What happened

Shares of Cara Therapeutics (NASDAQ:CARA) jumped more than 12% in August, according to data from S&P Global Market Intelligence. The small-cap pharma company announced second-quarter and first-half 2018 earnings results and said a crucial phase 3 trial had begun for its lead drug candidate, difelikefalin.

The developmental therapy, which also goes by its brand name Korsuva, intends to treat hemodialysis patients with chronic kidney disease-associated pruritus, or CKD-aP. That jumbled mess of scientific words essentially means Cara Therapeutics is developing a drug to treat itching that arises in some patients being treated for kidney disease.  

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Image source: Getty Images.

So what

Investors are looking forward to the potential of Korsuva to become a blockbuster drug (meaning annual sales of over $1 billion). In May, a subsidiary of the German pharma giant Fresenius purchased the commercialization rights of the drug outside the United States, Japan, and South Korea for a cool $50 million and made a $20 million equity investment in Cara Therapeutics to boot.

The newly inked deal also grants the small-cap pharma up to $470 million in milestone payments in addition to tiered royalties on future sales. Despite the potential, Cara Therapeutics had been stuck below a $500 million market cap for most of the year. It sits just shy of $800 million after the healthy bump last month, which may be just right for the pre-revenue company.

Now what

Cara Therapeutics might have a winner on its hands with Korsuva, although it's still too early for investors to consider the phase 3 trials now under way are a slam dunk, let alone marketing approval and a smooth commercialization. It's also developing a few other pipeline candidates that investors might want to learn about, although they have even longer to go before grabbing headlines, if they do at all. Simply put, this is a high-reward, high-risk pharma stock that's best left to investors with an above-average appetite for risk.

Maxx Chatsko 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.