Cara Therapeutics Continues to Climb (NASDAQ:CARA)

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Cara

CARA

We think Cara Therapeutics (NASDAQ: CARA), a boutique “clinical stage” biotech/biopharma firm which develops novel compounds (including cannabis derived chemicals) for neuropathic pain is worthy of a close look. Cannabis regulation has been relaxing both globally and in the United States and this influences our stance on CARA stock. But there has also been positive recent product news. Furthermore, current trend analysis indicates that CARA could be on the cusp of becoming a real steady performer on the market.

Good news: The U.S. Food and Drug Administration (FDA) just granted “breakthrough therapy status” to Cara’s CR845, a unique therapeutic compound which has provided significant clinical benefits to some patients with chronic kidney disease and osteoarthritis (more on that in a bit) and trading has picked up significantly in recent days likely as a result.

Cara is based in Stamford, CT and was founded by Derek T. Chalmers, Michael E. Lewis, and Frédérique Menzaghi in 2004 (initial IPO on January 30 of that year) with the following mission:

… to fundamentally change the way acute pain, chronic pain and pruritus are managed.  We aim to achieve this by developing new products that selectively target the body’s peripheral kappa opioid receptors. Cara is developing a novel and proprietary class of product candidates that target the body’s peripheral nervous system and have demonstrated initial efficacy in patients with moderate-to-severe pain and pruritus (itch) without inducing many of the undesirable side effects typically associated with currently available pain and itch therapeutics.

 

Recent News & Developments:

The FDA granted breakthrough therapy status for CR845, a drug for treating itching (uremic pruritis), which is an intractable and common (affecting up to 50% of patients) presenting symptom with chronic kidney disease patients undergoing hemodialysis. Currently CR845 is an intravenous drug, but an oral version is in late stage development. This is significant because of the lack of available effective systemic treatments that is compounded by a dearth of new product development by other pharmaceutical companies. Available treatment regimens span the gamut from oral antihistamines to topical creams, standard analgesics (NSAIDs) to risky ultraviolet light treatments which can cause skin cancers in individuals with fair complexions. CR845 showed a 68% reduction in worse itching scores and a 100% improvement to quality of life.

 

A quick note on the meaning of breakthrough therapy status: According to Wikipedia, breakthrough therapy is a United States Food and Drug Administration designation that expedites drug development that was created by Congress under Section 902 of the July 9, 2012 Food and Drug Administration Safety and Innovation Act. It allows the FDA to grant priority review to drug candidates if preliminary clinical trials indicate that the therapy may offer substantial treatment advantages over existing options for patients with serious or life-threatening diseases. The FDA will work with the sponsor of the drug application to expedite the approval process. This can include rolling reviews, smaller clinical trials, and alternative trial designs. In short, it simply means that 3-9 months are potentially shaved off of the standard review and approval cycle time.

 

Cara’s pipeline consists of CR845, variants upon CR845 and CR701, a chronic pain treatment which operates on peripheral cannabinoid receptors, particularly in immune cells such as leukocytes and mast cells, which have been shown to be involved in pain and inflammatory responses but do not affect cannabinoid receptors of the Central Nervous System (CNS). CR701 is an advanced compound presently in preclinical development for hyperalgesia (extreme sensitivity to pain) and allodynia (perception of harmless stimuli as pain) where it has been proven significantly effective in laboratory trials involving rodents.

 

Looking to extend their coverage abroad,Cara has in place licensing agreements with Chong Kun Dang Pharmaceutical Corporation to develop, manufacture, and commercialize products containing CR845 in South Korea; and Maruishi Pharmaceutical Co., Ltd to develop, manufacture, and commercialize drug products containing CR845 in Japan.

 

Market Data & Performance:

In 2017, Cara shares have risen a phenomenal 134+%, with stocks going for about $4.50 in July of 2016 trending all the way up to where they sat at $22.87 on Friday June 23, 2017. There was a slight dip in afterhours trading ending at $22.59 – but overall performance for CARA definitely defied the general biotech sector’s slide for the past month or so. Market Cap is $736.28M. Financials appear to be up-to-date and are listed at www.sec.gov or at their investor relations webpage. An EPS of $-2.52 might usually raise red flags, but given that we’re talking about a biotech – a sector in which firms lose money for years during the development of patient-ready products – CARA’s negative earnings per share is probably not a big deal.

 

Conclusion & Looking Ahead:

With the recent good news from the FDA and resulting trading performance, you can probably assume that EPS and share prices will improve in the near- to mid-term, but it will be important to keep an eye on how CARA manages its revenues and expenses moving forward.

 

Regarding the negative EPS, in Q1 2017 CARA managed to expend $22M, but the prospect of having its first product reach the market many months ahead of schedule means they have a good shot of reversing cashflow into the black sooner rather than later – and making a serious run at $30/share in the next six months. Of course there are well documented risks for retail investors in small cap biotech so it’s not wise to make such a stock the centerpiece of your portfolio or go in too heavy before the medical sector starts buying CARA’s products in quantity. We think this is a cannabis related stock to watch closely through the end of Q2 and into Q3, 2017.

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