Crinetics Pharmaceuticals(CRNX) - 2020 Q4 - Annual Report

PART I Item 1 Business Crinetics Pharmaceuticals, Inc. is a clinical-stage pharmaceutical company focused on developing novel oral nonpeptide therapeutics for rare endocrine diseases and endocrine-related tumors - Crinetics Pharmaceuticals, Inc. is a clinical-stage pharmaceutical company focused on the discovery, development, and commercialization of novel therapeutics for rare endocrine diseases and endocrine-related tumors[11] - The company's pipeline includes paltusotine (for acromegaly and neuroendocrine tumors), CRN04777 (for congenital hyperinsulinism), and CRN04894 (for diseases of excess adrenocorticotrophic hormone, including Cushing's Disease, congenital adrenal hyperplasia, and Ectopic ACTH Syndrome)[11] - Paltusotine, the lead product candidate, is an oral selective nonpeptide somatostatin receptor type 2 (SST2) agonist, receiving FDA orphan drug designation for acromegaly in July 2020[12][14] - Positive topline results from Phase 2 ACROBAT trials (Evolve and Edge) in acromegaly showed once-daily oral paltusotine maintained IGF-1 levels, with a Phase 3 program (PATHFNDR-1 and PATHFNDR-2) planned for Q2 2021 and topline data expected in 2023[14][38] - CRN04777, an SST5 agonist for congenital hyperinsulinism, received FDA rare pediatric disease designation in September 2020, with Phase 1 preliminary data expected in mid-2021 (SAD) and H2 2021 (MAD)[16][41][47] - CRN04894, an ACTH antagonist for diseases of excess ACTH, is in Phase 1 clinical development, with preliminary data expected in H1 2021 (SAD) and H2 2021 (MAD)[17][56] - The company's strategy includes focusing on rare endocrine diseases with unmet medical needs, rapidly advancing multiple product candidates using validated biomarkers, expanding the pipeline through GPCR expertise, and retaining commercialization rights[19][20] - The company relies on third parties for manufacturing product candidates for preclinical and clinical development and plans to build its own commercial organization in major markets, potentially using strategic partners for other territories[63][65] - Intellectual property protection is crucial, with issued U.S. patents for paltusotine extending to 2037 (composition of matter), 2039 (crystalline forms), and applications for formulations to 2041, while CRN04894 patents extend to 2039, and CRN04777 applications to 2040[60] Item 1A Risk Factors The company faces substantial risks due to its limited operating history, significant accumulated losses, and the need for substantial additional financing - The company has a limited operating history (commenced operations in 2010) and has incurred significant operating losses since inception, with an accumulated deficit of $167.6 million as of December 31, 2020, expecting to incur significant losses for the foreseeable future[101] - Substantial additional financing will be required to achieve goals, and failure to obtain necessary capital could force delays or termination of product development programs and commercialization efforts, though existing cash, cash equivalents, and investment securities ($170.9 million as of December 31, 2020) are estimated to fund operations for at least the next 12 months[101][103][241] - Drug development is a lengthy, expensive, and uncertain process with a high failure rate, where preclinical and early clinical trial results are not necessarily predictive of future outcomes, and product candidates may fail in later stages or not receive regulatory approval[107] - Clinical trials face risks of delays or termination due to factors such as regulatory disagreements, patient enrollment difficulties (especially for rare diseases like acromegaly, affecting approximately 26,000 people in the U.S.), unforeseen side effects, and the impact of the COVID-19 pandemic on drug manufacturing, nonclinical activities, and trial conduct[109][112][114] - The company relies heavily on third parties for conducting preclinical studies, clinical trials, and manufacturing product candidates, where failures by these third parties to comply with regulations (e.g., GCP, cGMP) or meet deadlines could significantly delay development and increase costs[125][127] - Commercial success depends on market acceptance, adequate coverage, and reimbursement from third-party payors, which are uncertain and subject to challenges on pricing and cost-effectiveness, especially given the small market for rare endocrine diseases, making patient identification and market share critical[132][134][138] - The company's intellectual property, including patents for paltusotine, CRN04894, and CRN04777, may not provide sufficient protection against competitors, and patents can be challenged, invalidated, or circumvented, with some IP subject to Bayh-Dole Act provisions due to government funding (SBIR Grants)[160][162][164] - Compliance with extensive U.S. and foreign healthcare laws and regulations (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, GDPR) is costly and complex, with non-compliance potentially resulting in significant penalties, fines, and reputational harm[147][150] Item 1B Unresolved Staff Comments There are no unresolved staff comments from the SEC - No unresolved staff comments[203] Item 2 Properties The company's corporate headquarters is a 29,499 square foot facility in San