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Forget Amgen -- Cara Therapeutics, Inc. Is a Better Growth Stock

By Keith Speights - Feb 9, 2018 at 6:04AM

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Can this clinical-stage biotech stock outperform one of the pioneers of the industry? It just might.


That's how much Amgen (AMGN 0.93%) stock has gained since the big biotech's initial public offering (IPO) in 1983. And the stock's total return, including reinvested dividends, tops 60,000%.

Cara Therapeutics' (CARA -5.59%) stock price, on the other hand, is barely above where it stood after the biotech's initial run-up on the day of its IPO in 2014. Amgen stock climbed 57% during the same time frame. But could Cara actually be a better growth stock than Amgen right now? I think so.   

Man holding hand out with two line charts extending from his palm

Image source: Getty Images.

Different dynamics

The primary reason why I view Cara Therapeutics as the better growth stock is that the biotech faces much different dynamics than Amgen does. Cara's market cap is only a little over $420 million compared to a market cap of nearly $130 billion for Amgen. Cara has no approved drugs at this point -- the company's minimal revenue made last year primarily came from licensing and collaborations with larger partners.

But that could all change if Cara achieves success with its pipeline. I believe that 2018 could be a huge year for the small biotech. Cara expects to announce results from a late-stage study evaluating an intravenous version of CR845 in alleviating post-operative pain in the first half of 2018.

Cara also recently initiated a pivotal late-stage study of the drug in treating hemodialysis patients suffering from moderate-to-severe chronic kidney disease-associated pruritus (CKD-aP). Initial results from this study are expected in the first half of 2019.

What's important to know about CR845 is that it's a different kind of opioid than those used currently for relieving pain. Morphine, hydrocodone, and other commonly used painkillers target mu opioid receptors and enter the brain. CR845 is a kappa opioid receptor. It doesn't easily penetrate the blood-brain barrier, and therefore doesn't produce many of the side effects associated with mu opioids, including the potential for addiction, respiratory depression, nausea, and vomiting.

The potential market for CR845 is significant in the post-operative pain market, especially considering the concerns about opioid addiction. Cara is perhaps even more excited, though, about the CKD-aP market potential for CR845. There currently are no Food and Drug Administration (FDA)-approved medications for treating the indication. Around 60% of all patients on hemodialysis experience the itching associated with CKD-aP.

New era for Amgen

While Cara looks forward to potentially launching its first product over the next few years, Amgen is entering a new era. Several of the products that have been the biggest winners for the biotech have lost their sizzle.

Amgen reported a year-over-year revenue decline and flat earnings growth in the fourth quarter of 2017. Sales for the biotech's top drug Enbrel fell 13% from the prior-year period. Sales for the company's No. 2 moneymaker Neulasta were stagnant.

Newer drugs are key to Amgen's future success. But so far, cholesterol drug Repatha hasn't achieved its potential. However, Amgen won FDA approval to update the product label for the drug to include data indicating Repatha's potential to prevent heart attack and stroke. This label change could help spur sales growth in 2018 and beyond.

Kyprolis is another drug that hasn't lived up to its promise yet. Amgen hopes to receive FDA approval by April 30, 2018 for a label update showing positive overall survival results for multiple myeloma patients. 

Another FDA decision is expected in May for potential approval of migraine drug Aimovig. Aimovig could become Amgen's next blockbuster, but Novartis has commercialization rights to the drug outside of the U.S., Canada, and Japan.

Amgen's brightest star for now is Prolia. Sales for the osteoporosis drug jumped 24% year over year in the fourth quarter, with full-year 2017 revenue reaching $1.27 billion. Prolia was the only blockbuster in Amgen's lineup to generate double-digit percentage sales growth last year.  

The bottom line for Amgen is that the tremendous sales and earnings growth that enabled the biotech to achieve its impressive stock performance over the last 35 years is no longer a given. 

What Wall Street thinks

Wall Street estimates can be way off at times, but I still think it can be useful to take a look at what analysts think. The consensus one-year price target for Amgen reflects an increase of 8% above the biotech's current share price. Analysts also project that Amgen will grow earnings by less than 4% annually over the next five years -- a steep decline from the earnings growth of nearly 16% over the last five years.

What about Cara? The average Wall Street analyst's one-year price target reflects a whopping 87% increase over Cara's current share price. Cara isn't profitable yet -- and likely won't be for several years, so earnings growth is a moot point for the small biotech right now.

Again, the analysts could be wrong. However, Wall Street views Cara Therapeutics as a better growth stock than Amgen, just as I do. It comes down to the different dynamics mentioned earlier. Amgen is so big that impressive growth is harder to achieve. The company faces headwinds for older products that it must overcome to grow. 

Cara is just one positive late-stage study away from being worth significantly more than it is now. Because the company's market cap is small, any good news could cause Cara stock to soar more in a short period of time than Amgen would in a year. 

Risks on both sides

Both of these biotech stocks face risks, though. For Cara, there's the possibility that IV CR845 isn't successful in late-stage studies for treating post-operative pain, or CKD-aP. The company already experienced a setback with the oral version of the drug with disappointing results in a phase 2 study targeting alleviation of osteoarthritis pain.

Amgen might not enjoy the success it hopes for with Repatha and other newer drugs. And even if those drugs experience strong sales growth, it might not be enough to offset declines from Enbrel, Neulasta, and other legacy drugs.

If you're primarily focused on lowering risk, Amgen is the better pick. The big biotech still has a huge cash stockpile and spins off a lot of cash. Amgen pays an attractive dividend. I think it's likely to use its cash to make an acquisition or two in the not-too-distant future that could drive earnings growth.

However, Cara Therapeutics is your better option if you're looking for high-growth potential. While there's no guarantee that IV CR845 will win regulatory approval and commercial success, I like Cara's chances.

Maybe a few decades from now, people will point to Cara's gains of more than 50,000%. Amgen proved that it can happen.

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Stocks Mentioned

Cara Therapeutics, Inc. Stock Quote
Cara Therapeutics, Inc.
$8.62 (-5.59%) $0.51
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Amgen Inc.
$245.55 (0.93%) $2.25

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