Cara Therapeutics' (CARA +0.00%) shareholders are probably smiling. The biotech's stock jumped nearly 32% in 2017, a major reversal from the big loss experienced the previous year. But if Cara's shareholders are smiling, investors who owned Nektar Therapeutics (NKTR +0.43%) stock throughout 2017 are probably doing cartwheels. Nektar's share price skyrocketed close to 387% last year -- nearly enough to land a spot among the top three biotech stocks of 2017.
But now that 2018 is here, it's out with the old and in with the new. Past records don't matter. It's what lies ahead that counts. Which of these two biotech stocks is the better buy for 2018? Here's how Cara Therapeutics and Nektar Therapeutics compare.
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The case for Cara Therapeutics
Cara Therapeutics could have its best year ever in 2018 depending on how a handful of late-stage clinical studies go. The company's lead candidate is an intravenous (IV) version of kappa opioid receptor agonist CR845. Cara expects to report results from a phase 3 study of IV CR845 in treating post-operative pain in the first quarter of this year. Data from a couple of other late-stage studies evaluating the drug in treating pruritis (itching) in patients on dialysis should be available later in 2018.
The investing case for Cara hinges on success in these studies. There's reason for optimism, though. In a phase 2 study, patients receiving IV CR845 after hysterectomy surgery dramatically reduced pain intensity compared to patients on placebo. There was also a meaningful reduction in nausea and vomiting for patients taking IV CR845 versus those on placebo.
It was a similar story in a phase 2 study evaluating IV CR845 in treating pruritis in patients with chronic kidney disease (CKD) on hemodialysis. Patients taking Cara's drug experienced significant reduction in itch intensity and improvement in quality-of-life measures after an eight-week treatment. IV CR845 also demonstrated a favorable safety profile in the study.
What's the potential for IV CR845 if Cara's late-stage studies go well? There's definitely a need for more effective post-operative painkillers. The commonly used opioid drugs alleviate pain well, but they come with serious side effects, including the potential for abuse, respiratory depression, and nausea and vomiting. CR845 is a different kind of opioid that doesn't easily enter the central nervous system and therefore has little to none of the side effects associated with opioids such as morphine.
As for CKD-associated pruritis, there are around 300,000 patients in the U.S. on dialysis with the condition -- and no FDA-approved therapies. The numbers are much greater for CKD patients who aren't on dialysis and have pruritis.
The case for Nektar Therapeutics
Nektar Therapeutics also has a promising opioid drug in its pipeline, NKTR-181. Unlike Cara's CR845, NKTR-181 is a mu opioid rather than a kappa opioid. But don't mu opioids come with all those nasty side effects? Yes, but not NKTR-181. Nektar designed the drug to have low permeability across the blood-brain barrier to slow its rate of entry into the brain. This translates to pain relief with fewer side effects.
Late-stage clinical study results announced by Nektar last year demonstrated that NKTR-181 was effective at reducing chronic lower back pain and had significantly lower risk of abuse potential than conventional opioids. If NKTR-181 secures regulatory approval later this year, Nektar could easily have a blockbuster drug on its hands.
But that's not the only arrow in Nektar's quiver. The company's pipeline includes three other drugs in late-stage testing. Nektar partnered with Halozyme on experimental pancreatic cancer drug PEGPH20 and with Bayer on ciprofloxacin dry powder for inhalation, a drug-device combination being evaluated for treatment of non-cystic fibrosis bronchiectasis. The biotech owns full rights to a third late-stage candidate, experimental breast cancer drug Onzeald. However, the European Medicines Agency recommended against approval for the drug in November.
Perhaps Nektar's most promising pipeline candidate other than NKTR-181, though, is NKTR-214. The immunotherapy is being evaluated in several phase 1 and phase 2 studies in combination with other top immuno-oncology drugs. In November, Nektar and partner Bristol-Myers Squibb (BMY 1.26%) reported encouraging interim data from a phase 1/2 study of a combination of Opdivo and NKTR-214 in treating melanoma, renal cell carcinoma, and non-small cell lung cancer.
It's also important to remember that Nektar has several products already on the market. Movantik, which treats opioid-induced constipation in patients with chronic, non-cancer pain, is marketed by AstraZeneca but was originally discovered by Nektar. Shire sells hemophilia A drug Adynovate, which was licensed from Nektar. There are also seven other drugs on the market which use technologies licensed from Nektar.
Better buy
Both of these biotechs have promising drugs with significant potential. However, in my view, the decision comes down to valuation.
Nektar already has a market cap of over $9 billion. Great expectations for NKTR-181 and, to a lesser extent, NKTR-214, appear to be largely baked into the stock price. Cara's market cap, on the other hand, currently stands below $450 million. If IV CR845 is successful, the drug should generate sales in the hundreds of millions of dollars -- enough to make Cara Therapeutics worth a lot more than it is right now. I think Cara Therapeutics is the better buy.