Diego, California, with a lease expiring in August 2025 - Corporate headquarters: 29,499 square foot facility in San Diego, California[204] - Lease for the facility expires in August 2025, with an option to extend for an additional five years[204] Item 3 Legal Proceedings The company is not currently a party to any material legal proceedings, though it may be involved in claims incident to the ordinary course of business - Not currently a party to any material legal proceedings[205] Item 4 Mine Safety Disclosures There are no mine safety disclosures to report - No mine safety disclosures[206] PART II Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock is listed on the Nasdaq Global Select Market under the ticker symbol "CRNX", with 13 registered holders as of February 26, 2021, and no cash dividends paid or anticipated - Common stock is listed on the Nasdaq Global Select Market under the ticker symbol "CRNX"[209] - As of February 26, 2021, there were 13 registered holders of record of the company's common stock[209] - The company has never declared or paid any cash dividends on its capital stock and does not anticipate paying any in the foreseeable future[210] - Net proceeds from the July 2018 IPO were approximately $106.5 million, of which $57.9 million has been used for general corporate purposes, including the development of paltusotine and other R&D programs[211] - No issuer repurchases of equity securities were made[211] Item 6 Selected Financial Data This item is not applicable to the company - Item 6, Selected Financial Data, is not applicable[212] Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the company's financial condition and operational results, highlighting its focus on rare endocrine diseases and its pipeline, detailing funding sources, accumulated deficit, and expected increases in expenses and losses - The company is a clinical-stage pharmaceutical company focused on rare endocrine diseases and endocrine-related tumors, with product candidates including paltusotine, CRN04777, and CRN04894[215] - As of December 31, 2020, the company had an accumulated deficit of $167.6 million and unrestricted cash, cash equivalents, and investment securities of $170.9 million[215] - The company expects its expenses and operating losses to increase substantially as it continues clinical trials, research and development, hires additional personnel, protects intellectual property, and incurs costs associated with being a public company[215] Summary of Results of Operations (in thousands) | Metric | 2020 | 2019 | 2018 | | :-------------------------- | :---------- | :---------- | :---------- | | Grant revenues | $71 | $1,193 | $2,428 | | Research and development | $56,998 | $41,506 | $24,479 | | General and administrative | $18,026 | $13,519 | $6,659 | | Total operating expenses | $75,024 | $55,025 | $31,138 | | Loss from operations | $(74,953) | $(53,832) | $(28,710) | | Other income (expense), net | $1,141 | $3,410 | $1,595 | | Net loss | $(73,812) | $(50,422) | $(27,115) | - Research and development expenses increased by $15.5 million from 2019 to 2020, primarily due to increased spending on manufacturing and development activities for product candidates and higher personnel-related costs[234] - General and administrative expenses increased by $4.5 million from 2019 to 2020, mainly due to higher personnel-related costs and spending on recruiting and pre-commercialization activities[234] Summary of Cash Flows (in thousands) | Activity | 2020 | 2019 | 2018 | | :-------------------------------------- | :---------- | :---------- | :---------- | | Net cash used in operating activities | $(62,027) | $(46,381) | $(19,459) | | Net cash provided by (used in) investing activities | $217 | $41,667 | $(119,458) | | Net cash provided by financing activities | $114,571 | $67 | $170,198 | | Net change in cash, cash equivalents and restricted cash | $52,761 | $(4,647) | $31,281 | - Net cash provided by financing activities in 2020 was primarily from a public offering ($107.9 million net) and an ATM Offering ($6.4 million net)[239][244] - The company believes its existing cash, cash equivalents, and investment securities will be sufficient to fund operations for at least the next 12 months from the filing date of the 10-K[241] Item 7A Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risk primarily through interest rate fluctuations on its cash, cash equivalents, and short-term debt securities, though the short-term nature of these instruments limits material impact - Primary market risk exposure is interest rate sensitivity on cash, cash equivalents, and short-term debt securities; however, the short-term nature of these instruments is not expected to have a material impact[247] - Foreign currency exchange rate risk arises from contracts with international vendors and the Australian subsidiary (CAPL), but realized and unrealized gains/losses from foreign currency transactions were not material for 2020 and 2019[248] - Inflation generally affects labor and clinical trial costs, but has not had a material effect on results of operations during the periods presented[249] Item 8 Financial Statements and Supplementary Data The consolidated financial statements and the report of the independent registered accounting firm are incorporated by reference from Item 15 of this report - Consolidated