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Is Cara Therapeutics Stock a Buy After Its First FDA Drug Approval

By Keith Speights and Brian Orelli, PhD – Sep 4, 2021 at 8:55AM

Key Points

  • The FDA recently approved Cara's Korsuva in treating pruritis experienced by chronic kidney-disease patients on dialysis.
  • This approval will translate to increased revenue for Cara, but there's a bigger opportunity for Korsuva in treating eczema.

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There's good news at long last for the beaten-down biotech stock.

Cara Therapeutics (CARA -2.19%) recently scored a key win with Food and Drug Administration approval of Korsuva in treating pruritis associated with chronic kidney disease for patients on hemodialysis. In this Motley Fool Live video recorded on Aug. 25, 2021, Motley Fool contributors Keith Speights and Brian Orelli discuss whether or not Cara stock is a buy after the big news.

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Keith Speights: Let's move on to another story. Another biotech had some good news on the FDA front: Cara Therapeutics, ticker there is CARA, and its partner Vifor Pharma (OTC: GNHAY) announced on Monday that the FDA had approved Korsuva for trading moderate to severe pruritus associated with chronic kidney disease, and this is in adults undergoing dialysis.

Cara shares soared on this news, which makes sense, but do you think the stock is still a buy now?

Brian Orelli: Pruritus is itching, literally that you just itch -- that's the symptom. Which always seemed like a weird symptom for people who are on dialysis. But I went to look it up and it's caused by a combination of things, I guess the dehydration since the dialysis removes water and then also high levels of phosphorus can cause you to want to itch, so I guess one or the other or a combination of those two causes people on dialysis to feel like they need to itch their skin.

This is the only drug that's specifically approved for itching associated with chronic kidney disease in adults undergoing dialysis, Cara gets 60 percent of the profits in dialysis clinics that aren't run by Fresenius (FMS -1.04%), and then 50 percent of the profits in Fresenius is clinics and that's because Fresenius has a deal with the other company, Vifor Pharma. That's why the breakdown is different for Fresenius. The clinics that are run by Fresenius and ones that aren't.

I think the bigger opportunity here is in atopic dermatitis, also known as eczema, that has probably more patients and a lot of those patients also have itching associated with their atopic dermatitis. The drug had disappointing data in April from a phase II study. But the companies are pressing on. It still hasn't recovered.

The stock hasn't really recovered that much. It's only about a $750 million company, so that seems a reasonable price for valuation for the dialysis indication. Eczema could offer substantial upside from here. But the data for the phase III will obviously be quite a while because we're just in the process of starting that.

Speights: I think it will be interesting to watch too as Cara pursues the non-dialysis, trying to be able to treat pruritus in patients who are on dialysis. It'll be a while before we see results from those studies. But this is an interesting stock to watch. I think you mentioned it's only about $750 million in market cap now, that does seem pretty reasonable for where Cara is right now.

Orelli: I think the issue might be that if they can't get profitable based on the current indication because they're sharing profits and then they obviously are going to have high R&D expenses, now they're going to have to sell shares, doing a secondary offering, and so maybe that dilutes current shareholders, and so then if they do get a bump, the bump isn't going to be as big because the new valuations is going to be shared by more people.

Keith Speights 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.

Stocks Mentioned

Cara Therapeutics Stock Quote
Cara Therapeutics
CARA
$12.49 (-2.19%) $0.28
Fresenius Medical Care Stock Quote
Fresenius Medical Care
FMS
$16.21 (-1.04%) $0.17

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