Micro-cap biotech Cara Therapeutics (NASDAQ:CARA) reported another in a string of positive trial results for its pain and itching drug, CR845. As the risk of failure for its only drug in human trials declines, the stock price has been soaring, and it could continue to do so for some time.

A novel approach for some serious indications

Cara's drug is an opioid compound for pain, inflammation, and itching, but one that takes a different approach from others on the market. Today's opioid drugs for severe pain act on the central nervous system by targeting the mu opioid receptors. CR845, on the other hand, does not cross the blood-brain barrier, and acts on the kappa opioid receptors in the periphery of the body at the source of pain and itching. The benefit is the lack of side effects, especially the euphoria that gives rise to addiction and abuse.

Hand drawing chart of rising stock price.

Image source: Getty Images.

Itching, or pruritus, is a minor annoyance for most of us, but for many patients with chronic kidney disease (CKD) it is a serious condition that degrades the quality of life and is associated with increased morbidity and mortality. It affects over 60% of patients with CKD who are on dialysis -- from 200,000 to 300,000 people in the US -- and about 30% of the 4 million non-dialysis sufferers of the disease in this country. There are currently no approved therapies for the condition, as conventional treatments for itching such as antihistamines and steroids are ineffective for uremic pruritus.

Stellar results

Results for part A of a phase 2/3 trial for intravenous CR845 to treat uremic pruritus were released on March 28 and added to the body of evidence that Cara has a winning drug on its hands. The trial met both the primary endpoint for improvement on an itching score and the secondary endpoint on a measure of improved quality of life. The trial lasted for eight weeks, and itching scores continuously declined during the entire period, bringing the average itching level below the "mild" threshold. The results indicate that the drug produces a sustained, increasing benefit that might have been even better had the trial gone on longer.

Graph of CR845 itching scores over time, compared with placebo.

Image source: Cara Therapeutics.

Further good news was that of the three dosing levels tested, all three produced roughly similar results. That means that Cara will be able to drop the top dosing level from future trials for this indication. The independent data monitoring committee found no safety issues as well.

Since the results were so unequivocal, Cara may be able to speed up the approval process. This study was billed as part A of a phase 2/3 trial, but when the company meets with the FDA, it will try to position this as a stand-alone pivotal trial, and the upcoming 12-week part B as phase 3. Still to be done is a 12-month safety study to confirm that the drug is OK for long term use.

Good time for a capital raise

Investor recognition of the potential for CR845 drove the stock to new 365-day highs, so the company announced a secondary offering of $92 million in stock, representing 18% dilution. The news has caused the stock price to retreat a little, but investors are likely to shrug it off. Cara has been very careful to fund development without giving up much in terms of partnerships with other companies. It has license agreements for sales in Japan and Korea, but otherwise has not given up royalties on sales to the rest of the world so far. The only other secondary offering was in 2015 -- for about the same amount -- when the stock price was almost identical to what it is today.

In the last conference call, company officials said that cash reserves at the time were sufficient to fund operations through the end of the first quarter of 2018, and given that operating expenses were $22 million last quarter, this additional capital may be enough to get the company through to a commercial launch in late 2018.

More news on the way

Investors can now look forward to more news coming up soon. The big prize for Cara is approval for pain indications, and two such trials will be reading out in Q2. A phase 3 trial of 450 patients for IV CR845 for post-operative pain could be a major milestone for the company when results are announced in the next three months. The other is a phase 2 trial of an oral formulation for arthritic pain, which has potential to address a major market need for a powerful pain drug that does not contribute to the growing opioid abuse problem.

With a market capitalization of just over $500 million and a single drug that could have a huge market in multiple indications, Cara Therapeutics is a worthy consideration for investors itching to take on some risk for a very big potential reward. And, after the recent news, that risk just got a little smaller.

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