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With Trial Results Due, This Could Be a Breakout Year for Cara Stock

Chris Lau

Cara Therapeutics (NASDAQ: CARA) continues its study on KORSUVA (difelikefalin), used for dialysis-dependent CKD patients with pruritus. Even though the primary completion date is in March, Cara stock will probably not move until afterward, if at all.

Still, an improving score on the itching intensity scale could only help the stock. But first, all eyes will be on Cara’s quarterly earnings report.

Last Quarter’s Earnings Report Recap

Cara reported third-quarter results in Nov. 2018. Earnings were not in the spotlight because the company lost $19.4 million, or $0.51 per basic share. It brought in $5 million in revenue, stemming from license and milestone fees.

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In the quarter, Cara solidified its balance sheet in a way that is typical with emerging biotech firms: it sold shares. The public offering netted $92.1 million, with 5.175 million shares issued at $19 a share. Though the stock traded as low as around $12 during Dec. 2018’s sell-off, it recovered back to $15.43. This is still well off from the share issuance price.

Phase Three Progress

The phase three study of Korsuva (CR845) across its pipeline for pruritus is the highlight of its Q3 activity. This involved enrolling subjects across 60 U.S. sites. By the end of 2018, Cara should have had 80 U.S. sites and 350 patients enrolled in both the KALM-1 and KALM-2 studies.

Both trials are designed to investigate the dose efficacy of Korsuva at 0.5 micrograms per kilo compared to a placebo. This is administered three times a week, for 12 weeks. Given that shares are somewhat range-bound, markets are in wait-and-see mode with the primary efficacy endpoint results.

The secondary endpoint will measure the quality of life, including itch levels. Cara Pharmaceuticals expects the trial completed within the first half of 2019.

Cash Burn Rate and Cara Stock

Knowing how much cash a biotech company is burning is useful. It may give shareholders an idea on when Cara may sell shares again and potentially pressuring its share price.

In its third quarter, R&D costs rose to $22.3 million, up from $9.2 million in the same period of 2017. Clinical trial costs rose last year, as did stock compensation and staffing costs. Cara ended with $206.1 million in cash at the end of Sep 30, 2018.

Without accounting for any potential milestone payments, Cara has enough cash to carry on its research work through into 2021.

Product Commercialization

Cara’s products are too early in the study phase to be thinking and planning a product commercialization plan. So, the near-term catalysts for CARA stock will be the clinical results from its studies.

Fortunately, management believes it faces minimal competition for CKD-related pruritus. Its drug shows effectiveness, compared to the alternative treatment options.

Outlook for CARA Stock in 2019

Last year was loaded with clinical trial activities for Cara. The stock traded at between $11.43 and $24.30. Much of the drop is attributable to the drop in the biotech sector.

This selling accelerated in Dec. 2018. Results from the studies involving pruritus are positive catalysts for the stock for 2019. If the drug is approved, Cara receives $30 million for the regulatory approval step. Commercial milestones will bring in up to $440 million. So at the $600 market cap, investors are paying only a dollar in market value for the milestone revenue received from its partner, VFMCRP.

Risks

Investing in Cara is not without risks. Any disappointing results from the studies could send CARA stock sharply lower. A general sell-off in the markets will hurt biotech stocks even more.

In bearish times, markets tend to punish speculative companies that do not have a product on the market or a study stream of revenue to count on.

Disclaimer: None

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