EXHIBIT 10.1
Crinetics Pharmaceuticals, Inc. Excess Deferral Plan
Adoption Agreement
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 6, 2024, the registrant had
CRINETICS PHARMACEUTICALS, INC. QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2024
TABLE OF CONTENTS
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Item 1. |
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2 |
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Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023 |
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3 |
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4 |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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27 |
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Item 1. |
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28 |
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Item 1A. |
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28 |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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29 |
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Item 6. |
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30 |
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1
PART I — FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Crinetics Pharmaceuticals, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
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March 31, |
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December 31, |
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2024 |
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2023 |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Investment securities |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Investment in Radionetics |
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Restricted cash |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Accrued compensation and related expenses |
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Deferred revenue |
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Operating lease liabilities |
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Total current liabilities |
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Operating lease liabilities, non-current |
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Deferred revenue, non-current |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock and paid-in capital, $ |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See the accompanying notes to these unaudited condensed consolidated financial statements.
2
Crinetics Pharmaceuticals, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)
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Three months ended March 31, |
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2024 |
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2023 |
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Revenues |
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$ |
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$ |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest income |
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Other expense, net |
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Total other income, net |
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Loss before equity method investment |
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Loss on equity method investment |
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Net loss |
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$ |
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$ |
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Net loss per share: |
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Net loss per share - basic and diluted |
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$ |
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$ |
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Weighted average shares - basic and diluted |
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Other comprehensive income (loss): |
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Unrealized gain (loss) on investment securities |
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$ |
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$ |
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Comprehensive loss |
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$ |
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$ |
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See the accompanying notes to these unaudited condensed consolidated financial statements.
3
Crinetics Pharmaceuticals, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
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Common Stock |
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Common stock |
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Accumulated |
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Accumulated |
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Total |
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Shares |
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Capital |
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Income (loss) |
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Deficit |
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Equity |
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Balance at January 1, 2024 |
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$ |
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$ |
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$ |
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$ |
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Issuance of common stock, net of $ |
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— |
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— |
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Exercise of stock options |
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— |
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— |
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Issuance of common stock upon vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Comprehensive loss |
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— |
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— |
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( |
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— |
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Net loss |
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— |
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— |
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— |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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Balance at January 1, 2023 |
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$ |
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$ |
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$ |
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Exercise of stock options |
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— |
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— |
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Issuance of common stock upon vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Comprehensive income |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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See the accompanying notes to these unaudited condensed consolidated financial statements.
4
Crinetics Pharmaceuticals, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Three months ended |
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March 31, |
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2024 |
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2023 |
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Operating activities: |
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Net loss |
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$ |
( |
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$ |
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Reconciliation of net loss to net cash used in operating activities: |
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Stock-based compensation |
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Depreciation and amortization |
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Noncash lease expense |
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Accretion of purchase discounts and amortization |
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Loss on disposal of property and equipment |
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Loss on equity method investment |
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Noncash license revenues |
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Increase (decrease) in cash resulting from changes in: |
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Prepaid expenses and other assets |
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Accounts payable and accrued expenses, compensation and related expenses |
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Deferred revenue |
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Operating lease liabilities |
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Net cash used in operating activities |
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Investing activities: |
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Purchases of investment securities |
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Maturities of investment securities |
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Purchases of property and equipment |
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Net cash provided by investing activities |
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Financing activities: |
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Proceeds from issuance of common stock, net of $ |
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Proceeds from exercise of stock options |
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Net cash provided by financing activities |
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Net change in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Components of cash, cash equivalents and restricted cash: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Noncash investing and financing activities: |
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Accrued financing costs |
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$ |
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$ |
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Stock options exercised receivable |
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$ |
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$ |
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Amounts accrued for purchases of property and equipment |
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$ |
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$ |
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Private company shares received under licensing arrangement |
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$ |
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$ |
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See the accompanying notes to these unaudited condensed consolidated financial statements.
5
Crinetics Pharmaceuticals, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. ORGANIZATION AND BASIS OF PRESENTATION
Description of Business
Crinetics Pharmaceuticals, Inc. (the “Company”) is a clinical-stage pharmaceutical company incorporated in Delaware on November 18, 2008, and based in San Diego, California. The Company is focused on the discovery, development, and commercialization of novel therapeutics for rare endocrine diseases and endocrine-related tumors. In January 2017, the Company established a wholly-owned Australian subsidiary, Crinetics Australia Pty Ltd (“CAPL”), in order to conduct various preclinical and clinical activities for its development candidates.
Unaudited Interim Financial Information
The accompanying interim condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2024 and 2023, and the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023, and the related disclosures are unaudited. In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2024 and the results of its operations and cash flows for the three months ended March 31, 2024 and 2023 in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The results for the three months ended March 31, 2024 are not necessarily indicative of the results expected for the full fiscal year or any other interim period.
These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the SEC on February 28, 2024. The condensed consolidated balance sheet as of December 31, 2023, has been derived from the audited consolidated financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
Principles of Consolidation and Foreign Currency Transactions
The condensed consolidated financial statements include the accounts of the Company and CAPL. All intercompany accounts and transactions have been eliminated in consolidation. The functional currency of both the Company and CAPL is the U.S. dollar. Assets and liabilities that are not denominated in the functional currency are remeasured into U.S. dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income (expense), in the condensed consolidated statements of operations and comprehensive loss and were not material for all periods presented.
Segment Reporting
Operating segments are identified as components of an enterprise about which discrete financial information is available for evaluation by the chief operating decision-maker ("CODM") in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in
Liquidity
From inception, the Company has devoted substantially all of its efforts to drug discovery and development, and conducting preclinical studies and clinical trials. The Company has a limited operating history, and the sales and income potential of the Company’s business and market are unproven. Successful transition to attaining profitable operations is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. The Company has experienced net losses and negative cash flows from operating activities since its inception and has an accumulated deficit of $
As of March 31, 2024, the Company had $
The Company expects to continue to incur net losses for the foreseeable future and believes it will need to raise substantial additional capital to accomplish its business plan over the next several years. The Company plans to continue to fund its losses from operations and capital funding needs through a combination of equity offerings, debt financings or other sources, including potential collaborations, licenses, and other similar arrangements. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations and
6
prospects. There can be no assurance as to the availability or terms upon which such financing and capital might be available in the future.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
During the three months ended March 31, 2024, there were no changes to our significant accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Net Loss Per Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock and dilutive common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Dilutive common stock equivalents are comprised of common stock subject to repurchase and stock options outstanding under the Company’s stock option plan. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding as inclusion of the potentially dilutive securities on loss per share would be antidilutive.
Potentially dilutive securities (in common stock equivalent shares) not included in the calculation of diluted net loss per share because to do so would be anti-dilutive are as follows (in thousands):
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As of March 31, |
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2024 |
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2023 |
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Stock options |
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Restricted stock units |
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Employee stock purchase plan |
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Total |
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Recent Accounting Pronouncements
ASU 2023-07
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures (“Topic 280”), which modifies the disclosure and presentation requirements of reportable segments. The amendments in the update require the disclosure of significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit and loss. The amendments also require disclosure of all other segment items by reportable segment and a description of its composition. Additionally, the amendments require disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. Lastly, the amendment requires that a public entity that has a single reportable segment provide all the disclosures required by ASU 2023-07 and all existing segment disclosures in Topic 280. This update is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have on the presentation of its condensed consolidated financial statements and accompanying notes.
ASU 2023-09
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
3. INVESTMENT SECURITIES
The Company reports its available-for-sale investment securities at their estimated fair values. The following is a summary of the available-for-sale investment securities held by the Company as of March 31, 2024 and December 31, 2023 (in thousands):
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As of March 31, 2024 |
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Amortized |
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Gross |
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Gross |
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Fair |
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Available-for-sale investment securities: |
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U.S. government obligations |
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$ |
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$ |
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$ |
( |
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$ |
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Agency obligations |
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Certificates of deposit |
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( |
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Corporate debt securities |
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( |
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Total |
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$ |
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$ |
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$ |
( |
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$ |
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7
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As of December 31, 2023 |
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Amortized |
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Gross |
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Gross |
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Fair |
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Available-for-sale investment securities: |
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U.S. government obligations |
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$ |
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$ |
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$ |
( |
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$ |
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Agency obligations |
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Certificates of deposit |
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( |
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Corporate debt securities |
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|
( |
) |
|
|
|
|||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
As of March 31, 2024 and December 31, 2023, available-for-sale investment securities by contractual maturity were as follows (in thousands):
|
|
As of March 31, 2024 |
|
|
As of December 31, 2023 |
|
||||||||||
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
||||
Available-for-sale investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Due in one year or less |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Due after one year through five years |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following is a summary of the available-for-sale investment securities by length of time in a net loss position as of March 31, 2024 and December 31, 2023 (in thousands):
|
|
As of March 31, 2024 |
|
|||||||||||||||||||||
|
|
Less Than 12 Months |
|
|
More Than 12 Months |
|
|
Total |
|
|||||||||||||||
|
|
Fair |
|
|
Gross |
|
|
Fair |
|
|
Gross |
|
|
Fair |
|
|
Gross |
|
||||||
Available-for-sale investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. government obligations |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
Agency obligations |
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
||
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Corporate debt securities |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
|
|
As of December 31, 2023 |
|
|||||||||||||||||||||
|
|
Less Than 12 Months |
|
|
More Than 12 Months |
|
|
Total |
|
|||||||||||||||
|
|
Fair |
|
|
Gross |
|
|
Fair |
|
|
Gross |
|
|
Fair |
|
|
Gross |
|
||||||
Available-for-sale investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. government obligations |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
Agency obligations |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Certificates of deposit |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|||
The Company reviewed its investment holdings as of March 31, 2024 and December 31, 2023 and determined that the decline in fair value is attributable to changes in interest rates and not credit quality, and as the Company does not intend to sell the investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. Therefore, there were
8
4. FAIR VALUE MEASUREMENTS
Investment Securities
The Company holds investment securities that consist of highly liquid, investment grade debt securities. The Company determines the fair value of its investment securities based upon one or more valuations reported by its investment accounting and reporting service provider. The investment service provider values the securities using a hierarchical security pricing model that relies primarily on valuations provided by an industry-recognized valuation service. Such valuations may be based on trade prices in active markets for identical assets or liabilities (Level 1 inputs) or valuation models using inputs that are observable either directly or indirectly (Level 2 inputs), such as quoted prices for similar assets or liabilities, yield curves, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, and broker and dealer quotes, as well as other relevant economic measures.
Financial assets measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023 were as follows (in thousands):
|
|
As of March 31, 2024 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Agency obligations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
As of December 31, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
Investment securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. government obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Agency obligations |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Certificates of deposit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate debt securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total assets measured at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company’s policy is to recognize transfers between levels of the fair value hierarchy on the date of the event or change in circumstances that caused the transfer. There were
5. BALANCE SHEET DETAILS
Prepaid expenses and other current assets consisted of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Prepaid clinical costs |
|
$ |
|
|
$ |
|
||
Prepaid research and development costs |
|
|
|
|
|
|
||
Australian tax incentive receivable |
|
|
|
|
|
|
||
Prepaid insurance |
|
|
|
|
|
|
||
Interest receivable |
|
|
|
|
|
|
||
Due from Radionetics (Note 11) |
|
|
|
|
|
|
||
Landlord improvements receivable |
|
|
|
|
|
|
||
Receivable for common stock issued |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
9
Property and equipment, net consisted of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Leasehold improvements |
|
$ |
|
|
$ |
|
||
Lab equipment |
|
|
|
|
|
|
||
Office equipment |
|
|
|
|
|
|
||
Computers and software |
|
|
|
|
|
|
||
Property and equipment at cost |
|
|
|
|
|
|
||
Less accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
||
Accounts payable and accrued expenses consisted of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Accrued clinical trial costs |
|
|
|
|
|
|
||
Accrued research and development costs |
|
|
|
|
|
|
||
Accrued outside services and professional fees |
|
|
|
|
|
|
||
Accrued landlord improvements |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
6. OPERATING LEASES
In February 2018, as amended in March 2018, the Company entered into a non-cancellable operating lease for a facility in San Diego, California (the "2018 Lease"). The 2018 Lease has an initial term of
In 2022, the Company entered into a lease agreement for laboratory and office space in San Diego, California (the "2022 Lease").
