At one point this year, Cara Therapeutics (CARA -4.90%) stock was up more than 175%. Most of those gains were given up, though. The stock is now up a little over 30% year to date. But that's still a better performance than Novavax (NVAX -0.81%) has achieved. At its peak this year, Novavax stock was up close to 30%. It's now down more than 10% year to date.
Short-term stock performance doesn't necessarily make one stock better than another. However, I think Cara Therapeutics has better growth potential than Novavax does over the near term and probably over the long run, as well. Here are three reasons why.
1. Pipeline advantage
Both Cara and Novavax are clinical-stage biotechs with lead candidates in phase 3 clinical studies. Both also have other products in phase 1 and phase 2 testing. Overall, my view is that Cara's pipeline looks stronger.
One advantage that Cara has is that its lead candidate, intravenous (IV) CR845, is in late-stage studies targeting two indications -- post-operative pain and chronic kidney disease-associated pruritus (CKD-aP). Just from a probabilistic perspective, the company has greater chances for success than Novavax does, since its RSV F vaccine is in one late-stage study for maternal immunization of infants.
Also, Novavax has already run into a problem with its vaccine. Last year, the company reported disappointing results from a late-stage study in vaccinating older adults. Its RSV F vaccine didn't prove effective.
Cara Therapeutics also had some bad news earlier this year with less-than-stellar results from a phase 2 study of its oral formulation of CR845 in treating chronic pain for patients with osteoarthritis of the hip or knee. However, there were some bright spots with those results -- and the study had no bearing on how well the IV version of the drug will perform in late-stage studies.
Novavax announced very promising results from preclinical testing of its NanoFlu influenza vaccine in August. The vaccine could turn out to be a big winner for the company, but it's still early. Novavax began a phase 1/2 study in September. There are quite a few hurdles to jump before the company can claim success with NanoFlu.
2. Better financial position
Cara Therapeutics reported $112.4 million in cash, cash equivalents, and marketable securities at the end of June. Novavax had $187.3 million. So is Novavax in better financial position than Cara? Actually, no.
Although Cara has a smaller cash position, it can go longer on the cash that it has. The company lost $31.5 million in the first half of 2017. Based on that rate, Cara should be able to go nearly two years before it runs out of money. Novavax, on the other hand, lost $88.3 million in the first two quarters of this year. Its cash position will fund operations for just over one year.
What this means is that Novavax will likely have to conduct a stock offering to generate capital much sooner than Cara will. Issuing new shares results in dilution that decreases the value of existing shares, causing the stock to drop. This issue by itself could result in Cara outperforming Novavax in the near term.
3. Wall Street opinions
I'm not one to put too much weight on what Wall Street analysts say. However, their opinions can influence others. Because of this, what Wall Street firms think matters -- especially for small-cap stocks.
It's pretty clear which of these two stocks enjoys more favor among analysts. According to Thomson Reuters, six Wall Street analysts rate Cara Therapeutics stock as either "buy" or "strong buy." One rates the stock as a hold. The reverse situation applies for Novavax, with two analysts rating the stock as "buy" or "strong buy," and five rating it as a hold.
Cara also enjoys a distinct advantage when it comes to analysts' price targets. The consensus among Wall Street analysts is that Cara's share price could more than double over the next 12 months. While the one-year price target for Novavax is bullish, the premium over the current share price is much lower.
Risks and rewards
How each biotech's clinical studies go could dramatically change the dynamics for Cara and Novavax. There's still considerable uncertainty for both companies.
I am cautiously optimistic about the prospects for Cara and Novavax. Even though they have gone through some challenging times, my view is that both have reasonable chances for success with their lead candidates. If I had to pick one of them, though, the edge would go to Cara.