financial statements and the report of the independent registered accounting firm are incorporated by reference from Item 15[250] Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure[251] Item 9A Controls and Procedures Management evaluated the effectiveness of the company's disclosure controls and procedures, concluding they were effective at a reasonable assurance level as of December 31, 2020 - Disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level as of December 31, 2020[254] - Management assessed and concluded that internal control over financial reporting was effective as of December 31, 2020[255] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2020[256] Item 9B Other Information There is no other information to report under this item - No other information to report[257] PART III Item 10 Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance, including the Code of Business Conduct and Ethics, is incorporated by reference from the definitive proxy statement for the 2021 annual meeting of stockholders - Information is incorporated by reference from the definitive proxy statement for the 2021 annual meeting of stockholders[260] - A Code of Business Conduct and Ethics, applicable to officers, directors, and employees, is available on the company's website[261] Item 11 Executive Compensation Information concerning executive compensation is incorporated by reference from the definitive proxy statement - Information is incorporated by reference from the definitive proxy statement[262] Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, is incorporated by reference from the definitive proxy statement - Information is incorporated by reference from the definitive proxy statement[263] Item 13 Certain Relationships, Related Transactions and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the definitive proxy statement - Information is incorporated by reference from the definitive proxy statement[264] Item 14 Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the definitive proxy statement - Information is incorporated by reference from the definitive proxy statement[265] PART IV Item 15 Exhibits, Financial Statement Schedules This section lists the documents filed as part of the report, including the consolidated financial statements and the report of the independent registered public accounting firm, as well as an exhibit index - The financial statements of Crinetics Pharmaceuticals, Inc. and the report of its independent registered public accounting firm are included in this Annual Report on Form 10-K[269] - An Exhibit Index is provided, listing various documents incorporated by reference or filed herewith, including corporate governance documents, equity plans, employment agreements, and certifications[269][361][362] Item 16 Form 10-K Summary There is no Form 10-K Summary provided - No Form 10-K Summary is provided[270] Financial Statements Report of Independent Registered Public Accounting Firm BDO USA, LLP, the independent registered public accounting firm, issued an unqualified opinion on the consolidated financial statements of Crinetics Pharmaceuticals, Inc. for the years ended December 31, 2020, 2019, and 2018, stating they are presented fairly in all material respects in conformity with U.S. GAAP - BDO USA, LLP provided an unqualified opinion on the consolidated financial statements for the three years ended December 31, 2020[275] - The company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases[276] Consolidated Balance Sheets The consolidated balance sheets present the company's financial position as of December 31, 2020, and 2019, showing total assets of $183.4 million in 2020 (up from $130.4 million in 2019), driven by increases in cash and cash equivalents Consolidated Balance Sheet Highlights (in thousands) | Metric | December 31, 2020 | December 31, 2019 | | :-------------------------------------- | :---------------- | :---------------- | | Cash and cash equivalents | $93,087 | $40,326 | | Investment securities | $77,793 | $78,066 | | Total current assets | $177,492 | $123,339 | | Total assets | $183,445 | $130,377 | | Total current liabilities | $10,489 | $8,340 | | Total liabilities | $14,526 | $13,238 | | Common stock and paid-in capital | $336,508 | $210,793 | | Accumulated deficit | $(167,614) | $(93,802) | | Total stockholders' equity | $168,919 | $117,139 | - Total assets increased from $130.4 million in 2019 to $183.4 million in 2020, primarily due to an increase in cash and cash equivalents[280][282] - The accumulated deficit grew from $93.8 million in 2019 to $167.6 million in 2020, reflecting ongoing net losses[282] Consolidated Statements of Operations and Comprehensive Loss The consolidated statements of operations show the company's financial performance for the years ended December 31, 2020, 2019, and 2018, with net loss significantly increasing to $73.8 million in 2020 from $50.4 million in 2019, driven by higher research and development and general and administrative expenses Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Metric | 2020 | 2019 | 2018 | | :---------------------------------------- | :---------- | :---------- | :---------- | | Grant revenues | $71 | $1,193 | $2,428 | | Research and development | $56,998 | $41,506 | $24,479 | | General and administrative | $18,026 | $13,519 | $6,659 | | Total