In December 2023, the Company entered into a lease amendment to the 2022 Lease that moved the initial payment date and start of the hundred thirty-seventh month from September 2023 to November 2023. The amendment was a modification that did not result in a new contract as the modification did not provide the Company additional right-of-use assets. As a result, the Company recorded a $
The Company’s estimated incremental fully collateralized borrowing rate of
Under the terms of the 2018 Lease and 2022 Lease, the Company provided the lessors with irrevocable letters of credit in the amounts of $
10
As of March 31, 2024, the Company's future minimum payments under non-cancellable operating lease, were as follows (in thousands):
Year ending December 31, |
|
Minimum |
|
|
2024 (nine months) |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total future minimum lease payments |
|
|
|
|
Less imputed interest |
|
|
( |
) |
Total operating lease liabilities |
|
|
|
|
Less operating lease liabilities, current |
|
|
( |
) |
Operating lease liabilities, non-current |
|
$ |
|
|
Operating lease cost was $
Cash paid for amounts included in the measurement of lease liabilities for operating cash flow from operating leases was $
7. COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, the Company may be subject to various claims and suits arising in the ordinary course of business. The Company does not expect that the resolution of these matters will have a material adverse effect on its financial position or results of operations.
8. REVENUE RECOGNITION
Sanwa Kagaku Kenkyusho Co., Ltd
On February 25, 2022, the Company and Sanwa Kagaku Kenkyusho Co., Ltd. ("Sanwa"), entered into a license agreement (the “Sanwa License”) whereby the Company granted Sanwa an exclusive license to develop and commercialize paltusotine in Japan.
Under the Sanwa License, Sanwa has the right to receive data obtained by the Company through certain paltusotine studies. The Company assessed the Sanwa License and concluded that Sanwa is a customer within the agreement. Sanwa will assume all costs associated with clinical trials and regulatory applications associated with these processes in Japan. Further, the Company retains all rights to develop and commercialize the product outside Japan. The Company also granted Sanwa the right to purchase supply of paltusotine for clinical and commercial requirements at cost plus a pre-negotiated percentage which was a market rate and therefore not a material right.
The Company determined that its performance obligations under the Sanwa License comprised the license and data exchange. Certain professional services, such as the Company's participation on committees, were deemed to be immaterial to the context of the contract.
In exchange, the Company received a $
During the three months ended March 31, 2024, the Company achieved a $
The control of the license was transferred to Sanwa at the inception of the contract and the Company does not have an ongoing performance obligation to support or maintain the licensed intellectual property. Revenue allocated to the data exchange obligation is recognized over time using the cost-to-cost measure as this method represents a faithful depiction of progress toward the ongoing paltusotine studies in the U.S. and related data transfer. Revenue is recognized on a gross basis as the Company is the principal.
11
Deferred revenue consisted of the following (in thousands):
|
|
Three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Deferred revenues at beginning of period |
|
$ |
|
|
$ |
|
||
Unearned revenue from cash received during the period, excluding amounts recognized as revenue during the period |
|
|
|
|
|
|
||
Revenue recognized that was included in deferred revenues as of the beginning of the period |
|
|
( |
) |
|
|
( |
) |
Balance at end of period |
|
|
|
|
|
|
||
Less deferred revenue, current |
|
|
( |
) |
|
|
( |
) |
Deferred revenue, non-current |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
During the three months ended March 31, 2024 and 2023, $
On June 14, 2022, the Company and Sanwa, entered into a clinical supply agreement (the "Sanwa Clinical Supply Agreement") whereby the Company is responsible for manufacturing and supplying certain materials to Sanwa for the completion of certain studies and trials under the Sanwa License. During the three months ended March 31, 2024, the Company recognized $
Cellular Longevity, Inc., doing business as Loyal
On March 24, 2023, the Company and Cellular Longevity Inc., doing business as Loyal ("Loyal") entered into a license agreement (the “Loyal License”) whereby the Company granted Loyal an exclusive license to develop and commercialize CRN01941, a somatostatin receptor type 2 agonist, for veterinary use. In exchange the Company received a $
During the three months ended March 31, 2024, the Company did not recognize any revenues from the Loyal License. During the three months ended March 31, 2023, the Company recognized $
9. STOCKHOLDERS’ EQUITY
Stock Offerings
On March 1, 2024, the Company completed a private placement offering of
Shelf Registration Statements and ATM Offering
On August 13, 2019, the Company entered into a Sales Agreement (as amended to the date hereof, the “Sales Agreement”) with SVB Leerink LLC and Cantor Fitzgerald & Co. (collectively, the “Sales Agents”), under which the Company may, from time to time, sell up to $
During the three months ended March 31, 2024, the Company issued
10. EQUITY INCENTIVE PLANS
2021 Employment Inducement Incentive Award Plan
The Company adopted the 2021 Employment Inducement Incentive Award Plan (the "2021 Inducement Plan") in December 2021. The Company initially reserved
12
Award Plan with the exception that awards may only be made to an employee who has not previously been an employee or member of the board of directors of the Company if the award is in connection with commencement of employment. In 2022, the Company amended the 2021 Inducement Plan to increase the number of shares of the Company’s common stock available for future issuance under the 2021 Inducement Plan to
2018 Incentive Award Plan
The Company adopted the 2018 Incentive Award Plan (the “2018 Plan”) in July 2018. Under the 2018 Plan, which expires in
The 2018 Plan contains a provision that allows annual increases in the number of shares available for issuance on the first day of each calendar year through
2015 Stock Incentive Plan
The Company adopted the 2015 Stock Incentive Plan (the “2015 Plan”) in February 2015, which provided for the issuance of equity awards to the Company’s employees, members of its board of directors and consultants. In general, options issued under this plan vest over
2018 Employee Stock Purchase Plan
The Company adopted the 2018 Employee Stock Purchase Plan (the “ESPP”) in July 2018. The ESPP permits participants to purchase common stock through payroll deductions of up to
The ESPP contains a provision that allows annual increases in the number of shares available for issuance on the first day of each calendar year through January 1, 2028, in an amount equal to the lesser of: (i)
Stock Awards
Stock Options
Activity under the Company’s stock option plans during the three months ended March 31, 2024 was as follows:
|
|
|
|
|
Weighted- |
|
|
Weighted- |
|
|
Aggregate |
|
||||
|
|
|
|
|
Average |
|
|
Average |
|
|
Intrinsic |
|
||||
|
|
Options |
|
|
Exercise |
|
|
Remaining |
|
|
Value |
|
||||
|
|
Outstanding |
|
|
Price |
|
|
Term |
|
|
(000’s) |
|
||||
Balance at December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Forfeited and expired |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Balance at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Vested and expected to vest at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Aggregate intrinsic value is calculated as the difference at a specific point in time between the closing price of the Company’s common stock on March 28, 2024, the last trading day of the quarter, and the exercise price of stock options that had exercise prices below the closing price. The aggregate intrinsic value of options exercised during the three months ended March 31, 2024 and 2023 was $
13
Restricted Stock Units
The Company’s restricted stock unit activity during the three months ended March 31, 2024, was as follows:
|
|
|
|
|
Weighted- |
|
|
||
|
|
Restricted Stock |
|
|
Average |
|
|
||
|
|
Units |
|
|
Grant Date |
|
|
||
|
|
Outstanding |
|
|
Fair Value |
|
|
||
Balance at December 31, 2023 |
|
|
|
|
$ |
|
|
||
Granted |
|
|
|
|
$ |
|
|
||
Vested |
|
|
( |
) |
|
$ |
|
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
Balance at March 31, 2024 |
|
|
|
|
$ |
|
|
||
Fair Value of Stock Awards
The Company estimates the fair value of all stock option grants and the ESPP using the Black-Scholes option pricing model and recognizes forfeitures as they occur.
Stock Option Awards |
|
Three months ended March 31, |
||
|
|
2024 |
|
2023 |
Expected option term |
|
|
||
Expected volatility |
|
|
||
Risk free interest rate |
|
|
||
Expected dividend yield |
|
|
||
The weighted-average fair value of stock options awarded was $
There were
The key assumptions used in determining the fair value of equity awards, and the Company’s rationale, were as follows: (i) Expected term - the expected term for stock options represents the period that the stock options are expected to be outstanding and has been estimated using the simplified method, due to limited historical exercise behavior. The expected term using the simplified method is an average of the contractual option term and its vesting period; the expected term for awards granted under the ESPP represents the term the awards are expected to be outstanding; (ii) Expected volatility - the expected volatility assumption is based on the historical volatility of the Company's common stock; (iii) Risk-free interest rate - the risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities that approximate the expected terms of awards; and (iv) Expected dividend yield - the expected dividend yield assumption is
Restricted stock units are valued using the closing price of our common stock on the date of grant.
Stock-Based Compensation Expense
Stock-based compensation expense for the equity awards issued by the Company to employees and non-employees for the periods presented below was as follows (in thousands):
|
Three months ended March 31, |
|
|||||
|
2024 |
|
|
2023 |
|
||
Included in research and development |
$ |
|
|
$ |
|
||
Included in general and administrative |
|
|
|
|
|
||
Total stock-based compensation expense |
$ |
|
|
$ |
|
||
As of March 31, 2024, unrecognized stock-based compensation cost related to option awards, restricted stock units, and ESPP was $
11. INVESTMENT IN RADIONETICS
Investment in Radionetics
In October 2021, the Company entered into a Collaboration and License Agreement with Radionetics (the "Radionetics License"), in which the Company granted Radionetics an exclusive worldwide license to its technology for the development of radiotherapeutics
14
and related radio-imaging agents in exchange for
Radionetics is a variable interest entity ("VIE") due to having insufficient equity to finance its activities without additional subordinated financial support. The Company evaluated whether it is the primary beneficiary of Radionetics by evaluating Radionetics’ key activities: (1) conducting research and development, (2) making financing decisions, and (3) determining the strategic direction of Radionetics. Decisions about research and development activities are made by unanimous vote of members of the research and development committee, in which no individual party has unilateral decision making power. Decisions about financing and strategic direction rest with Radionetics’ board of directors, and no party was determined to be in control, given the Radionetics board of directors was comprised of three members for which each of Crinetics, 5AM Ventures ("5AM") and Frazier Healthcare Partners ("Frazier") were entitled to appoint and replace, as needed, their board designee, and a fourth member mutually agreed upon by the other three board members. Radionetics’ management was separate from the Company and was determined by Radionetics’ board of directors. As the Company did not control any of Radionetics' key activities, it was not the primary beneficiary of the VIE and did not consolidate the financial results of Radionetics.
The Company accounts for its investment in Radionetics common stock under the equity method of accounting due to its ability to exercise significant influence. The Company records its share of Radionetics income (loss) outside of operations in the statements of operations and comprehensive loss on a quarterly lag. The Company's equity method investment in Radionetics was written down to zero during the first quarter of 2022 as a result of the allocation of the Company’s share of losses of the investee.
