Cara Therapeutics, Inc.

CARA Details

Cara Therapeutics, Inc. (NASDAQ: CARA) is a biotechnology company focused on developing and commercializing chemical entities to treat diseases associated with inflammation, pain, and pruritus. The company uses its proprietary drug screening technology to develop a pipeline of molecules with analgesic and anti-inflammatory features. It is currently developing a novel product named KORSUVA (CR845/difelikefalin) to treat chronic kidney disease-associated pruritus (CKD-aP) in patients undergoing hemodialysis. The company makes revenue from three sources, namely, License and Milestone fees revenue, Collaborative revenue, and Clinical Compound revenue. As of May 19, 2021, the company’s market capitalization stood at USD 668.19 billion.

Expanding Footprint to Europe: On March 30, 2021, Vifor Fresenius Medical Care Renal Pharma (VFMCRP) and Cara Therapeutics (Nasdaq: CARA) announced that the European Medicines Agency (EMA) agreed to examine its Marketing Authorization Application (MAA) for difelikefalin injection. The EMA filing is firmly validated by clinical data from two phase-III trials KALM-1 and KALM-2 and supporting data from 32 additional clinical studies. If approved, the company will receive authorization to market its product in all member states of the European Union (EU), Iceland, Liechtenstein, and Norway. It will also be the first such therapy available in Europe. EMA’s decision on the MAA is anticipated to come in Q2FY22.

NDA acceptance and review of NDA filing: In February 2021, the company announced that the US Food and Drug Administration (USFDA) has accepted and granted priority review for the New Drug Application (NDA) for the KORSUV (difelikefalin) solution for the treatment of pruritus in hemodialysis patients. The PDUFA target action date for KORSUVA injection is August 23, 2021. If it is approved, the company will focus on the launch of KORSUVA injection in the US.

Cara Therapeutics Pipeline (Source: Company Presentation, May 10, 2021)

Q1FY21 Results: The company reported a significant decline of 76.09% in total revenue to USD 1.94 million in Q1FY21 (ending March 31, 2021) compared to USD 8.09 million in Q1FY20 (ending March 31, 2020), due to an 85.13% decline in License and Milestone fees revenues. However, operating loss declined from USD 30 million in Q1FY20 to USD 23.56 million in Q1FY21, primarily due to a decrease in total operating expenses. The company reported a decline in a net loss to USD 23.30 million in Q1FY21 compared to USD 28.92 million in Q1FY20.

Key Risks: The company currently has no approved products for commercial distribution. The company has invested a significant portion of its financial resources in developing KORSUVA (CR845/difelikefalin) injection for the treatment of CKD-aP. If the regulatory authorities rejected the commercialization of KORSUVA (CR845/difelikefalin), then the company’s operational and financial state of affairs could be seriously affected.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

CARA Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Stock Recommendation: CARA has declined by 51.13% in the past one month and is currently leaning towards the lower band of the 52-week range of USD 11.80 to USD 29.64. The strong correction came primarily after the company announced somewhat unfavorable results from its Phase 2 study for oral Korsuva, in treating moderate-to-severe pruritis in patients with atopic dermatitis. The stock is currently trading below the 200 DMA levels. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 14.81. On the technical chart, the next support level is USD 12.25. Considering the significant decline in the stock price in the past one month, strong balance sheet, commercialization attempts, and associated risks, we recommend a “Speculative Buy” rating on the stock at the closing price of USD 13.36, up by 0.07% as of May 19, 2021.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.