Sometimes it's not what you know, but who you know that matters, and it looks like Cara Therapeutics (CARA -3.10%) just made the right friends. Shares of the biotech stock ticked up recently after the company signed an important marketing deal that paves a path for what could be the company's first product.

A new partnership with leading dialysis providers could be a huge advantage, but the company's lead candidate still needs to pass its pivotal trial. Let's take a look at what's next for Cara to see if this new tie-up makes the stock a buy now. 

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Image source: Getty Images.

What's the big deal?

Vifor Pharma Group is a Switzerland-based drugmaker with an eye on kidney-related disorders. It also has a 55% stake in a joint venture with the world's largest kidney dialysis company, Fresenius Medical Care (FMS 1.66%). Cara Therapeutics couldn't have asked for a better partner, as practically all of Fresenius clients who suffer chronic itching could quickly become Korsuva customers.

Fresenius recorded around $14.1 billion in dialysis service revenue in North America alone last year. If Korsuva earns an approval, Fresenius will promote the drug in its U.S. dialysis clinics under a profit-sharing arrangement. Vifor will market the drug abroad, paying Cara a tiered royalty on any sales it generates outside of the U.S., Japan, and South Korea.

Fresenius treated around 38% of U.S. dialysis patients in 2017, and placement in all of its clinics would give any commercial launch a tremendous boost. The tie-up also will allow Cara to focus its marketing resources on the 62% who visit different providers in the U.S.

In return for rights to market its candidate, Cara received $50 million in cash plus another $20 million in the form of an equity stake. If the candidate goes on to a successful commercial launch, the joint venture also could end up handing Cara Therapeutics up to $470 million in milestone payments.

Two big markets

In the U.S. alone, roughly half a million people with end-stage kidney disease are kept alive with regular dialysis treatments while their names slowly tick toward the top of transplant-procedure waiting lists. Although Cara is conducting a pivotal study with hemodialysis patients, an eventual expansion to include patients who prefer the increasingly popular peritoneal dialysis method would make Korsuva an important treatment for an estimated 100,000 dialysis patients who suffer severe chronic itching in the U.S. alone.

Korsuva is an opioid painkiller that's active in the periphery, where pain and itch signals originate. Its key advantage is a distinct lack of activity in the brain, where traditional opioids cause euphoric sensations -- which makes them so addictive. That could make it fairly popular in the post-operative pain setting, where many future addicts experience powerful painkillers for the first time.

Know the risks

Most of the milestones Cara could receive are based on sales targets, but we don't even know if the company will send an application to the Food and Drug Administration (FDA) yet. Investigators are currently running a pivotal study that will be considered a success if a significantly higher percentage of patients receiving Korsuva report improved itch scores after 12 weeks of treatment.

Korsuva's chance of success seems better than average. During a mid-stage study, 64% of those receiving the drug achieved this goal versus just 29% in the placebo group. While we wait for results from the chronic itching study, we should find out if the candidate succeeded in its pivotal post-operative study. Management expects to release results from the 450-patient trial by the end of June.

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Image source: Getty Images.

Since Cara doesn't have another candidate in clinical trials right now, negative results could incite a severe market beating. I'd be a lot more confident about Korsuva if it hadn't missed the mark on an arthritic pain trial last year.

Cara Therapeutics' stock tanked after an oral version of its candidate failed to produce a significant improvement in reported joint pain in the knee and hip. Patients with pain limited to their hips showed improvement that crossed the statistical significance threshold, but it doesn't look like Cara's Korsuva ever will become a popular pain reliever for scores of arthritis patients.

Cara finished March with a $75 million cash balance after burning through $17 million during the first three months of the year. At this rate, cash on the books plus the $70 million injection Fresenius and Vifor provided means the company probably won't need to seek funding again until after we know if Korsuva truly has a future in dialysis clinics around the globe.

While there's still a great deal of risk, the potential gains are too large for an intrepid biotech investor to ignore. Following the recent price spike, the company's market cap still is a modest $533 million. With plenty of marketing support, Cara's share of Korsuva sales could top out around $300 million annually in the dialysis population alone. Biotech stocks generally trade at mid-single-digit multiples of total annual revenue, giving this stock multi-bagger potential.

Add it up, and Cara Therapeutics looks like a cautious buy right now.