In August 2023, Radionetics completed a refinancing that included a number of transactions that were negotiated by the Company as a package (the “August 2023 Radionetics Transaction”). In connection with the August 2023 Radionetics Transaction, (1) the Company exercised the Radionetics Warrant to purchase
The August 2023 Radionetics Transaction was a VIE reconsideration event. The Company determined that Radionetics continues to be a VIE due to Radionetics having insufficient equity to finance its activities without additional subordinated financial support. The Company also reevaluated whether it is the primary beneficiary of Radionetics and noted there were no changes to Radionetics’ key activities or the conclusion that the Company does not control any of these activities. The size of Radionetics’ board of directors was increased from four to six members. Crinetics, 5AM and Frazier are each entitled to appoint and replace, as needed, their board designee, the fourth member is Radionetics’ CEO, and the fifth and sixth members must be mutually agreed upon by the other four board members. All changes to board composition are subject to shareholder approval with common and preferred shareholders having equal votes. Radionetics’ management continues to be entirely separate from the Company and determined by the Radionetics’ board of directors. As the Company does not control any of Radionetics' key activities, it is not the primary beneficiary and does not consolidate the financial results of Radionetics. Accordingly, the Company continues to account for its investment in Radionetics under the equity method of accounting due to its ability to exercise significant influence.
The Company determined that its preferred stock investment in Radionetics represents in-substance common stock. The preferred stock investment is substantially similar to common stock in that it does not have a substantive liquidation preference since the preferred stock will participate in substantially all of Radionetics losses, the conversion ratio for preferred stock into common stock is on a one-for-one basis without any significant restrictions or contingencies, and the preferred stock lacks redemption features, among other factors.
The Company is not obligated to fund losses incurred by Radionetics. The Company’s $
In connection with the August 2023 Radionetics Transaction, the Company exercised the Radionetics Warrant, which had a fair value of $
During the three months ended March 31, 2024 and 2023, the Company recorded equity method losses of $
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allocation of the Company’s share of Radionetics eligible losses, which is recorded on a quarterly lag. As of March 31, 2024 the Company's investment in Radionetics was written down to zero. As of December 31, 2023, the Company’s investment in Radionetics of $
The amendment to the Radionetics License in connection with the August 2023 Radionetics Transaction did not result in additional revenue at the time of modification and the sales-based milestone and royalty payments will only be recognized when the milestones or sales occur.
Other Items
R. Scott Struthers, Ph.D., the Company’s President and Chief Executive Officer, serves as chairman of the Radionetics board of directors. Pursuant to such arrangement, in October 2021, Dr. Struthers received
As of March 31, 2024 and December 31, 2023, the Company had $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.
Forward Looking Statements
The following discussion and other parts of this quarterly report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, the impact of international conflicts, prospective products, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated products, are forward-looking statements. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Overview
We are a clinical-stage pharmaceutical company focused on the discovery, development and commercialization of novel therapeutics for endocrine diseases and endocrine-related tumors. Endocrine pathways function to maintain homeostasis and commonly use peptide hormones acting through G protein coupled receptors, or GPCRs, to regulate many aspects of physiology including growth, energy, metabolism, gastrointestinal function and stress responses. We have built a highly productive drug discovery and development organization with extensive expertise in endocrine GPCRs. We have discovered a pipeline of oral nonpeptide (small molecule) new chemical entities that target peptide GPCRs to treat a variety of endocrine diseases where treatment options have significant efficacy, safety and/or tolerability limitations. Our product candidates include paltusotine, which is in clinical development for the treatment of acromegaly and carcinoid syndrome associated with neuroendocrine tumors, or NETs, and CRN04894, which is in clinical development for congenital adrenal hyperplasia, or CAH, and Cushing’s disease. We are advancing additional product candidates through preclinical discovery and development studies in parallel. Our vision is to build a premier, fully integrated endocrine-focused pharmaceutical company that consistently pioneers new therapeutics to help patients better control their disease and improve their daily lives.
We focus on the discovery and development of oral nonpeptide therapeutics that target peptide GPCRs with well-understood biological functions, validated biomarkers and the potential to substantially improve the treatment of endocrine diseases and endocrine-related tumors. Our pipeline consists of the following product candidates:
Paltusotine (SST2 Agonist Program)
Paltusotine, our lead product candidate, establishes a new class of oral selective nonpeptide somatostatin receptor type 2, or SST2, agonists designed for the treatment of acromegaly and carcinoid syndrome associated with NETs. Somatostatin is a neuropeptide hormone that broadly inhibits the secretion of other hormones, including growth hormone, or GH, from the pituitary gland. Acromegaly arises from a benign pituitary tumor that secretes excess GH that, in turn, causes excess secretion of insulin-like growth factor-1, or IGF-1, by the liver. This loss of homeostasis in the GH axis results in excess tissue growth and other adverse metabolic effects throughout the body. We estimate that approximately 27,000 people in the United States suffer from acromegaly, and depending on surgical success, we estimate that approximately 11,000 are candidates for chronic pharmacological intervention, of which somatostatin peptide analogs are the primary pharmacotherapy. Carcinoid syndrome occurs when NETs, which originate from neuroendocrine cells commonly found in the gut, lung or pancreas, secrete hormones or other chemical substances into the bloodstream that cause severe flushing or diarrhea, among other symptoms. NETs are present in approximately 175,000 adults in the United States. Of these, it is estimated that approximately 33,000 patients have carcinoid syndrome. Most NETs overexpress SST2 receptors and injected depots of peptide somatostatin analogs have become the first-line standard of care as detailed in National Comprehensive Cancer Network guidelines. In 2023, branded injected somatostatin peptide drugs accounted for approximately $2.5 billion in global sales for the treatment of acromegaly, NETs, and other uses. These drugs require painful monthly or daily injections and, in the case of somatostatin peptide drugs, often fail to fully control the disease in many acromegaly or carcinoid syndrome
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patients. The U.S. Food and Drug Administration, or FDA, has granted orphan drug designation for paltusotine for the treatment of acromegaly.
To date, our clinical trials have shown that paltusotine was generally well tolerated among healthy adults and patients with both acromegaly and carcinoid syndrome.
Our Phase 3 development program for paltusotine in acromegaly consisted of two placebo-controlled clinical trials, PATHFNDR-1 and PATHFNDR-2. The PATHFNDR-1 trial was designed as a double-blind, placebo-controlled, nine-month clinical trial of paltusotine in acromegaly patients with average IGF-1 levels less than or equal to 1.0 times the upper limit of normal, or ULN, and who had been on stable doses of somatostatin receptor ligand monotherapy (octreotide LAR or lanreotide depot). We also conducted a second study, the PATHFNDR-2 trial, which was designed as a double-blind, placebo-controlled, six-month clinical trial of acromegaly patients with elevated IGF-1 levels. The primary endpoint of both PATHFNDR studies was the proportion of patients with IGF-1 ≤ 1.0 ×ULN at the end of the treatment period on paltusotine as compared to placebo.
Positive topline data from the randomized controlled portion of the PATHFNDR-1 study was reported in September 2023, where the primary endpoint and all secondary endpoints of the study were achieved. The study met statistical significance (p<0.0001) on the primary endpoint, based on the proportion of participants whose IGF-1 levels were maintained ≤ 1.0 ×ULN in the paltusotine arm (83%) compared to those in the placebo arm (4%). All secondary endpoints also met statistical significance. In the PATHFNDR-1 study, paltusotine was well tolerated and no serious or severe adverse events were reported in participants treated with paltusotine.
In March 2024, we reported positive topline results from the PATHFNDR-2 study. The study met statistical significance (p<0.0001) on the primary endpoint, based on the proportion of participants on paltusotine (56%) who achieved an IGF-1 level ≤ 1.0 xULN compared to those taking placebo (5%). All secondary endpoints also met statistical significance. In PATHFNDR-2, paltusotine was generally well-tolerated and no serious adverse events were reported in participants treated with paltusotine.
The open label extension phases of the PATHFNDR trials are ongoing.
We believe that the results of the two trials could support global marketing applications for the use of paltusotine for all acromegaly patients who require pharmacotherapy, including untreated patients and those switching from other therapies. We plan to seek regulatory approval for paltusotine for the treatment of acromegaly in the United States with an anticipated submission of a New Drug Application to the FDA in the second half of 2024 with the potential for approval in 2025.
In March 2024, we reported positive topline results from our randomized, open-label, parallel group, multi-center Phase 2 study to assess safety, tolerability, pharmacokinetics, and efficacy of paltusotine in people living with carcinoid syndrome. A total of 36 participants were randomized to receive either 40 mg (n=18) or 80 mg (n=18) of paltusotine for 8 weeks, with the ability to adjust dose based on tolerability or inadequate control of symptoms during the first four weeks of treatment. Results demonstrated that administration of paltusotine resulted in rapid and sustained reductions in bowel movement frequency and flushing episodes. Paltusotine was generally well-tolerated with a safety profile consistent with prior clinical studies, with no treatment-related severe or serious adverse events.
We plan to engage with the FDA to align on a Phase 3 study design and have begun preparations to enable the initiation of a Phase 3 program by the end of 2024.
CRN04894 (ACTH Antagonist)
CRN04894 is our investigational, oral, nonpeptide product candidate designed to antagonize the adrenocorticotrophic hormone, or ACTH, receptor, intended for the treatment of diseases caused by excess ACTH, including CAH and Cushing’s disease. CAH encompasses a set of disorders that are caused by genetic mutations that result in impaired cortisol synthesis. A lack of cortisol leads to a breakdown of feedback mechanisms and results in persistently high levels of ACTH, which, in turn, causes overstimulation of the adrenal cortex. The resulting adrenal hyperplasia and over-secretion of other steroids (particularly androgens) and steroid precursors can lead to a variety of effects from improper gonadal development to life-threatening dysregulation of mineralocorticoids. Cushing’s disease results from a pituitary tumor that secretes excess ACTH which, in turn, causes the downstream synthesis and over-secretion of cortisol by the adrenal glands. Cortisol is the body’s main stress hormone and excess amounts can cause significant increases in mortality and morbidity. Based on genetic incidence rates, there are an estimated 27,000 patients with classic CAH and over 11,000 patients with Cushing’s disease in the United States. Of the patients with CAH and Cushing’s disease, we estimate that 17,000 and 5,000 patients, respectively, are potential candidates for treatment with CRN04894.
We conducted a double-blind, randomized, placebo-controlled Phase 1 study of CRN04894 in healthy volunteers to assess the safety and tolerability of single and multiple doses of CRN04894. In addition, the study was designed to measure the effect of CRN04894 on suppression of cortisol, cortisol precursors, and adrenal androgens following exogenous ACTH stimulation. In May 2022, we
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announced positive topline data from the Phase 1 study which showed CRN04894 was well tolerated and demonstrated dose-dependent increases in CRN04894 plasma concentrations. We believe CRN04894 demonstrated pharmacologic proof-of-concept, as the Phase 1 results showed dose-dependent reductions of both basal cortisol and elevated cortisol following an ACTH challenge. All adverse events were considered mild to moderate and there were no serious adverse events.
We are conducting a Phase 2 study of CRN04894 in CAH patients. This open-label study is designed to evaluate the safety, efficacy, and pharmacokinetics of different doses of CRN04894. In addition, biomarkers, including serum androstenedione and 17 hydroxyprogesterone, will be measured as we seek to evaluate the potential efficacy of CRN04894. Initial data from a subset of patients in this Phase 2 study is expected in the second quarter of 2024.
We are also conducting a clinical trial of CRN04894 in patients with Cushing’s disease. We entered into a Clinical Trial Agreement with the National Institute of Diabetes and Digestive and Kidney Diseases, or NIDDK, of the National Institutes of Health, or NIH, to collaborate on a company-sponsored multiple-ascending dose trial of CRN04894 in ACTH dependent Cushing’s Syndrome, or ADCS. ADCS includes patients with either Cushing's disease or Ectopic ACTH Syndrome, or EAS. This open-label study is designed to evaluate safety, tolerability, and pharmacokinetics of different doses of CRN04894 in patients with ADCS as well as to measure 24-hour urinary-free cortisol and serum cortisol as indicators of efficacy. The study is ongoing, and initial data from a subset of patients is expected from the study in the second quarter of 2024.
