Investors combing the markets for promising growth stocks might have noticed a biotech company called Cara Therapeutics (NASDAQ:CARA). With a market cap of $990 million, Cara Therapeutics enjoyed a strong performance in 2019, with its stock up by almost 50% this year, piquing the interest of many investors.
While the company reported its Q3 earnings a couple of weeks ago, the main driver for Cara Therapeutics' impressive results is the strength of its main drug candidate, which is meant to treat a specific type of skin itching called pruritus, which is caused by chronic kidney disease. With solid clinical trial results to show off, let's take a look at both the company's financials and its results to see whether this biotech stock is worth a spot in your portfolio.
A potential breakthrough in treating pruritus
Although Cara Therapeutics has another pain management drug in its pipeline which treats chronic and post-operation pain, its main breakthrough stems from treating a highly specialized condition. Cara has had success in helping patients with chronic kidney disease-associated pruritus (CKD-aP), a condition that causes patients to develop painful, recurring itches all over their bodies. This can be in just one area or across the whole body, but in many instances, the itching felt by patients severely affects their quality of life. Pruritus is especially prevalent in patients with kidney issues, with more than 40% of all end-stage kidney disease patients dealing with pruritus in some form or another.
At present, there are more than 20 million patients diagnosed with pruritus and prescribed pain-management drugs in the U.S., with current treatments including corticosteroids, antihistamines, and even opiates. However, each of these carry their own potential side effects ranging from inconvenient to outright dangerous. Cara Therapeutics' main pruritus drug, Korsuva, is a pain management treatment that specifically targets the peripheral nervous system, unlike pain management drugs that target the central nervous system. This difference means that Korsuva shouldn't have the same types of side effects as these other treatments, including high blood pressure, osteoporosis, drowsiness, burning sensations, and even addiction in the case of opioids.
Cara announced positive results for Korsuva in its first phase 3 study, KALM-1, in June. Korsuva showed impressive results in reducing itching in patients with CKD-aP. The data showed 51% of patients saw an improvement of at least three points on the 10-point Worst Itching Intensity Numeric Rating Scale. Only 28% of patients taking a placebo reported such improvement.
By all means, this was a strong showing for a phase 3 study, and experts are now looking out for a second phase 3 trial, KALM-2, which is expected to be released sometime in Q4 2019. Investors should watch out for these results because if this second trial confirms KALM-1's results -- which it likely will -- it will further push Korsuva along the path to eventual U.S. Food and Drug Administration (FDA) approval.
Looking at the financials
While Cara Therapeutics' drug pipeline is strong, its financial situation isn't as stellar. According to the company's Q3 results, Cara announced revenues of just $5.8 million for the quarter, a modest 14% increase from the $5.1 million in Q3 2018.
The entirety of these revenues came from its license agreement with Fresenius Medical Care and Vifor Pharma, which intend to market Korsuva in international markets should the drug prove successful. Fresenius also happens to be a major supplier of dialysis equipment, which is used to filter and clean the blood of patients whose kidneys are either dysfunctional or missing. Considering that many patients on dialysis end up with pruritus, this partnership could bloom into a major revenue driver for Cara in the future.
Like many other clinical-stage biotechs, Cara is losing money. Net losses for Q3 reached $32.8 million, a significant increase from Q3 2018's $19.4 million net loss. Most of this increase in expenses came from research and development costs, which have risen from $22.3 million in Q2 2019 to $36 million in Q3 2019.
However, the biggest question for Cara isn't so much how much it's losing per quarter, but how long its cash reserves will last. The company reported $249.1 million in cash and cash equivalents, a major increase thanks to a public offering in July that raised an extra $136.5 million. While the losses are noticeable, Cara Therapeutic's cash reserves are strong enough to last it for at least two years at its current rate of expenditure.
Should investors buy Cara Therapeutics right now?
The global pruritus therapeutics market is expected to reach $17.99 billion by 2026, a 6.2% annual growth rate from 2018's $11.09 billion. With few competitors of note in the pruritus market aside from conventional pain treatment drugs like opioids, corticosteroids, and antihistamines, Korsuva could easily become a home run in this market.
While the company is hemorrhaging cash, this isn't something to worry too much about, since this is normal for a clinical-stage biotech stock. What really matters is the strength of Cara's drug pipeline and whether it has enough cash on hand to last it until that pipeline reaches the market. In both of these areas, Cara Therapeutics passes with flying colors.
Investors comfortable with buying into an early-stage biotech stock, and with the high-growth, high-risk nature of such an investment, may consider buying a small starter position in Cara Therapeutics right now. However, I recommend waiting until results for KALM-2 are released, just to make sure Korsuva's initial strong results aren't a fluke.