare but incredibly serious medical condition caused by tumors in the pituitary gland, leading to the excessive production of growth hormones. 

In addition to the company’s other candidates within its arsenal, I decided to jump the gun a little bit and see whether or not Crinetics is generating any revenues, and while given its current market status (or really lack thereof) I assumed it wouldn’t have any to report, I found that the firm actually did have a little to offer in this respect, generating revenues through partnerships and licensing agreements between itself and other drug companies. An example of one its licensing partnerships is with a Japanese pharmaceutical company by the name of Sanwa Kagaku Kenkyusho, the agreement between the two stipulating that Crinetics would have the right to both develop and commercialize paltusotine in Japan. By virtue of the agreement, Crinetics received an initial payment along with royalties should things go smoothly.

Clearly, Crinetics is an early-stage drug company, but with that, there seems to be a good amount to be excited about.

Let’s talk turkey and learn more about this company through a more financial lens and see just how strong a position this company is in, and more importantly, gain a perspective regarding its financial future and efficacy.

Crinetics’ stock financials

According to its current market capitalization, Crinetics Pharmaceuticals is a $5.28 billion company with a stock price of $59.09 while not having a price-to-earnings (P/E) ratio on display nor issuing its shareholders any sort of regular annual dividend.

Given the content of the previous paragraphs, I sure hope all of this makes sense, because it sure makes sense to me. Primarily, it would be almost ridiculous if a clinical stage enterprise as young as this one (founded in 2008) elected to drain cash in the form of a dividend, as even if this company were to become wildly successful in the next year or so and all of the sudden have oodles of drugs out on the marketplace, Crinetics would still be undoubtedly best served if it conserved cash and put the vast majority of it towards further research and development. 

When it comes to the company being void of a price-to-earnings ratio, everything up to this point leads me to believe that Crinetics hasn’t any positive earnings to report, as I presume like the vast majority of other clinical trial pharmaceutical companies I’ve analyzed, this one is not profitable, and probably not even close to it.

Nevertheless, this is fine for the time being because it is what any potential shareholder should’ve expected. 

In breaking this company down a little bit further, Crinetics’ executive team is responsible for investing with and responsibly managing $635 million in terms of total assets along with $96 million in total liabilities, which given the amount of further development and investment this company is set to do in the years and decades to come, this is just about as clean a balance sheet as it gets, with its total assets weighing so much heavier than its outstanding liabilities, giving itself a lot of fuel in helping it attain FDA approvals for the drugs within its pipeline, and simultaneously invest in state-of-the-art equipment to accelerate these extensive approval processes, also dedicating some cash towards hiring more top talent.

This is a great balance sheet, and I’d like to meet someone who disagrees.

Pertaining to the company’s income statement, Crinetics annual revenues have been expectedly low, generally ranging between $1 million and $4 million each year over the last four years, which, in the context of the hundreds of other companies I’ve analyzed before, typically ranging in the multi-billions, is quite low, but like anything in life, context matters a lot and given the present status of its pipeline and the nature of drug discovery, patience and a cool temperament are required, to say the least. 

Like I said before, I take some comfort in finding that while it hasn’t gotten any of its drugs officially out into the market at mass, it has still been quite proactive in finding ways to generate revenues, again, through licensing partnerships with other, perhaps more reputable and established companies.

In prefacing my look into the company’s cash flow statement, I nearly winced prior to clicking on the “cash flow statement” tab on Charles Schwab’s research platform, mainly because I knew the company was going to be hemorrhaging cash through its total cash from operations, and just didn’t know how bad it would end up looking. Thankfully, when incorporating the most recently reported strength of its balance sheet, things aren’t nearly as grim as they could be for Crinetics. For instance, Crinetics’ total cash from operations have indeed been becoming more red between and during 2019 and 2023, basing out at a high of -$46 million in 2019 and gradually losing more and more each year to its lowest, most recently reported point of -$166 million in 2023.

Of course, this has been a direct byproduct of the company upping its research and development efforts, which, as a prospective shareholder, I am nothing but in favor of, and again, so long as it can afford to absorb these losses, which it can given the state of its balance sheet, you aren’t going to be hearing many complaints from my end of the table. 

This is the status quo for a company of Crinetics’ stature and for the next handful of years, I am okay with that, especially if the company establishes a few more licensing partnerships and receives some much needed landmark drug approvals within the next year or two.

Crinetics’ stock fundamentals

This is a first.

To be as candid as can be, I wouldn’t think it would be worth anyone’s precious time to exert a lot of brain power in looking into Crinetics’ net profit margin. 

If you’ve been reading up to this point, you know that it is not yet profitable, and in being the realist that I am, it probably won’t be in the next handful of years, and for this company, that’s alright. This is most certainly not a pass nor me saying that this company can just dilly-dally and maybe it eventually becomes profitable or maybe it doesn’t, however, over the years of analyzing and writing about companies, one of the most important things I’ve learned is that you can frame things and bend the truth so as to churn out the easiest and most desirable rating, but at the end of the day objectivity is one of the most critical traits of any good investor, whether they are managing a single dollar or a multi-billion-dollar fund running institutional money. 

All of this being said, I’m not going to try and throw some sort of spin on this company’s negative net profit margin, as the facts of this investment case are just that, and the less I haphazardly speculate, the better. 

It is what it is, and so long as I see some progress in the quarters and three or so years to come as it relates to profitability, I refuse to get hung up on the very nature of biotech and smaller innovative pharma.

Should you buy Crinetics stock?

What we know is that Crinetics Pharmaceuticals operates in a largely recession resistant industry, it has many angles of innovation within its pipeline, its executives manage a phenomenally structured balance sheet, it is making some money and the money it is making isn’t directly from any drugs its selling, but from strategic licensing partnerships, its bleeding cash at an (expected) accelerated rate and it is most definitely not (net) profitable.

At any rate, for these sorts of companies, I think it is important to zoom out just a bit and look at the overall demand in in terms of the diseases and illnesses they are looking to treat, and in the case of clinical-stage Crinetic, its focus lies in endocrine diseases, which are sadly becoming more prevalent globally, and upon conducting even more research, I found that diabetes just so happens to actually be one of the most common endocrine disorders, and given the prevailing demand for products from behemoths such as Eli Lilly and Novo Nordisk, I think there’s a higher real chance than not that Crinetics benefits markedly from diabetes trends alone.

While there is obviously a decent deal of uncertainty still baked into this company and its stock (NASDAQ: CRNX), I think the risk profile is still favorable and that’s why I am offering the stock a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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