As exciting as 2019 was for biotech investors, this upcoming year is gearing up to be possibly even more interesting, with many potential blockbuster drugs on the horizon. A number of these candidates have come from small-cap biotech companies with the chance of making big gains if they receive approval from the U.S. Food and Drug Administration.
Cara Therapeutics (CARA -3.91%) and Corbus Pharmaceuticals (CRBP -3.85%) fall into this category, with both companies showing strong clinical results for their flagship drug candidates. Let's see how these two biotech stocks stack up against each other, and which stock is the better buy today.
Cara's potential pruritus breakthrough
Cara Therapeutics' main treatment is a drug called Korsuva. It's a pain management drug for patients with kidney-related pruritus, a condition that results in painful itching all over the body. Pruritus is especially prevalent in patients with chronic kidney disease, with just over 40% of all end-stage kidney disease patients having some form of pruritus. At present, 30 million patients in the U.S. have been diagnosed with pruritis and given pain-management drugs, so the potential market size is large.
Investors have been excited about Korsuva for a while, as the current generation of kidney pain treatments (which includes antihistamines, corticosteroids, and even opiates) carry their own slew of side effects. Korsuva, on the other hand, is expected to be relatively free of side effects because it targets the peripheral nervous system rather than the central nervous system like other pain management drugs do.
Until recently, clinical data has been positive for Korsuva, with results from an earlier phase 3 Kalm-1 trial being quite positive. But Cara Therapeutics faced some mixed news on Dec. 3 when a separate phase 2 trial met its primary endpoints but missed its secondary endpoints. Although Korsuva still showed improvement in comparison with a placebo for both the primary and secondary endpoints of the study, in the latter case it fell a little shy of the trial's secondary targets.
While definitely something to note, not meeting secondary endpoints in a relatively early clinical study isn't the end of the world for a drug candidate, especially with other trials (like the aforementioned Kalm-1) showing strong results.
A systemic sclerosis cure from Corbus?
Corbus Pharmaceuticals has a couple of promising drug candidates, but its headliner is an endocannabinoid drug known as Lenabasum. Endocannabinoids are compounds naturally produced by the human body that target similar receptors affected by cannabis compounds. Corbus' website says that Lenabasum is able to "activate endogenous pathways which resolve inflammation and speed bacterial clearance without immunosuppression." This is a pretty big deal for patients with various autoimmune disorders, as many of them either cause or are caused by chronic inflammation that otherwise would require immunosuppressive drugs to treat.
Lenabasum is being tested for a few conditions, but its primary target is systemic sclerosis, a rare chronic disease that causes an overproduction of collagen in the skin and organs. Collagen is one of the most abundant types of protein in the body, responsible primarily for maintaining healthy skin, bones, and connective tissues. When there's an overabundance of collagen due to systemic sclerosis, the bodies immune system ends up attacking it, causing symptoms such as hair loss, joint pain, muscle weakness, and even organ damage. If Lenabasum proves to be a success, it would be the first drug approved by the FDA that specifically targets patients with systemic sclerosis. While a fairly rare disease, with only 100,000 in the U.S. diagnosed with the condition, the 10-year survival rate for patients remains at a fairly low 55%.
Most of Corbus' major catalysts are expected to take place in 2020. This includes Lenabasum's phase 3 trial for systemic sclerosis patients. Lenabasum is also being tested for patients with cystic fibrosis, systemic lupus, and dermatomyositis. Results are expected to come out in 2020 for the phase 2 lupus trial and in 2021 for the stage 3 dermatomyositis trial.
Looking at the financials
As to be expected when dealing with clinical-stage biotech stocks, both Cara and Corbus are reporting net losses as they continue to develop their respective drug candidates. Cara had revenue of $5.8 million for Q3 2019 while its net losses grew from $19.4 million in Q3 2018 to $32.8 million over this past quarter.
In comparison, Corbus reported only $2.6 million in revenue, primarily from awards and licenses for Q3 2019. However, for the first nine months of 2019, the company actually reported $33.6 million in revenue, mainly due to an earlier $25 million development award from the Cystic Fibrosis Foundation. Net losses came in at $20.8 million for the quarter, which is a mild increase from the $14.6 million reported in Q3 2018.
Cash is king for early-stage biotechs. Knowing exactly how long a company can last without needing to secure more funding is just as important for investors (if not more so) than revenue and expenses. While Cara Therapeutics only has $34.7 million in cash, the company does have another $158.4 million in marketable securities (such as government bonds, ETFs, or other highly liquid investments) that can easily be traded for additional funding.
Corbus, on the other hand, has $54.9 million in cash, but that's pretty much it, and it will soon need to raise funds somehow. This will most likely be through issuing new shares, which will have a downward effect as the company's existing stock gets diluted.
In terms of traditional metrics, Cara trades at a 32 price-to-sales (P/S) ratio, whereas Corbus trades at a much cheaper 9.6 P/S. Both companies still have pretty low revenue figures, but the difference in Cara's ratio comes down to Korsuva's blockbuster potential and the willingness of investors to pay more because of it. While this does mean that Cara is a pricier biotech stock, the upside potential for Korsuva is huge, and Cara's annual revenue figures can easily grow to the billions just on this one drug if all goes well.
What's the verdict?
From a purely financial perspective, Cara is much better funded. Corbus will need to look for more financing soon, and early-stage biotechs often do this by issuing shares that dilute shares. From a clinical perspective, both Cara's Korsuva and Corbus' Lenabasum still have significant hurdles before they have a shot at regulatory approval. However, Korsuva already has one phase 3 trial that has shown positive results (Kalm-1), whereas Lenabasum's first phase 3 trial is ongoing. Even though Korsuva did miss its secondary endpoint in a separate phase 2 trial, it's not enough of a blow to discredit previous strong clinical results.
Overall, I'd give the edge to Cara Therapeutics. Both are pretty risky at this point, but Cara has a better financial position as well as more clinical results to back up its main blockbuster candidate.
Just understand that if you're considering adding either of these two stocks to your portfolio, there's still plenty of risk surrounding them. Even if you're comfortable with making high-risk, high-reward biotech investments, keep your starting position in either of these two stocks relatively small until the next batch of clinical trial results comes out in 2020.