Parathyroid Hormone Antagonist
We are developing antagonists of the parathyroid hormone, or PTH, receptor for the treatment of primary hyperparathyroidism, or PHPT and humoral hypercalcemia of malignancy, or HHM, and other diseases of excess PTH. PTH regulates calcium and phosphate homeostasis in bone and kidney through activation of its receptor, PTHR1. Increased activation of PTHR1, either via PTH or PTH-related peptide (PTHrP, PTHLH) can lead to skeletal, renal, gastrointestinal, and neurological problems. Primary hyperparathyroidism arises from a small, benign tumor on one or more of the parathyroid glands, which results in over-secretion of PTH, leading to increased blood calcium levels, or hypercalcemia. Some patients experience no symptoms, and many can have surgery to remove the tumor and/or hyperactive gland(s), while some require management with medical therapy. Symptomatic PHPT is characterized by skeletal, renal, gastrointestinal, and neurological manifestations with increased mortality. HHM typically arises in patients with advanced-stage cancers. In cases of HHM, over-secretion of PTHrP caused by the malignant tumor results in bone resorption and calcium reabsorption in the kidney, leading to hypercalcemia. We have identified investigational, orally available nonpeptide PTH antagonists that showed activity and drug-like properties in preclinical models. We are evaluating a subset of molecules to identify potential development candidates that we believe are suitable for evaluation in human clinical trials, and we expect to select a development candidate in the first half of 2024.
SST3 Agonist Program for the Treatment for Autosomal Dominant Polycystic Kidney Disease
We have identified investigational, orally available somatostatin receptor type 3, or SST3, targeted nonpeptide agonists for the treatment of Autosomal Dominant Polycystic Kidney Disease, or ADPKD. ADPKD, which is the most frequent genetic cause of chronic kidney disease, affecting 1 in 1,000 individuals, and is the fourth leading cause of end-stage renal disease. Cyst formation in renal tubules results from mutations in either the PKD1 or PKD2 genes. Over time, these developing cysts destroy the kidney architecture and impair kidney function. Cyst formation raises ciliary adenylyl cyclase activity and increases cAMP levels, which is central to the establishment of the disease. SST3 is expressed in cyst lining cells in ADPKD patients and inhibits cAMP formation within the cilia upon activation. Therefore, a selective SST3 agonist could provide a new avenue to prevent cyst formation and growth. We are evaluating a subset of nonpeptide SST3 agonists to identify potential development candidates that we believe will be suitable for evaluation in human clinical trials. We expect to select a development candidate in the first half of 2024.
Thyroid Stimulating Hormone Receptor Antagonist
We are developing thyroid-stimulating hormone receptor, or TSHR, antagonists for the treatment of Graves’ disease and Thyroid Eye Disease, or TED, or Grave’s orbitopathy. Graves’ disease is an autoimmune condition that affects approximately 1 in 100 people in the United States and 2-3% of the population worldwide. It is characterized by the production of autoantibodies against TSHR, and the pathology of Graves’ disease is driven by these TSHR stimulatory antibodies, or TSAb, that result in heightened activation of TSHR. This overstimulation results in hyperthyroidism due to excessive production of thyroid hormones. Approximately 30% of Graves’ disease patients also develop TED due to overactivation of TSHR in orbital fibroblasts leading to excessive production of hyaluronic acid, adipogenesis, cytokine production, and fibrosis. This causes a constellation of debilitating symptoms including pain, swelling, blurry vision, diplopia, and proptosis. Several long-standing treatments for Graves’ hyperthyroidism are available including anti-thyroid drugs, radioactive iodine, or RAI, and surgery. RAI and surgery are definitive treatments for Graves’ hyperthyroidism, but often result in hypothyroidism. In addition, none of the current treatments for Graves’ hyperthyroidism are effective in treating TED and, in some cases, such as with RAI, the treatments worsen the condition. Blocking TSHR activation directly via a TSHR antagonist may provide an important new therapeutic mechanism to treat patients with Graves’ disease that would effectively treat both the
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hyperthyroidism and TED. We have identified investigational, orally available nonpeptide TSHR antagonists that demonstrate activity in preclinical models and possess good drug-like properties. We are evaluating a subset of molecules to identify potential development candidates that we believe will be suitable for evaluation in human clinical trials, and we expect to select a development candidate in 2024.
Research Discovery
Patients with many other debilitating endocrine diseases and endocrine related tumors await new therapeutic options, and we continuously evaluate and prioritize where to deploy our drug discovery efforts. We plan to continue to expand our drug discovery efforts and leverage our expertise in the evaluation of additional unmet medical needs. In addition to our programs for hyperparathyroidism, ADPKD, and Graves’ Disease (including TED), we are evaluating potential product candidates for metabolic diseases (including diabetes and obesity), and GPCR-targeted oncology indications. All of our product candidates have been discovered, characterized and developed internally and are the subject of composition of matter patent applications. We do not have any royalty obligations and have retained worldwide rights to commercialize our product candidates, except with respect to the exclusive right to develop and commercialize paltusotine in Japan pursuant to the Sanwa License (as defined below), the exclusive right to our radiotherapeutics technology pursuant to the Radionetics License (as defined below), and the exclusive right to develop and commercialize CRN01941, a separate SST2 agonist licensed to Cellular Longevity Inc., doing business as Loyal, for veterinary use, or the Loyal License.
Radionetics Oncology, Inc.
We formed Radionetics Oncology, Inc., or Radionetics, in October 2021. Radionetics aims to develop a deep pipeline of novel, targeted, nonpeptide radiopharmaceuticals for the treatment of a broad range of oncology indications. In connection with the formation of Radionetics, we entered into a Collaboration and License Agreement with Radionetics, or the Radionetics License, granting Radionetics an exclusive world-wide license to our technology for the development of radiotherapeutics and related radio-imaging agents in exchange for an equity stake in Radionetics, a warrant, or the Radionetics Warrant to purchase additional shares of common stock of Radionetics, potential sales milestones in excess of $1.0 billion and single-digit royalties on net sales. In August 2023, we exercised the Radionetics Warrant to purchase 3,407,285 shares of Radionetics common stock with an exercise price of $0.00001 per share and invested $5.0 million to purchase 14,404,656 shares of preferred stock in Radionetics along with new and existing investors who participated in the transaction. Subsequent to the Radionetics Warrant exercise, we exchanged 60% of our total number of outstanding shares of Radionetics common stock for 32,344,371 shares of Radionetics preferred stock on a one-for-one basis. Additionally, in August 2023, the Radionetics License was amended to include additional sales milestones of up to $15.0 million. Following the amendment to the Radionetics License, we are eligible to receive total potential sales milestones in excess of $1.0 billion and single-digit royalties on net sales. In December 2023, Radionetics also completed a financing to sell additional shares of preferred stock to other investors. As of March 31, 2024, we have an approximately 26% ownership stake in Radionetics consisting of common and preferred stock.
Australian operations
In January 2017, we established Crinetics Australia Pty Ltd, or CAPL, a wholly-owned subsidiary which was formed to conduct various preclinical and clinical activities for our product and development candidates. CAPL is eligible for certain financial incentives made available by the Australian government for research and development expenses. Specifically, the Australian Taxation Office provides a refundable tax credit in the form of a cash refund equal to 43.5% of qualified research and development expenditures under the Australian Research and Development Tax Incentive Program, or the Australian Tax Incentive, to Australian companies that operate the majority of their research and development activities associated with such projects in Australia. A wholly-owned Australian subsidiary of a non-Australian parent company is eligible to receive the refundable tax credit, provided that the Australian subsidiary retains the rights to the data and intellectual property generated in Australia, and provided that the total revenues of the parent company and its consolidated subsidiaries during the period for which the refundable tax credit is claimed are less than $20.0 million Australian dollars. If we lose our ability to operate CAPL in Australia, or if we are ineligible or unable to receive the research and development tax credit, or the Australian government significantly reduces or eliminates the tax credit, the actual refund amounts we receive may differ from our estimates.
Financial operations overview
To date, we have devoted substantially all of our resources to drug discovery, conducting preclinical studies and clinical trials, obtaining and maintaining patents related to our product candidates, licensing activities, and the provision of general and administrative support for these operations. We have recognized revenues from various research and development grants and license and collaboration agreements, but do not have any products approved for sale and have not generated any product sales. We have funded our operations primarily through our grant and license revenues, the private placement of our preferred stock, and sales of our common stock. As of March 31, 2024, we had unrestricted cash, cash equivalents, and investment securities of $901.0 million. During
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the quarter ended March 31, 2024, the Company issued 1,223,775 shares of common stock in the ATM Offering for net proceeds of approximately $43.4 million, after deducting commissions. On February 27, 2024, the Company entered into a stock purchase agreement with certain investors named therein, or the Purchasers, pursuant to which the Company agreed to issue and sell to the Purchasers in a private placement an aggregate of 8,333,334 shares of its common stock at a price of $42.00 per share for aggregate gross proceeds of approximately $350.0 million, before deducting offering expenses payable by the Company (the “Private Placement”). The Private Placement closed on March 1, 2024. On March 19, 2024, the Company registered for resale the shares issued and sold in the Private Placement, pursuant to the Registration Rights Agreement entered into with the Purchasers, dated February 27, 2024.
We have incurred cumulative net losses since our inception and, as of March 31, 2024, we had an accumulated deficit of $720.6 million. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and preclinical studies and our expenditures on other research and development activities. We expect our expenses and operating losses will increase substantially as we conduct our ongoing and planned clinical trials, continue our research and development activities and conduct preclinical studies, hire additional personnel, protect our intellectual property and incur costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, director and officer insurance premiums, and investor relations costs.
We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially, collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, scale back or discontinue the development of our existing product candidates or our efforts to expand our product pipeline.
Revenues
To date, our revenues have been mainly derived from research grant awards and licenses, including the Radionetics License, the Sanwa License, and the Loyal License. As our data exchange performance obligation under the Sanwa License is fulfilled, we expect to recognize as revenues the deferred revenue amounts included in the accompanying condensed consolidated balance sheets as of March 31, 2024. We will recognize royalty and milestone revenues under our license agreements if and when appropriate under the relevant accounting rules (see Note 8 to our condensed consolidated financial statements). We have not generated any revenues from the commercial sale of approved products, and we may never generate revenues from the commercial sale of our product candidates for at least the foreseeable future, if ever.
License revenues
On March 24, 2023, we and Loyal entered into the Loyal License, pursuant to which we granted Loyal an exclusive license to develop and commercialize CRN01941, a somatostatin receptor type 2 agonist, for veterinary use. In February 2022, we and Sanwa entered into a license agreement, or the Sanwa License, pursuant to which Sanwa has the exclusive right to commercialize paltusotine in Japan.
License revenues for the quarter ended March 31, 2023 were primarily derived from the Sanwa License and the Loyal License.
License revenues for the quarter ended March 31, 2024 were primarily derived from the Sanwa License.
Clinical supply revenues
On June 14, 2022, we and Sanwa, entered into a clinical supply agreement, or the Sanwa Clinical Supply Agreement, whereby we are responsible for manufacturing and supplying certain materials to Sanwa for specified activities under the Sanwa License. During the three months ended March 31, 2024, we recognized $38,000 of revenues from the Sanwa Clinical Supply Agreement in the accompanying condensed consolidated statements of operations and comprehensive loss. No significant supply purchases were made by Sanwa through the Sanwa Clinical Supply Agreement during the three months ended March 31, 2024 or during the three months ended March 31, 2023.
