What happened

Cara Therapeutics' (NASDAQ:CARA) stock is surging 23% higher at 3:30 p.m. EDT today after management reported second-quarter financial results yesterday that included an update to its clinical-stage drug development programs. 

So what

Earlier this year, Cara Therapeutics reported data from a trial evaluating an IV formulation of its CR845 painkiller in chronic kidney disease patients with uremic pruritis, or chronic itch. The trial showed that eight weeks of treatment with IV CR845 reduced pain by 68% versus placebo on a 0-to-10 rating scale.

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The results sent shares soaring. However, investor optimism was crimped in June when management said that a trial evaluating oral CR845 in osteoarthritis of the knee and hip produced mixed results. Oral CR845 did not deliver statistically significant pain reduction in knee patients, but it did provide some relief for hip pain patients. 

Yesterday, management announced its second-quarter financials and provided additional insight into its future plans for CR845. The company doesn't have any commercial-stage drugs, so investors are undeniably laser focused on the pipeline update.

Management says it plans to meet with the Food and Drug Administration soon regarding the design of a pivotal phase 3 trial for IV CR845 in uremic pruritis, and a trial could begin by year's end. The company also said it expects to complete enrollment in a phase 3 trial evaluating IV CR845 for the treatment of acute postoperative pain in the fourth quarter of 2017.

Now what

There are 468,000 Americans with kidney failure who are on dialysis and about 60% of them suffer from uremic pruritus, so a phase 3 success for IV CR845 could provide a significant source of new revenue someday.

The oral CR845 trial was disappointing, but management is still looking over the data, and there's still a possibility that a phase 3 trial could be designed, depending on their findings. The market could also reward the company if data in postoperative pain is solid when it's reported next year. After all, there's a significant need for pain drugs that work differently than opioids.

Overall, Cara Therapeutics says it has enough cash to last it into 2019, so there shouldn't be a risk of dilution between now and the time that data is available. That's good news for investors, but this company is still a risky bet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.