Is Cara Therapeutics a Buy Now?

Cara Therapeutics (NASDAQ: CARA) shareholders breathed sighs of relief following the recent Kalm-1 trial readout. The first of two pivotal studies produced results that sent the stock soaring, and there could be more fuel in the tank to drive it higher.

Is now a good time to buy this clinical-stage biotech? Let's measure some reasons to suspect Cara can climb higher against the potential pitfalls ahead.

Reasons to buy

Cara's aiming its lead candidate at an underserved population that's growing rapidly. Chronic kidney disease affects roughly 14% of Americans, and around 119,000 permanently lose kidney function each year. After that, most rely on frequent dialysis and some receive transplants.

Up to half of patients on dialysis suffer long bouts of pruritus or persistent itching sensations that are worse than a dozen mosquito bites all at once. Persistent scratching frequently leads to infections that weakened patients have a tough time fighting. Pruritus associated with kidney failure also tends to keep patients from sleeping well, which accelerates their decline.

Like most maladies of the nervous system, nobody fully understands the relationship between kidney failure and pruritus. What we do know is that these patients are ready for a new treatment option and Cara's could be the one.

During the Kalm-1 study, 51% of patients given Korsuva achieved a three-point or better improvement to their worst itch intensity scores compared to just 28% of those in the placebo group. That might not sound impressive, but it's only a 10-point scale and 3.0 translates to a slight desire to begin itching.

Cara Therapeutics doesn't have the means to launch a commercial-stage drug yet, but Cara's commercial partner couldn't be in a better position to market Korsuva. Fresenius Medical Care (NYSE: FMS) is a leading dialysis equipment and service provider, and Fresenius would like to sell Cara's drug throughout thousands of dialysis centers it runs around the globe.

In 2018, Fresenius operated 3,928 dialysis clinics that treated 333,331 of the world's 3.4 million dialysis patients and the company boasts a 31% share of the U.S. market. That means there will be plenty of sites selling the drug to the patients who need it and Cara's currently nonexistent sales team can focus on other dialysis providers.

Reasons to be nervous

Cara Therapeutics is developing easier-to-administer versions of Korsuva, but so far, we only have pivotal data for its intravenous version. For patients who go to treatment centers to receive hemodialysis, that's not terribly inconvenient but it could be very limiting because hemodialysis is losing popularity.

The U.S. hasn't caught on yet but at least half of kidney failure patients in Canada initially receive peritoneal dialysis, which is less expensive, less likely to cause severe infections, and easily administered at home.

In the second half of the year, Cara will report top-line results from the pivotal Kalm-2 study, which is testing an injectable version of Korsuva. The company's also running mid-stage studies with an easy-to-swallow version of the same treatment.

Success with oral Korsuva could lead to blockbuster sales, but investors should know that its oral version disappointed investors a couple of years ago during a mid-stage study as a treatment for arthritis driven pain.

One reason Cara needs an oral version to work is the recent rise of nerve pain drugs in this setting. Off-label prescriptions of cheap generic gabapentin, a drug approved to ease the discomfort that comes with shingles, are increasingly common among dialysis patients. Pfizer's nerve-pain drug, Lyrica, is also becoming a popular way to treat kidney-failure associated pruritus, and cheaper generic versions are expected to launch in the U.S. this summer.

Looking ahead

A big chunk of Korsuva's peak sales potential depends on which versions Cara's allowed to sell. Sales of the intravenous version would struggle to reach $150 million annually, but an equally effective Korsuva tablet could go on to earn 10 times as much if expanded to include the growing population of patients who prefer peritoneal dialysis.

Generic Lyrica's going to be another impediment, but patients who aren't relieved from itching with the popular nerve pain drug will appreciate a second option with a unique advantage. Lyrica stops the brain from responding to signals from sensory receptors in the skin and an unknown mix of additional signals that can lead to a somewhat drunken mental state. Unlike Lyrica, Korsuva is only active in the peripheral nervous system, where itching sensations begin.

A buy now?

At recent prices, Cara Therapeutics' market cap is a bit high for this stock if you only expect the intravenous Korsuva version to succeed. The company's $834 million market cap, though, leaves a lot of room for upside if Cara can launch an oral version of Korsuva.

Cara's not risk-free at recent prices, but the odds of long-term losses with this late-stage company look relatively slim. That makes the stock a rare buy for this risky industry.

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Cory Renauer 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.