Research and development
To date, our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
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Research and development expenses include:
•
salaries, payroll taxes, employee benefits, and stock-based compensation charges for those individuals involved in research and development efforts;
•
external research and development expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants to conduct our clinical trials and preclinical and nonclinical studies;
•
costs related to manufacturing our product candidates for clinical trials and preclinical studies, including fees paid to third-party manufacturers;
•
costs related to compliance with regulatory requirements;
•
laboratory supplies; and
•
facilities, depreciation and other allocated expenses for rent, facilities maintenance, insurance, equipment and other supplies.
We recognize the Australian Tax Incentive as a reduction of research and development expense. The amounts are determined based on eligible research and development expenditures. The Australian Tax Incentive is recognized when there is reasonable assurance that the Australian Tax Incentive will be received, the relevant expenditure has been incurred, and the amount of the Australian Tax Incentive can be reliably measured.
Our direct research and development expenses consist principally of external costs, such as fees paid to CROs, investigative sites and consultants in connection with our clinical trials, preclinical and non-clinical studies, and costs related to manufacturing clinical trial materials. The majority of our third-party expenses during the three months ended March 31, 2024 and 2023 related to the research and development of paltusotine and CRN04894, and in the three months ended March 31, 2023, CRN04777. We deploy our personnel and facility related resources across all of our research and development activities.
Our clinical development costs may vary significantly based on factors such as:
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per patient trial costs;
•
the number of trials required for approval;
•
the number of sites included in the trials;
•
the countries in which the trials are conducted;
•
the length of time required to enroll eligible patients;
•
the number of patients that participate in the trials;
•
number of doses that patients receive;
•
drop-out or discontinuation rates of patients;
•
potential additional safety monitoring requested by regulatory agencies;
•
the duration of patient participation in the trials and follow-up;
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the cost and timing of manufacturing our product candidates;
•
the phase of development of our product candidates; and
•
the efficacy and safety profile of our product candidates.
We plan to increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and the discovery of new product candidates. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
General and administrative
General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, insurance costs, and
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commercial planning expenses. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities and, if any of our product candidates receive marketing approval, commercialization activities. We also incur expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, as well as commercial preparedness, corporate strategy and business development, corporate communications, and investor relations costs associated with operating as a public company.
Critical Accounting Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities at the date of our condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, stock-based compensation, and leases. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances at the time the estimates are made, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are those accounting principles generally accepted in the United States that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. For a description of our critical accounting policies, please see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” contained in our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our critical accounting estimates discussed therein.
Results of Operations
Comparison of the three months ended March 31, 2024 and 2023
The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023 (in thousands):
|
|
Three months ended March 31, |
|
|
Dollar |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
Revenues |
|
$ |
640 |
|
|
$ |
2,679 |
|
|
$ |
(2,039 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
53,341 |
|
|
|
38,468 |
|
|
|
14,873 |
|
General and administrative |
|
|
20,828 |
|
|
|
12,189 |
|
|
|
8,639 |
|
Total operating expenses |
|
|
74,169 |
|
|
|
50,657 |
|
|
|
23,512 |
|
Loss from operations |
|
|
(73,529 |
) |
|
|
(47,978 |
) |
|
|
(25,551 |
) |
Other income, net |
|
|
7,069 |
|
|
|
1,983 |
|
|
|
5,086 |
|
Loss before equity method investment |
|
|
(66,460 |
) |
|
|
(45,995 |
) |
|
|
(20,465 |
) |
Loss on equity method investment |
|
|
(470 |
) |
|
|
— |
|
|
|
(470 |
) |
Net loss |
|
$ |
(66,930 |
) |
|
$ |
(45,995 |
) |
|
$ |
(20,935 |
) |
Revenues. Revenues during the three months ended March 31, 2024 relate to the Sanwa License. Revenues during the three months ended March 31, 2023 include approximately $2.1 million from the Loyal License which was entered into during the first quarter of 2023.
Research and development expenses. Research and development expenses were $53.3 million and $38.5 million for the three months ended March 31, 2024 and 2023, respectively. The change was primarily due to an increase in personnel costs of $9.4 million, increased outside services and facilities costs of $3.8 million, and increased net spending on manufacturing and development activities of $1.4 million associated with our clinical and nonclinical programs.
23
The following table summarizes our primary external and internal research and development expenses for the three months ended March 31, 2024 and 2023 (in thousands):
|
|
Three months ended March 31, |
|
|
Dollar |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
External research and development expenses: |
|
|
|
|
|
|
|
|
|
|||
Clinical trials |
|
$ |
10,389 |
|
|
$ |
10,472 |
|
|
$ |
(83 |
) |
Contract manufacturing |
|
|
6,253 |
|
|
|
2,630 |
|
|
|
3,623 |
|
Preclinical studies |
|
|
1,845 |
|
|
|
4,033 |
|
|
|
(2,188 |
) |
Outside services |
|
|
5,220 |
|
|
|
3,101 |
|
|
|
2,119 |
|
Other external research and development |
|
|
4 |
|
|
|
4 |
|
|
|
- |
|
Total external research and development expenses |
|
|
23,711 |
|
|
|
20,240 |
|
|
|
3,471 |
|
Internal expenses: |
|
|
|
|
|
|
|
|
|
|||
Payroll and benefits |
|
|
18,427 |
|
|
|
11,887 |
|
|
|
6,540 |
|
Stock-based compensation |
|
|
7,565 |
|
|
|
4,678 |
|
|
|
2,887 |
|
Facilities and related |
|
|
2,557 |
|
|
|
873 |
|
|
|
1,684 |
|
Other internal research and development |
|
|
1,081 |
|
|
|
790 |
|
|
|
291 |
|
Total internal research and development expenses |
|
|
29,630 |
|
|
|
18,228 |
|
|
|
11,402 |
|
Total research and development expenses |
|
$ |
53,341 |
|
|
$ |
38,468 |
|
|
$ |
14,873 |
|
The following table summarizes our research and development expenses by program for the three months ended March 31, 2024 and 2023 (in thousands):
|
|
Three months ended March 31, |
|
|
Dollar |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
Paltusotine |
|
$ |
12,952 |
|
|
$ |
12,404 |
|
|
$ |
548 |
|
CRN04894 |
|
|
3,932 |
|
|
|
2,140 |
|
|
|
1,792 |
|
CRN04777 |
|
|
537 |
|
|
|
3,085 |
|
|
|
(2,548 |
) |
Discovery |
|
|
4,787 |
|
|
|
1,584 |
|
|
|
3,203 |
|
Payroll and benefits |
|
|
18,427 |
|
|
|
11,887 |
|
|
|
6,540 |
|
Stock-based compensation |
|
|
7,565 |
|
|
|
4,678 |
|
|
|
2,887 |
|
Other |
|
|
5,141 |
|
|
|
2,690 |
|
|
|
2,451 |
|
Total research and development expenses |
|
$ |
53,341 |
|
|
$ |
38,468 |
|
|
$ |
14,873 |
|
Research and development expenses for our paltusotine program were $13.0 million and $12.4 million for the three months ended March 31, 2024 and 2023, respectively. The change was primarily due to increased spending on manufacturing activities of $2.2 million offset by a $2.0 million decrease in clinical and regulatory costs.
Research and development expenses for our CRN04894 program were $3.9 million and $2.1 million for the three months ended March 31, 2024 and 2023, respectively. The change was primarily due to increased spending on clinical development activities of $1.4 million.
Research and development expenses for our CRN04777 program were $0.5 million and $3.1 million for the three months ended March 31, 2024 and 2023, respectively. The change was primarily due the clinical hold received from the FDA in November 2022 which delayed the advancement of CRN04777 prior to its discontinuation from clinical development.
Research and development expenses for our discovery programs were $4.8 million and $1.6 million for the three months ended March 31, 2024 and 2023, respectively. The change was primarily due to an increase in outside services of $1.2 million and increased spending in manufacturing and lab supplies of $1.3 million as a result of the expansion of our discovery efforts across new therapeutic targets.
Research and development expenses for payroll and benefits were $18.4 million and $11.9 million for the three months ended March 31, 2024 and 2023, respectively. The change was primarily due to an increase in headcount to support our ongoing programs as well as for the expansion of our discovery efforts across new therapeutic targets.
Research and development expenses for stock-based compensation were $7.6 million and $4.7 million for the three months ended March 31, 2024 and 2023, respectively. The change was primarily due to an increase in headcount to support our ongoing programs as well as for the expansion of our discovery efforts across new therapeutic targets.
Other research and development expenses were $5.1 million and $2.7 million for the three months ended March 31, 2024 and 2023, respectively. The change was primarily due to an increase in facilities expenditures of $1.6 million.
24
General and administrative expenses. General and administrative expenses were $20.8 million and $12.2 million for the three months ended March 31, 2024 and 2023, respectively. The change was primarily due to an increase in personnel costs of $5.6 million.
Other income, net. Other income, net was $7.1 million and $2.0 million for the three months ended March 31, 2024 and 2023, respectively. The increase was primarily due to income generated by our investment securities.
Cash Flows
We have incurred cumulative net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of March 31, 2024, we had unrestricted cash, cash equivalents and investment securities of $901.0 million and an accumulated deficit of $720.6 million.
The following table provides information regarding our cash flows for the three months ended March 31, 2024 and 2023 (in thousands):
|
|
Three months ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net cash used in operating activities |
|
$ |
(52,856 |
) |
|
$ |
(40,718 |
) |
Net cash provided by investing activities |
|
|
309 |
|
|
|
48,755 |
|
Net cash provided by financing activities |
|
|
393,574 |
|
|
|
484 |
|
Net change in cash, cash equivalents and restricted cash |
|
$ |
341,027 |
|
|
$ |
8,521 |
|
Operating Activities. Net cash used in operating activities was $52.9 million and $40.7 million for the three months ended March 31, 2024 and 2023, respectively. The increase in cash used in operations was primarily attributable to higher personnel costs. The net cash used in operating activities during the three months ended March 31, 2024 was primarily due to our net loss of $66.9 million adjusted for $11.4 million of noncash charges, primarily for stock-based compensation, and a $2.7 million change in operating assets and liabilities. Net cash used in operating activities during the three months ended March 31, 2023 was primarily due to our net loss of $46.0 million adjusted for $6.0 million of noncash charges, primarily for stock-based compensation, and a $0.7 million change in operating assets and liabilities.
Investing activities. Investing activities consist primarily of purchases and maturities of investment securities and, to a lesser extent, the cash outflow associated with purchases of property and equipment. Such activities resulted in a net inflow of funds of approximately $0.3 million during the three months ended March 31, 2024, compared to a net inflow of funds of approximately $48.8 million during the three months ended March 31, 2023.
Financing activities. Net cash provided by financing activities was $393.6 million and $0.5 million for the three months ended March 31, 2024 and 2023, respectively. The net cash provided by financing activities during 2024 resulted from proceeds received from the sale of common stock and cash received from the exercise of stock options. The net cash provided by financing activities during 2023 resulted from proceeds received from the exercise of stock options.
Liquidity and Capital Resources
We believe that our existing capital resources, together with investment income, will be sufficient to satisfy our current and projected funding requirements for at least the next twelve months. However, our forecast of the period through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
•
the type, number, scope, progress, expansions, results, costs and timing of our preclinical studies and clinical trials of our product candidates which we are pursuing or may choose to pursue in the future;
•
the costs and timing of manufacturing for our product candidates, including commercial manufacturing if any product candidate is approved;
•
the costs, timing and outcome of regulatory review of our product candidates;
•
the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
•
our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
•
the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase.
•
the timing and the extent of any Australian Tax Incentive refund and future grant revenues that we receive;
•
the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;
•
our ability to achieve sufficient market acceptance, adequate coverage and reimbursement from third-party payors and adequate market share and revenue for any approved products;
25
•
the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;
•
costs associated with any products or technologies that we may in-license or acquire;
•
the funding of any co-development arrangements we enter into; and
•
our ability to participate in future equity offerings by Radionetics.
