What happened

Shares of Cara Therapeutics (CARA -8.53%) 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.