By late June, Cara Therapeutics, Inc. (NASDAQ:CARA) stock had soared more than 175% year to date. Within a couple of weeks, however, many of those gains had been lost. Cara shares crashed after the biotech reported disappointing results from a phase 2 study of experimental pain drug CR845.

While the stock has climbed back somewhat, Cara is still well below the lofty levels of earlier in the summer. Can the comeback continue? I think so. Here's why the best is probably yet to come for Cara Therapeutics. 

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CR845 is still very promising

It's important to understand the details of that disappointing phase 2 study for CR845. In this study, 476 patients with osteoarthritis of the hip or knee experiencing moderate to severe pain were given one of three doses of oral CR845 or placebo. 

The primary endpoint of the study was improvement in the weekly mean of the daily pain intensity score at week eight. Secondary endpoints included overall patient global assessment score, mean reduction in rescue medication, and overall improvement in Western Ontario and McMaster Universities Osteoarthritis Index scores. 

Cara's disappointing news was that patients on the lower 1.0 mg and 2.5 mg doses of oral CR845 didn't report statistically significant reductions in pain compared with patients on placebo. However, patients with osteoarthritis of the hip taking the 5.0 mg dose of oral CR845 had a 39% reduction in mean pain score. There was also a statistically significant increase in the proportion of patients maintained on the 5.0 mg dose whose osteoarthritis was "very much improved" or "much improved." Perhaps the most compelling finding for oral CR845's effectiveness at the higher dosage was that there was a 41% reduction in rescue medication for hip patients taking the highest dose of oral CR845.

Why hash through those results again? Because they point out that there's still considerable promise for oral CR845 at higher doses. Cara plans to initiate a phase 2 adaptive trial with a 10 mg dose of the drug and more hip patients in the study. Based on the previous results, there appears to be plenty of reason for optimism with this new trial.    

It's also important to remember that Cara is farther along in development with its intravenous (IV) version of CR845. The biotech expects to complete enrollment within a few months in a pivotal late-stage study of IV CR845 in treating acute postoperative pain. Cara also intends to start another pivotal late-stage study in the fourth quarter of 2017 of IV CR845 in treating chronic kidney disease-associated pruritus (CKD-aP) in hemodialysis patients. Phase 2 results for IV CR845 in treating both of these indications were very encouraging. 

Tremendous potential market

While there are already treatments on the market for alleviating postoperative pain, the most powerful ones are highly addictive opioid drugs. Addiction isn't the only problem with these opioid drugs, though. They can also lead to side effects including respiratory depression, nausea, and vomiting. As a result, there's a significant unmet need in this market. 

CR845 is also an opioid, but it works by targeting the body's peripheral nervous system. That means the addiction and side effects associated with most current opioids are greatly reduced for patients taking CR845.

An estimated 200,000 to 300,000 patients in the U.S. who are on dialysis have CKD-aP. This severe itching is usually unresponsive to standard itch medications such as antihistamines and steroids. Cara should be able to enjoy great market success if CR845 is approved for the indication.

Looking beyond the CKD-aP indication, over 20 million patients in the U.S. take prescription drugs for chronic itching. In many cases, current therapies aren't effective. That gives Cara a tremendous opportunity if oral CR845 ultimately wins approval in the pruritis indication.

Cara's market cap currently stands around $470 million. Even if only IV CR845 proves to be successful, the potential sales would justify a much higher market cap than that. And if oral CR845 performs well in remaining clinical studies and ultimately wins approval, the stock would go through the roof. 

Caveats and disclaimers

Of course, for now Cara Therapeutics is a clinical-stage biotech. Anything can happen with clinical studies and/or the regulatory approval process. There are plenty of hurdles for the company to jump -- and there's no guarantee that it will be able to do so.

Having considered those caveats and disclaimers, I think that the biotech could be one of the bigger winners of the next few years. There certainly are risks, but I really do think the best days are yet to come for Cara.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.