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses, and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations, licenses, and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
In August 2019, we entered into a Sales Agreement, as subsequently amended in August 2022, or the Sales Agreement, with Leerink Partners LLC and Cantor Fitzgerald & Co., or collectively, the Sales Agents, under which we may, from time to time, sell up to $150.0 million of shares of our common stock through the Sales Agents, or the ATM Offering. We are not obligated to, and we cannot provide any assurances that we will continue to, make any sales of the shares under the Sales Agreement. The Sales Agreement may be terminated by either Sales Agent (with respect to itself) or us at any time upon 10 days’ notice to the other parties, or by either Sales Agent, with respect to itself, at any time in certain circumstances, including the occurrence of a material adverse change. We will pay the Sales Agents a commission for their services in acting as agent in the sale of common stock in an amount equal to 3% of the gross sales price per share sold. During the year ended December 31, 2023, the Company issued 1,344,865 shares of common stock in the ATM Offering for net proceeds of approximately $40.6 million, after deducting commissions. During the three months ended March 31, 2024, the Company issued 1,223,775 shares of common stock in the ATM Offering for net proceeds of approximately $43.4 million, after deducting commissions.
On September 15, 2023, we completed an underwritten public offering of 11,441,648 shares of our common stock at a price to the public of $30.59 per share. Net proceeds from the offering were approximately $328.5 million, after underwriting discounts and commissions and offering costs of approximately $21.5 million.
On February 27, 2024, the Company entered into a stock purchase agreement with certain investors named therein, or the Purchasers, pursuant to which the Company agreed to issue and sell to the Purchasers in a private placement an aggregate of 8,333,334 shares of its common stock at a price of $42.00 per share for aggregate gross proceeds of approximately $350.0 million, before deducting offering expenses payable by the Company, or the Private Placement. The Private Placement closed on March 1, 2024. On March 19, 2024, the Company registered the resale of the shares issued and sold in the Private Placement, pursuant to the Registration Rights Agreement entered into with the Purchasers, dated February 27, 2024.
Headquarters Lease
On September 9, 2022, we entered into a lease agreement for laboratory and office space in San Diego, California, or the 2022 Lease (see Note 6 to the condensed consolidated financial statements). On December 18, 2023, we moved our corporate headquarters to the new facility.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our cash, cash equivalents and investment securities consist of cash held in readily available checking and money market accounts as well as short-term debt securities. We are exposed to market risk related to fluctuations in interest rates and market prices. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of United States interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our financial condition or results of operations.
Foreign Currency
We contract with vendors, CROs and investigational sites in several foreign countries, including countries in South America, Europe and the Asia Pacific. As such, we have exposure to fluctuations in foreign currency rates in connection with these agreements. We do not hedge our foreign currency exchange rate risk. We believe this exposure to be immaterial and, to date, we have not incurred any material adverse effects from foreign currency changes on these contracts.
26
In January 2017, we formed CAPL, a wholly-owned subsidiary in Australia, which exposes us to foreign currency exchange rate risk. The functional currency of CAPL is the United States dollar. Assets and liabilities of our foreign subsidiary that are not denominated in the functional currency are remeasured into U.S. dollars at foreign currency exchange rates in effect at the balance sheet date except for nonmonetary assets and capital accounts, which are remeasured at historical foreign currency exchange rates in effect at the date of transaction. Expenses are generally remeasured at foreign currency exchange rates which approximate average rates in effect during each period. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in other income (expense), net, in the condensed consolidated statements of operations and totaled ($186,000) and ($55,000) for the three months ended March 31, 2024 and 2023, respectively.
As of March 31, 2024 and 2023, the impact of a theoretical 10% change in the exchange rate of the Australian dollar would not result in a material gain or loss. To date, we have not hedged exposures denominated in foreign currencies.
Inflation Risk
Inflationary factors, such as increases in the cost of our materials, supplies, and overhead costs have adversely affected and may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some adverse effect if inflation rates continue to rise. Significant adverse changes in inflation and prices in the future could result in material losses.
Item 4. Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2024 at the reasonable assurance level.
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
27
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently a party to any material legal proceedings. From time to time, we may be involved in legal proceedings or subject to claims incident to the ordinary course of business. Regardless of the outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
Item 1A. Risk Factors
We do not believe that there have been any material changes to the risk factors set forth in Part II, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 except as follows:
Changes in U.S. and international trade policies, particularly with respect to China, may adversely impact our business and operating results.
The U.S. government has recently made statements and taken certain actions that may lead to potential changes to U.S. and international trade policies, including imposing several rounds of tariffs and export control restrictions affecting certain products manufactured in China. Both China and the United States have each imposed tariffs indicating the potential for further trade barriers, including the U.S. Commerce Department adding numerous Chinese entities to its “unverified list,” which requires U.S. exporters to go through more procedures before exporting goods to such entities. It is unknown whether and to what extent new tariffs, export controls, or other new laws or regulations will be adopted, or the effect that any such actions would have on us or our industry. Most recently, in February 2024, U.S. lawmakers have called for investigations into and the imposition of possible economic sanctions against Chinese biotechnology companies WuXi AppTec and WuXi Biologics, or collectively WuXi, over alleged ties to the Chinese military. Any unfavorable government policies on international trade, such as export controls, capital controls or tariffs, may increase the cost of manufacturing our product candidates and platform materials, affect our ability to commercialize our product candidates if approved, the competitive position of our product candidates, and import or export of raw materials and finished product candidate used in our preclinical studies and clinical trials, particularly with respect to any product candidates and materials that we import from China, including pursuant to our manufacturing service arrangements with WuXi. If any new tariffs, export controls, legislation and/or regulations are implemented, or if existing trade agreements are renegotiated or, in particular, if either the U.S. or Chinese government takes retaliatory trade actions due to the recent trade tension, such changes could have an adverse effect on our business, financial condition and results of operations.
Our information technology systems, or those of any of our CROs, manufacturers, other contractors or consultants or potential future collaborators, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly dependent on information technology systems, infrastructure, and data to operate our business. In the ordinary course of our business, we collect, store, process, and transmit large amounts of confidential information, including intellectual property, proprietary business information and personal information of third parties and our employees and contractors. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. Despite the implementation of security measures, our information technology systems and those of our current and any future CROs and other contractors, consultants and collaborators are vulnerable to attack, interruption and damage from computer viruses and malware (e.g. ransomware), malicious code, cyberattacks, hacking, phishing attacks, deep fakes and other social engineering schemes, attacks enhanced or facilitated by artificial intelligence, theft, misconduct or misuse by personnel or third parties, human error, fraud, denial or degradation of service attacks, credential harvesting, supply-chain attacks, technological malfunctions or failures, software bugs, data and information loss, sophisticated nation-state and nation-state-supported actors or unauthorized access or use by persons inside our organization, or persons with access to systems inside our organization. Cyber threats may be generic, or they may be custom-crafted against our information systems. Our network and storage applications and those of our vendors may be subject to unauthorized access by hackers or information security breaches due to operator error, malfeasance or other system disruptions. Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals, including nation states and nation-state-supported actors, with a wide range of motives and expertise. We may also face increased cybersecurity risks due to our reliance on internet technology and the number of our personnel who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. We and certain of our service providers are from time to time subject to cyberattacks and security incidents, including several of the types of attacks noted above. While no prior attacks or incidents have
28
had a material impact on us, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs and our business operations, whether due to a loss of our trade secrets or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. A data security breach could also lead to public exposure of personal information of our clinical trial patients, customers and others. We also rely on third parties to manufacture our product candidates, and similar events relating to their computer systems could also have a material adverse effect on our business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidates could be delayed. If a disruption or security breach were to result in a loss of, or damage to, our data or systems, or inappropriate disclosure of confidential or proprietary or personal information, we could also incur liability, including litigation exposure, penalties and fines, expose us to significant expenses, including remediation expenses, and cause significant harm to our reputation and business. Reputational harm resulting from a significant cyber incident may cause unquantifiable damage to our established goodwill. Furthermore, federal, state and international laws and regulations can expose us to enforcement actions and investigations by regulatory authorities, and potentially result in regulatory penalties, fines and significant legal liability, if our information technology security efforts fail. The cyber threat landscape is continually changing, and we cannot guarantee that we will be able to adapt and change our cyber program to manage and mitigate associated risks. We maintain cyber liability insurance; however, this insurance may not be sufficient to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 27, 2024, the Company entered into a stock purchase agreement, or the Stock Purchase Agreement, with certain institutional accredited investors named therein, or the Purchasers, pursuant to which the Company agreed to issue and sell to the Purchasers in a private placement an aggregate of 8,333,334 shares of its common stock at a price of $42.00 per share for aggregate gross proceeds of approximately $350 million, before deducting offering expenses payable by the Company, or the Private Placement. The Private Placement closed on March 1, 2024. Based in part upon the representations of the Purchasers in the Stock Purchase Agreement, the offering and sale of the shares in the Private Placement was made in reliance on the exemption afforded by Regulation D under the Securities Act and corresponding provisions of state securities or “blue sky” laws. On March 19, 2024, the Company registered the resale of the shares issued and sold in the Private Placement, pursuant to the Registration Rights Agreement entered into with the Purchasers, dated February 27, 2024.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Rule 10b5-1 Trading Plans
On
29
Item 6. Exhibits
EXHIBIT INDEX
Exhibit |
|
Incorporated by Reference |
Filed |
|||
Number |
Exhibit Description |
Form |
File No. |
Exhibit |
Filing Date |
Herewith |
3.1 |
8-K |
001-38583 |
3.3 |
7/20/2018 |
|
|
3.2 |
8-K |
001-38583 |
3.1 |
12/12/2023 |
|
|
4.1 |
Specimen Stock Certificate Evidencing the Shares of Common Stock |
S-1/A |
333-225824 |
4.1 |
7/9/2018 |
|
10.1# |
Crinetics Pharmaceuticals, Inc. Excess Deferral Plan Adoption Agreement |
|
|
|
|
X |
10.2 |
8-K |
001-38583 |
10.1 |
3/1/2024 |
|
|
10.3 |
8-K |
001-38583 |
10.2 |
3/1/2024 |
|
|
31.1 |
|
|
|
|
X |
|
31.2 |
|
|
|
|
X |
|
32.1* |
|
|
|
|
X |
|
101.INS |
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document |
|
|
|
|
X |
101.SCH |
Inline XBRL Taxonomy Extension Schema Document. |
|
|
|
|
X |
101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
|
X |
101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
|
X |
101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
|
X |
101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
X |
104 |
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
|
|
|
|
X |
# Indicates management contract or compensatory plan.
* Certain personal information has been omitted pursuant to Item 601(a)(6) of Regulation S-K.