operating expenses | $75,024 | $55,025 | $31,138 | | Loss from operations | $(74,953) | $(53,832) | $(28,710) | | Total other income, net | $1,141 | $3,410 | $1,595 | | Net loss | $(73,812) | $(50,422) | $(27,115) | | Comprehensive loss | $(73,935) | $(50,335) | $(27,054) | | Net loss per share - basic and diluted | $(2.42) | $(2.09) | $(2.23) | | Weighted average shares - basic and diluted | 30,448 | 24,175 | 12,142 | - Net loss increased by $23.4 million from $50.4 million in 2019 to $73.8 million in 2020[232] - Grant revenues decreased significantly from $1.2 million in 2019 to $71 thousand in 2020, primarily due to the completion of an SBIR Grant[234] - Research and development expenses increased by $15.5 million (37.3%) from $41.5 million in 2019 to $57.0 million in 2020[234] - General and administrative expenses increased by $4.5 million (33.3%) from $13.5 million in 2019 to $18.0 million in 2020[234] Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) This statement details changes in the company's convertible preferred stock and stockholders' equity (deficit) for the three years ended December 31, 2020, with significant increases in common stock and paid-in capital from public offerings and ATM sales, and an increase in accumulated deficit due to net loss Changes in Stockholders' Equity (Deficit) (in thousands) | Metric | Balance at Jan 1, 2018 | Balance at Dec 31, 2018 | Balance at Dec 31, 2019 | Balance at Dec 31, 2020 | | :-------------------------------------- | :--------------------- | :---------------------- | :---------------------- | :---------------------- | | Common Stock and Paid-In Capital | $1,243 | $203,544 | $210,793 | $336,508 | | Accumulated Other Comprehensive Income | $0 | $61 | $148 | $25 | | Accumulated Deficit | $(16,265) | $(43,380) | $(93,802) | $(167,614) | | Total Stockholders' Equity (Deficit) | $(15,022) | $160,225 | $117,139 | $168,919 | - Common stock and paid-in capital increased by $114.3 million in 2020, primarily from the issuance of common stock, net of transaction costs[288] - Accumulated deficit increased by $73.8 million in 2020 due to the net loss for the year[288] - Stock-based compensation recognized was $10.4 million in 2020, $6.3 million in 2019, and $2.3 million in 2018[288] Consolidated Statements of Cash Flows The consolidated statements of cash flows detail the cash generated and used across operating, investing, and financing activities for the years ended December 31, 2020, 2019, and 2018, showing a net increase in cash of $52.8 million in 2020 primarily from public offerings, contrasting with a net decrease in 2019 Consolidated Statements of Cash Flows (in thousands) | Activity | 2020 | 2019 | 2018 | | :-------------------------------------- | :---------- | :---------- | :---------- | | Net cash used in operating activities | $(62,027) | $(46,381) | $(19,459) | | Net cash provided by (used in) investing activities | $217 | $41,667 | $(119,458) | | Net cash provided by financing activities | $114,571 | $67 | $170,198 | | Net change in cash, cash equivalents and restricted cash | $52,761 | $(4,647) | $31,281 | | Cash, cash equivalents and restricted cash - end of period | $93,587 | $40,826 | $45,473 | - Net cash used in operating activities increased to $62.0 million in 2020 from $46.4 million in 2019, primarily due to increased development and manufacturing activities and higher personnel costs[239] - Net cash provided by financing activities significantly increased to $114.6 million in 2020, mainly from net proceeds of $107.9 million from a public offering and $6.4 million from an ATM Offering[239] Notes to Consolidated Financial Statements The notes provide detailed information on the company's organization, significant accounting policies, and specific financial statement line items, including revenue recognition, R&D costs, stock-based compensation, and income tax provisions - The company is a clinical-stage pharmaceutical company incorporated in Delaware in 2008, with a wholly-owned Australian subsidiary (CAPL) established in 2017[296] - The company has an accumulated deficit of $167.6 million as of December 31, 2020, and expects to incur net losses for the foreseeable future, requiring substantial additional capital[299] - Grant revenues are recognized as reimbursable grant costs are incurred, with SBIR Grants being the primary source, though not expected to be material in the future[314] - Research and development expenses are recognized as incurred, including external costs for CROs, manufacturing, and personnel, with the Australian Tax Incentive reducing R&D expense by $0.6 million in 2020, $1.0 million in 2019, and $1.2 million in 2018[315][317] - Stock-based compensation expense, estimated using the Black-Scholes model, totaled $10.4 million in 2020, $6.3 million in 2019, and $2.3 million in 2018[351] - As of December 31, 2020, the company had federal, state, and foreign net operating loss (NOL) carryforwards of approximately $118.2 million, $124.1 million, and $1.6 million, respectively, with a full valuation allowance established against net deferred tax assets due to uncertainty of realization[352][355] - The company adopted ASU 2019-12 (Income Taxes) in Q4 2020 with no material impact and is evaluating ASU 2016-13 (Credit Losses) and ASU 2020-06 (Convertible Instruments) for future impact[323][325][327]