This year had investors in Cara Therapeutics (NASDAQ:CARA) looking for pain relief. The drugmaker's stock plunged a whopping 59% at the beginning of the year as the entire biotech industry came under pressure, and then it lost another 31% in a single day when a drug trial was halted for a concern that turned out to be a non-issue. While the stock has recovered some of that recently, it is still down 45% for the year. But everything is likely to change in 2017 -- for better or for worse.
The stage is set for Cara's pain drug
Cara Therapeutics is a clinical-stage biotech company working on a novel drug for pain, inflammation, and severe itching at a time when opioid addiction is a growing problem that is getting increasing public attention. Today's opioid drugs for severe pain such as morphine, fentanyl, and their derivatives work by acting on the central nervous system and attaching to what are known as mu opioid receptors. Cara's CR845, in contrast, attaches to different receptors, called the kappa opioid receptors, at the source of the pain in the sensory nerves in the periphery of the body and is very poor at crossing the blood-brain barrier. The result is a pain drug that doesn't have the side effects of today's opioid analgesics, including the euphoria that can lead to drug abuse.
CR845 is in human testing for three different applications. Firstly, intravenous doses of the drug are in phase 3 testing for treatment of post-operative pain. 46 million inpatient and 53 million outpatient surgeries are performed in the United States each year that require treatment for post-operative pain, so the potential market for the drug in this application is huge. The second market CR845 is targeting is even larger: chronic pain. In the U.S. alone, there are an estimated 100 million prescriptions written for chronic pain every year. Thirdly, Cara is testing the drug as a treatment for pruritus, a chronic systematic itch condition afflicting patients with chronic kidney disease and for which there are no currently approved therapies in the United States. Approximately 60% of dialysis patients report pruritus, and the market is estimated at 20 million patients in the U.S. The company is in phase 2/3 testing of an intravenous (IV) formulation for this condition.
The market hasn't recognized Cara's progress since its IPO
When Cara Therapeutics completed its initial public offering in February 2014, the company had not initiated any trials beyond phase 1, so there was not yet any data on the efficacy of CR845 in humans. Over the last 17 months, positive results from phase 2 trials have been reported for all 3 applications, so far demonstrating the drug to be effective and well-tolerated for pain and pruritus. The company has also conducted an abuse liability study which showed that the drug has a lower potential for abuse than a benchmark Schedule IV treatment (heroin is Schedule I) and has the potential to become the first Schedule V or non-scheduled peripheral opioid for acute pain.
Despite the significant progress, the market capitalization of the company stands at $251 million today, down 11% since its IPO. The market has been wary of biotech stocks in general in 2016, but there was a specific concern about Cara early in the year when the trial of IV CR845 for pain was halted due to elevated blood sodium levels in some subjects. It turned out the condition was not severe enough to be dangerous and could easily be prevented by lowering the dosage. But the stock remains less than half of what it was at the peak around the first successful phase 2 trial last year.
The stock is likely to get some notice soon. There will be plenty of new data on the effectiveness and safety of CR845 coming to light next year. The results of part A of the phase 2/3 trial for pruritus should be available in the first quarter of 2017. The data from the phase 2b trial of oral CR845 is expected sometime in the first half. And the results of the phase 3 trial of IV CR845 for post-operative pain should be out by the end of 2017.
This had better work...
Cara Therapeutics has other molecules in its laboratory, including a cannabinoid treatment for pain, but CR845 is the only drug the company has in human testing. The company is betting big on this one drug and may not be able to survive a clinical failure. Furthermore, a capital raise is likely in 2017. Although quarterly cash burn has been steadily under $15 million, and Cara has $71 million in cash and equivalents on its books, expenses are only going up. Testing costs are increasing as later stage trials expand the number of subjects, and management has said that cash and short-term investments will only take them through Q1 2018. The last public offering was shrewdly made when the market cap was double what it is today, and any bad news from a trial could cause the stock to plunge and make the next stock offering even more dilutive.
Cara Therapeutics is a one-trick pony at this point, but that horse appears to be a thoroughbred in a race for a huge purse. With significant late-stage trial results coming out in 2017, this next year is pivotal for the company. Initial data on the drug is very positive, and the market for it is potentially huge. On the other hand, the failure of this one drug may be fatal for the business. Personally, I think the stock is worthy of a small position in a diversified portfolio, and investors with a high tolerance for risk may want to take a look at this one.
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