** The certification attached as Exhibit 32.1 that accompanies this Quarterly Report on Form 10-Q is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Crinetics Pharmaceuticals, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-Q, irrespective of any general incorporation language contained in such filing.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Crinetics Pharmaceuticals, Inc. |
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Date: May 9, 2024 |
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By: |
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/s/ R. Scott Struthers, Ph.D. |
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R. Scott Struthers, Ph.D. |
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President and Chief Executive Officer |
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(Principal executive officer) |
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Date: May 9, 2024 |
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By: |
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/s/ Marc J.S. Wilson |
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Marc J.S. Wilson |
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Chief Financial Officer |
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(Principal financial and accounting officer) |
31
Table of Contents
1.01 |
Preamble |
1 |
1.02 |
Plan |
1 |
1.03 |
Plan Sponsor |
1 |
1.04 |
Employer |
2 |
1.05 |
Administrator |
2 |
1.06 |
Key Employee Determination Dates |
2 |
2.01 |
Participation |
3 |
3.01 |
Compensation |
4 |
3.02 |
Bonuses |
5 |
4.01 |
Participant Contributions |
6 |
5.01 |
Employer Contributions |
8 |
6.01 |
Distributions |
11 |
7.01 |
Vesting |
17 |
8.01 |
Unforeseeable Emergency |
21 |
9.01 |
Investment Decisions |
22 |
10.01 |
Trust |
23 |
11.01 |
Termination Upon Change In Control |
24 |
11.02 |
Automatic Distribution Upon Change In Control |
24 |
11.03 |
Change In Control |
24 |
12.01 |
Governing State Law |
25 |
Appendix A |
27 |
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April 2022 i
1.01 Preamble
By the execution of this Adoption Agreement the Plan Sponsor hereby [complete (a) or (b)]
☒ adopts a new plan as of April 1st, 2024
☐ amends and restates its existing plan as of FORMTEXT [month, day, year] which is the Amendment Effective Date. Except as otherwise provided in Appendix A, all amounts deferred under the Plan prior to the Amendment Effective Date shall be governed by the terms of the Plan as in effect on the day before the Amendment Effective Date.
Original Effective Date: FORMTEXT [month, day, year]
Pre-409A Grandfathering: ☐ Yes ☐ No
By executing this Adoption Agreement, the Plan Sponsor (as defined below) has adopted the Plan (as defined below) consisting of the Basic Plan Document along with this Adoption Agreement (and any exhibits or schedules attached hereto). The Plan Sponsor, by completing this Adoption Agreement has made the specific choices regarding plan design as set forth in the Adoption Agreement together with the detailed additional provisions set out in the Basic Plan Document. All capitalized terms used in this Adoption Agreement have the same meaning given in the Basic Plan Document.
1.02 Plan
Plan Name: |
Crinetics Pharmaceuticals, Inc. Excess Deferral Plan |
Plan Year: |
1/1 through 12/31 |
1.03 Plan Sponsor
Name: |
Crinetics Pharmaceuticals, Inc. |
Address: |
6055 Lusk Blvd, San Diego, CA 92121 |
Phone #: |
(858) 450-6464 |
EIN #: |
26-3744114 |
Fiscal Year: |
January 1st through December 31st |
Is stock of the Plan Sponsor, any Employer or any Related Employer publicly traded on an established securities market? ☒ Yes ☐ No
April 2022 2
1.04 Employer
The following entities have been authorized by the Plan Sponsor to participate in and have adopted the Plan [insert “Not Applicable” if none have been authorized]:
Entity |
Publicly Traded on Est. Securities Market |
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Yes |
No |
Crinetics Pharmaceuticals, Inc. |
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☐
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FORMTEXT |
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☐
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FORMTEXT |
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FORMTEXT |
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1.05 Administrator
The Plan Sponsor has designated the following party or parties to be responsible for the administration of the Plan:
Name: |
Chief Human Resources Officer of Crinetics Pharmaceuticals, Inc |
Address: |
6055 Lusk Blvd, San Diego, CA 92121 |
Note: The Administrator is the person or persons designated by the Plan Sponsor to be responsible for the administration of the Plan. Neither Fidelity Employer Services Company nor any other Fidelity affiliate can be the Administrator.
1.06 Key Employee Determination Dates
The Employer has designated FORMTEXT [month, day, year] as the Identification Date for purposes of determining Key Employees.
In the absence of a designation, the Identification Date is December 31.
April 2022 3
The Employer has designated FORMTEXT [month, day, year] as the effective date for purposes of applying the six month delay in distributions to Key Employees.
In the absence of a designation, the effective date is the first day of the fourth month following the Identification Date.
2.01 Participation
☒ Employees [complete (i), (ii) or (iii)]
☒ Eligible Employees are selected by the Employer.
☐ Eligible Employees are those employees of the Employer who satisfy the following criteria:
FORMTEXT |
FORMTEXT |
FORMTEXT |
FORMTEXT |
FORMTEXT |
☐ Employees are not eligible to participate.
☒ Directors [complete (i), (ii) or (iii)]
☐ All Directors are eligible to participate.
☒ Only Directors selected by the Employer are eligible to participate.
☐ Directors are not eligible to participate.
April 2022 4
3.01 Compensation
For purposes of determining Participant contributions under Article 4 and Employer contributions under Article 5, Compensation shall be defined in the following manner [complete (a) or (b) and select (c) and/or (d), if applicable]:
☒ Compensation is defined as:
Base Salary |
FORMTEXT |
FORMTEXT |
FORMTEXT |
FORMTEXT |
FORMTEXT |
☐ Compensation as defined in FORMTEXT [insert name of qualified plan] without regard to the limitation in Section 401(a)(17) of the Code for such Plan Year.
☒ Director Compensation is defined as:
Director’s Fees |
FORMTEXT |
FORMTEXT |
☐ Compensation shall, for all Plan purposes, be limited to $ FORMTEXT .
☐ Not Applicable.
April 2022 5
3.02 Bonuses
Compensation, as defined in Section 3.01 of the Adoption Agreement, includes the following type of bonuses that will be the subject of a separate deferral election:
Type |
[Will be treated as] |
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Yes |
No |
Bonus |
☒
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☐
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Restricted Stock Units (RSUs) |
☒
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☐
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FORMTEXT |
☐
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☐
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FORMTEXT |
☐
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☐
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FORMTEXT |
☐
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☐
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☐ Not Applicable.
April 2022 6
4.01 Participant Contributions
If Participant contributions are permitted, complete (a) and (b). Otherwise complete (c).
(a) Amount of Deferrals
A Participant may elect within the period specified in Section 4.01(b) of the Adoption Agreement to defer the following amounts of remuneration. For each type of remuneration listed, complete “dollar amount” and/or “percentage amount”.
(i) Compensation other than Bonuses [do not complete if you complete (iii)]
Type of Remuneration |
Dollar Amount |
% Amount |
Increment |
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Min |
Max |
Min |
Max |
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Base Salary |
FORMTEXT |
FORMTEXT |
1% |
80% |
1% |
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FORMTEXT |
FORMTEXT |
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FORMTEXT |
FORMTEXT |
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Note: The increment is required to determine the permissible deferral amounts. For example, a minimum of 0% and maximum of 20% with a 5% increment would allow an individual to defer 0%, 5%, 10%, 15% or 20%.
(ii) Bonuses [do not complete if you complete (iii)]
Type of Bonus |
Dollar Amount |
% Amount |
Increment |
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Min |
Max |
Min |
Max |
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Bonus |
FORMTEXT |
FORMTEXT |
1% |
80% |
1% |
Restricted Stock Units (RSUs) |
FORMTEXT |
FORMTEXT |
0% |
100% |
100% |
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FORMTEXT |
FORMTEXT |
FORMTEXT % |
FORMTEXT % |
FORMTEXT % |
(iii) Compensation [do not complete if you completed (i) and (ii)]
Dollar Amount |
% Amount |
Increment |
April 2022 7
Min |
Max |
Min |
Max |
|
FORMTEXT |
FORMTEXT |
FORMTEXT % |
FORMTEXT % |
FORMTEXT % |
(iv) Director Compensation
Type of Compensation |
Dollar Amount |
% Amount |
Increment |
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Min |
Max |
Min |
Max |
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Director’s Fees |
FORMTEXT |
FORMTEXT |
1% |
100% |
1% |
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FORMTEXT |
FORMTEXT |
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FORMTEXT |
FORMTEXT |
FORMTEXT % |
FORMTEXT % |
FORMTEXT % |
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FORMTEXT |
FORMTEXT |
FORMTEXT % |
FORMTEXT % |
FORMTEXT % |
(b) Election Period
(i) Performance Based Compensation
A special election period
☒ Does
☐ Does Not
apply to each eligible type of performance based compensation referenced in Section 3.02 of the Adoption Agreement.
The special election period, if applicable, will be determined by the Employer.
(ii) Newly Eligible Participants
An employee who is classified or designated as an Eligible Employee during a Plan Year
☒ May
☐ May Not
April 2022 8
elect to defer Compensation earned during the remainder of the Plan Year by completing a deferral agreement within the 30-day period beginning on the date he or she is eligible to participate in the Plan.
The special election period, if applicable, will be determined by the Employer.
(c) No Participant Contributions
☐ Participant contributions are not permitted under the Plan.
April 2022 9
5.01 Employer Contributions
If Employer contributions are permitted, complete (a) and/or (b). Otherwise, complete (c).
(a) Matching Contributions
(i) Amount
For each Plan Year, the Employer shall make a matching contribution on behalf of each Participant who defers Compensation for the Plan Year and satisfies the requirements of Section 5.01(a)(ii) of the Adoption Agreement equal to [complete the ones that are applicable]:
☐ FORMTEXT [insert percentage]% of the Compensation the Participant has elected to defer for the Plan Year
☒ An amount determined by the Employer in its sole discretion
☐ Matching contributions for each Participant shall be limited to $ FORMTEXT and/or FORMTEXT [insert percentage]% of Compensation
☐ Other:
FORMTEXT |
FORMTEXT |
☐ Not Applicable [Proceed to Section 5.01(b)]
(ii) Eligibility for matching contribution
A Participant who defers Compensation for the Plan Year shall receive an allocation of matching contributions determined in accordance with Section 5.01(a)(i) provided he or she satisfies the following requirements [complete the ones that are applicable]:
☐ Describe requirements:
FORMTEXT |
FORMTEXT |
☒ Is selected by the Employer in its sole discretion to receive an allocation of matching contributions
April 2022 10
☐ No requirements
(iii) Time of Allocation
Matching contributions, if made, shall be treated as allocated [select one]:
☐ As of the last day of the Plan Year
☒ At such times as the Employer shall determine in its sole discretion
☐ At the time the Compensation on account of which the matching contribution is being made would otherwise have been paid to the Participant
☐ Other:
FORMTEXT |
FORMTEXT |
(b) Other Contributions
(i) Amount
The Employer shall make a contribution on behalf of each Participant who satisfies the requirements of Section 5.01(b)(ii) equal to [complete the ones that are applicable]:
☐ An amount equal to FORMTEXT [insert percentage]% of the Participant’s Compensation
☒ An amount determined by the Employer in its sole discretion
☐ Contributions for each Participant shall be limited to $ FORMTEXT
☐ Other:
FORMTEXT |
FORMTEXT |
☐ Not Applicable [Proceed to Section 6.01]
(ii) Eligibility for Other Contribution
April 2022 11
A Participant shall receive an allocation of other Employer contributions determined in accordance with Section 5.01(b)(i) for the Plan Year if he or she satisfies the following requirements [complete the one that is applicable]:
☐ Describe requirements:
FORMTEXT |
FORMTEXT |
☒ Is selected by the Employer in its sole discretion to receive an allocation of other Employer contributions
☐ No requirements
(iii) Time of Allocation
Employer contributions, if made, shall be treated as allocated [select one]:
☐ As of the last day of the Plan Year
☒ At such times or times as the Employer shall determine in its sole discretion
☐ Other:
FORMTEXT |
FORMTEXT |
(c) No Employer Contributions
☐ Employer contributions are not permitted under the Plan.
April 2022 12
6.01 Distributions
The timing and form of payment of distributions made from the Participant’s vested Account shall be made in accordance with the elections made in this Section 6.01 of the Adoption Agreement except when Section 9.6 of the Plan requires a six month delay for certain distributions to Key Employees of publicly traded companies.
(a) Timing of Distributions
(i) All distributions shall commence in accordance with the following [choose one]:
☒ As soon as administratively feasible following the distribution event but in no event later than the time prescribed by Treas. Reg. Sec. 1.409A-3(d).
