Here's Why Cara Therapeutics Inc. Stock Is Surging Today

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What happened

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Shares of Cara Therapeutics Inc. (NASDAQ: CARA), a clinical-stage biotech developing a new pain reliever, are up about 10.1% as of 11:51 a.m. EDT during Friday's session. This morning the company announced that the U.S. Food and Drug Administration had granted a breakthrough therapy designation for its lead candidate.

So what

Breakthrough therapy status is an incentive for drugmakers to develop major improvements over existing options for serious conditions. Cara Therapeutics' lead candidate, intravenous CR845, is the first candidate to show a significant benefit in patients with moderate-to-severe itching caused by kidney disease, a large population of patients with unmet need.

The designation doesn't increase IV CR845's chances of eventually earning approval, but it can expedite the process. In the months ahead, Cara Therapeutics will have increased access to FDA staff, which generally makes it easier for a company to conduct late-stage development in a way that addresses the agency's concerns before it submits an application for the drugs.

Now what

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In mid-stage studies, CR845 sailed through with flying colors in terms of relief provided and non-habit-forming qualities. If the late-stage study currently underway shows similar results, a subsequent application would probably be a slam dunk. If eventually approved for indications beyond itching related to kidney disease, the drug could generate sales surpassing $1 billion, making this one of several biotech stocks I'd buy right now.

With the breakthrough designation in hand, IV CR845 also has a shot at a priority review once Cara Therapeutics submits an application. If granted, priority review would shorten the review process from 10 months to six months. In the first quarter the company burned through about $22 million, and getting its drug on pharmacy shelves several months ahead of schedule gives it a much better chance of becoming cash flow positive before it needs to dilute shareholder value with another secondary offering.

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Cory Renauer 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.