Here's Why Hopeful Marijuana Stock Cara Therapeutics Surged 15% in March

By Sean Williams Markets Fool.com

What happened

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Shares of Cara Therapeutics (NASDAQ: CARA), a clinical-stage biopharmaceutical company focused on treating pain and pruritus (itching), surged an impressive 15% in March, according to data from S&P Global Market Intelligence. Two factors appear to have played a key role in pushing shares of Cara noticeably higher.

So what

Without question, the biggest catalyst last month was the release of positive top-line data from Part A of its phase 2/3 trial for IV CR845 in patients with chronic kidney disease-associated pruritus (known officially as uremic pruritus). Cara reported that all three doses tested met the primary endpoint of a statistically significant change from base in the mean worst itching score after eight weeks. It specifically led to a 68% reduction from baseline in worst itch scores compared with the placebo. IV CR845 also met the secondary endpoint which measured quality of life using the Skindex-10 score. The drug was also well tolerated across all doses. The next step is to meet with the Food and Drug Administration to discuss Part B of the study.

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Secondly, and to a lesser extent, Cara continues to thrive as a so-called "marijuana stock." Even though CR845 is its only clinical-stage product (albeit for a couple of different indications), the company has also successfully tested CR701 in preclinical trials in animals. CR701 is designed to activate the natural cannabinoid receptor system found in our bodies, and the hope is it could one day replace opioid-based therapies as a pain treatment option. As the public's opinion of marijuana grows more favorable, just about any company associated with marijuana sales or medical research has benefited.

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It's possible Cara's month could have been even better had it not announced a common stock offering just one day after releasing its IV CR845 Part A results. The company announced its intention to sell $80 million worth of common stock, with underwriters having the option to purchase up to $12 million more. While this capital is much needed for Cara's ongoing work and its Part B trial, it nonetheless is dilutive to existing shareholders.

Now what

On one hand, investors have to be careful not to get too sucked into the hype surrounding Cara Therapeutics. Yes, it may have the potential to develop a CB-receptor-targeting drug in the future, but it's far more of a traditional drug developer than a marijuana stock at this point.

Image source: Getty Images.

On the other hand, this recently released Part A data suggests that Cara could have a winner on its hands. The key question that remains is whether the company can translate this win into success in its pain trials, because there's a much larger patient pool in the offing if CR845 is successful at treating pain. Within the next couple of months, we'll have data from a phase 3 trials of IV CR845 for post-operative pain, as well as a midstage study using an oral formulation of CR845 for arthritic pain.

With cash no longer an immediate concern, I would suggest investors add Cara to their watchlist, but remain safely on the sidelines until we have this late-stage data on post-operative pain in hand.

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Sean Williams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.