☐ Monthly on specified day 1st of the month
☐ Annually on specified month and day FORMTEXT [insert month and day]
☐ Calendar quarter on specified month and day FORMTEXT [insert month and day] FORMTEXT [insert numerical quarter 1, 2, 3, or 4]
(ii) The timing of distributions as determined in Section 6.01(a)(i) shall be modified by the adoption of:
☒ Event Delay – Employee Distribution events other than those based on Specified Date or Specified Age will be treated as not having occurred for 6 months. Director’s should be paid as soon as administratively feasible following separation from service.
☐ Hold Until Next Year – Distribution events other than those based on Specified Date or Specified Age will be treated as not having occurred for twelve months from the date of the event if payment pursuant to Section 6.01(a)(i) will thereby occur in the next calendar year or on the first payment date in the next calendar year in all other cases
☐ Immediate Processing – The timing method selected by the Plan Sponsor under Section 6.01(a)(i) shall be overridden for the following distribution events [insert events]:
FORMTEXT |
FORMTEXT |
☐ Not applicable
(b) Distribution Events
(i) Participant Contributions under Section 4.01(a)
April 2022 13
Participants may elect the following payment events and the associated form or forms of payment. If multiple events for each year are selected, the earliest to occur will trigger payment. For installments, insert the range of available periods (e.g., 5-15) or insert the periods available (e.g., 5, 7, 9).
|
Lump Sum |
Installments |
☒
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☒
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2-5 years |
☐
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☐
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FORMTEXT years |
☐
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☒
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years |
☒
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☒
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2-10 years |
☐
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☐
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FORMTEXT years |
☐
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☐
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FORMTEXT years |
☒
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☐
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2-10 years |
☐
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☐
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FORMTEXT years |
☐
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☐
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FORMTEXT years |
☐
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☐
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FORMTEXT years |
☐
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☐
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FORMTEXT years |
The minimum deferral period for Specified Date or Specified Age event shall be 3 years.
A distribution made on account of Separation from Service (or Retirement, if applicable) to any Participant shall not be made before the date which is six months after the Participant’s Separation from Service (or Retirement, if applicable).
April 2022 14
Installments may be paid [select each that applies]
☐ Monthly
☐ Quarterly
☐ Semi-Annually
☒ Annually
(ii) Employer Contributions under Section 5.01(a) and (b) and Restricted Stock Units (RSU’s) under Section 4.01(a)(ii) and (iv)
Participants may elect the following payment events and the associated form or forms of payment. If multiple events for each year are selected, the earliest to occur will trigger payment. For installments, insert the range of available periods (e.g., 5-15) or insert the periods available (e.g., 5, 7, 9).
|
Lump Sum |
Installments |
☐
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☐
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FORMTEXT years |
☐
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☐
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FORMTEXT years |
☐
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☐
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years |
☒
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☒
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2-10 years |
☐
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☐
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FORMTEXT years |
☐
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☐
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FORMTEXT years |
☒
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☐
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2-10 years |
☐
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☐
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FORMTEXT years |
☐ |
☐ |
FORMTEXT years |
April 2022 15
|
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☐
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☐
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FORMTEXT years |
☐
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☐
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FORMTEXT years |
The minimum deferral period for Specified Date or Specified Age event shall be 3 years.
Installments may be paid [select each that applies]
☐ Monthly
☐ Quarterly
☐ Semi-Annually
☒ Annually
A distribution made on account of Separation from Service (or Retirement, if applicable) to any Participant shall not be made before the date which is six months after the Participant’s Separation from Service (or Retirement, if applicable).
(c) Specified Date and Specified Age elections may not extend beyond age Not applicable.
(d) Payment Election Override
Payment of the remaining vested balance of the Participant’s Account will automatically occur at the time specified in Section 6.01(a) of the Adoption Agreement in the form indicated upon the earliest to occur of the following events [check each event that applies and for each event include only a single form of payment]:
Events |
Form of Payment |
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Lump Sum |
Installments |
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☐
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☐
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FORMTEXT |
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☐
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☐
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FORMTEXT |
April 2022 16
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☒
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☒
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FORMTEXT |
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☒
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☒
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FORMTEXT |
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☐
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☐
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FORMTEXT |
(e) Involuntary Cashouts
☒ If the Participant’s vested Account at the time of his or her Separation from Service does not exceed the 402(g) limit, distribution of the vested Account shall automatically be made in the form of a single lump sum in accordance with Section 9.5 of the Plan.
☐ There are no involuntary cashouts.
(f) Retirement
☒ Retirement shall be defined as a Separation from Service that occurs on or after the Participant [insert description of requirements]:
Attainment of Age 62 |
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☐ No special definition of Retirement applies.
(g) Distribution Election Change
A Participant
☒ Shall
☐ Shall Not
be permitted to modify a scheduled distribution date and/or payment option in accordance with Section 9.2 of the Plan.
A Participant shall generally be permitted to elect such modification Unlimited number of times.
April 2022 17
Administratively, allowable distribution events will be modified to reflect all options necessary to fulfill the distribution change election provision.
(h) Frequency of Elections
The Plan Sponsor
☒ Has
☐ Has Not
elected to permit annual elections of a time and form of payment for amounts deferred under the Plan. If a single election of a time and/or form of payment is required, the Participant will make such election at the time he or she first completes a deferral agreement which, in all cases, will be no later than the time required by Reg. Sec. 1.409A-2.
(i) Disability
For Purposes of Section 2.11 of the Plan, Disability shall be defined as
☐ Total disability as determined by the Social Security Administration or the Railroad Retirement Board.
☒ As determined by the Employer’s long term disability insurance policy.
☐ As follows [insert description of requirements]:
FORMTEXT |
FORMTEXT |
☐ Not applicable.
April 2022 18
7.01 Vesting
(a) Matching Contributions
The Participant’s vested interest in the amount credited to his or her Account attributable to matching contributions shall be based on the following schedule:
☒
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Years of Service |
Vesting % |
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0 |
100% |
[insert “100” if there is immediate vesting] |
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1 |
FORMTEXT % |
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2 |
FORMTEXT % |
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3 |
FORMTEXT % |
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4 |
FORMTEXT % |
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5 |
FORMTEXT % |
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6 |
FORMTEXT % |
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7 |
FORMTEXT % |
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8 |
FORMTEXT % |
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9 |
FORMTEXT % |
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☐ Other:
FORMTEXT |
FORMTEXT |
☐ Class year vesting applies:
FORMTEXT |
☐ Not applicable.
April 2022 19
(b) Other Employer Contributions
The Participant’s vested interest in the amount credited to his or her Account attributable to Employer contributions other than matching contributions shall be based on the following schedule:
☐
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Years of Service |
Vesting % |
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0 |
FORMTEXT % |
[insert “100” if there is immediate vesting] |
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1 |
FORMTEXT % |
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2 |
FORMTEXT % |
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3 |
FORMTEXT % |
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4 |
FORMTEXT % |
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5 |
FORMTEXT % |
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6 |
FORMTEXT % |
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7 |
FORMTEXT % |
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8 |
FORMTEXT % |
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9 |
FORMTEXT % |
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☐ Other:
FORMTEXT |
FORMTEXT |
☒ Class year vesting applies:
100% 3-year cliff class vesting schedule applies to each Employer Contribution other than matching contributions. Vesting to occur on the |
April 2022 20
applicable January 1 following 3 class years (plan years) of service completed by the participant. |
☐ Not applicable.
(c) Acceleration of Vesting
The Participant’s vested interest in his or her Account will automatically be 100% upon the occurrence of the following events [select the ones that are applicable]:
☒ Death.
☒ Disability.
☒ Change in Control.
☒ Eligibility for Retirement.
☒ Other:
Involuntary Termination Without Cause as determined by the Plan Administrator |
FORMTEXT |
☐ Not applicable.
(d) Years of Service
(i) A Participant’s Years of Service shall include all service performed for the Employer and
☐ Shall
☒ Shall Not
include service performed for the Related Employer.
April 2022 21
(ii) Years of Service shall also include service performed for the following entities:
FORMTEXT |
FORMTEXT |
FORMTEXT |
FORMTEXT |
FORMTEXT |
(iii) Years of Service shall be determined in accordance with [select one]:
☐ The elapsed time method in Treas. Reg. Sec. 1.410(a)-7
☐ The general method in DOL Reg. Sec. 2530.200b-1 through b-4
☒ Participant’s Years of Service credited under:
Elapsed time method will be used for each Employer Contribution (other than matching contributions) which vests 100% based on a rolling 3-year cliff class vesting schedule. |
☐ Other:
FORMTEXT |
FORMTEXT |
FORMTEXT |
FORMTEXT |
☒ Not applicable.
April 2022 22
8.01 Unforeseeable Emergency
(a) A withdrawal due to an Unforeseeable Emergency as defined in Section 2.24:
☒ Will
☐ Will Not [if Unforeseeable Emergency withdrawals are not permitted, proceed to Section 9.01]
be allowed.
(b) Upon a withdrawal due to an Unforeseeable Emergency, a Participant’s deferral election for the remainder of the Plan Year:
☒ Will
☐ Will Not
be cancelled. If cancellation occurs, the Participant may resume participation in accordance with Article 4 of the Plan.
April 2022 23
9.01 Investment Decisions
Investment decisions regarding the hypothetical amounts credited to a Participant’s Account shall be made by [select one]:
☒ The Participant or his or her Beneficiary
☐ The Employer
10.01 Trust
The Employer [select one]:
☒ Does
☐ Does Not
intend to establish a trust as provided in Article 11 of the Plan.
April 2022 24
11.01 Termination Upon Change In Control
The Plan Sponsor
☒ Reserves
☐ Does Not Reserves
the right to terminate the Plan and distribute all vested amounts credited to Participant Accounts upon a Change in Control as described in Section 9.7.
11.02 Automatic Distribution Upon Change In Control
Distribution of the remaining vested balance of each Participant’s Account
☐ Shall
☒ Shall Not
automatically be paid as a lump sum payment upon the occurrence of a Change in Control as provided in Section 9.7.
11.03 Change In Control
A Change in Control for Plan purposes includes the following [select each definition that applies]:
☒ A change in the ownership of the Employer as described in Section 9.7(c) of the Plan.
☒ A change in the effective control of the Employer as described in Section 9.7(d) of the Plan.
☒ A change in the ownership of a substantial portion of the assets of the Employer as described in Section 9.7(e) of the Plan.
☐ Not Applicable.
April 2022 25
12.01 Governing State Law
The laws of California shall apply in the administration of the Plan to the extent not preempted by ERISA.
April 2022 26
Execution Page
The Plan Sponsor has caused this Adoption Agreement to be executed this 9th day of April, 2024.
Plan Sponsor: |
/s/ Adriana Cabre |
By: |
Adriana Cabre |
Title: |
Chief Human Resources Officer |
April 2022 27
Appendix A
Special Effective Dates
Not Applicable
April 2022 28
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, R. Scott Struthers, Ph.D., certify that:
|
1. |
I have reviewed this quarterly report on Form 10-Q of Crinetics Pharmaceuticals, Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 9, 2024 |
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/s/ R. Scott Struthers, Ph.D. |
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R. Scott Struthers, Ph.D. |
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President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Marc J.S. Wilson, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of Crinetics Pharmaceuticals, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 9, 2024 |
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/s/ Marc J.S. Wilson |
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Marc J.S. Wilson |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Crinetics Pharmaceuticals, Inc. (the “Company”) hereby certifies, to his knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended March 31, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ R. Scott Struthers, Ph.D. |
R. Scott Struthers, Ph.D. |
President and Chief Executive Officer |
Date: May 9, 2024
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Crinetics Pharmaceuticals, Inc. (the “Company”) hereby certifies, to his knowledge, that:
(i) the accompanying Quarterly Report on Form 10-Q of the Company for the fiscal quarter ended March 31, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Marc J.S. Wilson |
Marc J.S. Wilson |
Chief Financial Officer |
Date: May 9, 2024