Cara Therapeutics, Inc. (CARA) Earnings Call Transcript & Summary

Good morning and welcome to Cara Therapeutics/Vifor Pharma License Conference Call. [Operator Instructions] Please be advised that this call is being recorded by Cara's request. I would now like to turn the call over to the Cara team. Please proceed.

Good morning. This is Jack Hildick-Smith with Stern Investor Relations and welcome to Cara Therapeutics/Vifor Pharma License Update Conference Call. The news release describing the details of this license agreement became available at 1 a.m. today and can be found on our website at www.caratherapeutics.com, with further details available in a current report on Form 8-K filed with the U.S. Securities and Exchange Commission this morning. A PowerPoint slide deck describing the details of the Vifor license is posted on the Investors section of the website, and you may also listen to a live webcast and replay of today's call on the same section. Before we begin, let me remind you that statements made on today's call regarding matters that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of these forward-looking statements include statements concerning potential market opportunity for Korsuva Injection and Oral Korsuva; the ability of Korsuva to address a significant unmet need; the potential advantages of entering into the agreement with Vifor Pharma; the potential equity investment, milestone and profit-sharing payments payable to the company pursuant to the agreement with Vifor Pharma; and the company's expected cash reach. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Risks are described more fully in Cara Therapeutics' filings with the Securities and Exchange Commission, including the Risk Factors section of the company's most recently filed quarterly report on Form 10-Q and its other documents subsequently filed or furnished to the Securities and Exchange Commission. All forward-looking statements made in today's call speak only as of the date on which they were made. Cara Therapeutics undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made. Participating on today's call are Dr. Derek Chalmers, Cara President and CEO; and Mr. Tom Reilly, Cara CFO. I'll now turn the call over to Dr. Chalmers.

Thanks, Jack. Good morning, everybody. Thanks for joining us this morning. We were very pleased to announce this morning that we have expanded our collaboration with Vifor Pharma with the completion of a commercial license agreement for Korsuva Injection for the treatment of CKD-associated pruritus in U.S. dialysis patients. As you know, we have been actively working with Vifor Pharma now for over 2 years under our previous agreement with Vifor Fresenius, which is an agreement predominantly focused on commercialization of Korsuva Injection in EU territories. And we look forward to leveraging that established relationship and the synergies from that collaboration into this new U.S.-focused agreement. Before I take you through the key terms of the present license agreement, I wanted to remind you briefly of the overall U.S. market opportunity for Korsuva, both intravenous, the subject of this license agreement, and Oral Korsuva formulations for the treatment of pruritus. And that's summarized on Slide #3 on the posted deck. Korsuva Injection has been developed to treat pruritus specifically in hemodialysis patients, and that includes about 500,000 U.S. patients. Intravenous administrations 3x per week post dialysis is an ideal dosing regimen for these heavily pill-burdened patients. Our Oral Korsuva program, on the other hand, is being developed with a broader application strategy, and that's to treat pruritus across a range of patient populations with the ultimate potential for a broad label for that formulation. Any patient population includes patients with atopic dermatitis, CKD pre-dialysis patients and liver disease patients, which together encompass a very significant opportunity for Oral Korsuva. With the current commercialization license for Korsuva Injection with Vifor now complete, going forward we'll be focusing Cara's internal resources on moving our Oral Korsuva program to commercialization. Slide #4 summarizes the U.S. market opportunity for Korsuva Injection. CKD-associated pruritus is a commonly occurring, serious, intractable, systemic pruritus in hemodialysis patients. It's currently estimated that approximately 40% to 50% of U.S. dialysis patients suffer from moderate-to-severe pruritus, with approximately 60% experiencing some level of pruritus. With no approved therapies in the U.S., we believe the opportunity for Korsuva Injection to change the treatment paradigm for these patients is very significant. With our Phase III program in hemodialysis patients now complete, we remain on track to submit our NDA for Korsuva Injection later this quarter, allowing for a 2021 commercial launch. At Cara, we see a number of key advantages of this present Vifor agreement for our Korsuva Injection U.S. commercial strategy, and those are summarized on Slide #5. Most importantly, it allows us to employ Vifor's already established dedicated nephrology-focused commercial organization, including an experienced sales force of some 200 FTEs with existing relationships across large, medium and independent dialysis organization. It's also going to enable us to work with the Vifor market access team to enhance our reimbursement efforts, and it's going to allow us to leverage existing wholesale and supply chain agreements to our economic advantage. And as I mentioned earlier, we've already established a very supportive working relationship with Vifor Pharma across multiple functional groups from our existing collaboration, and we'll leverage that as we move forward with the current U.S.-based agreement. Lastly and importantly, with no further need for a Cara nephrology-focused sales force, we expect significant cost savings in projected future commercial infrastructure costs, which will extend our estimated cash runway. With those advantages in mind, let's take a look at the key financial terms on Slide #6. So with this agreement, complete Cara receives an upfront payment totaling $150 million, $100 million in cash and an equity investment of $50 million to acquire Cara stock at approximately $17 per share. Upon U.S. regulatory approval of Korsuva Injection, Cara will also be eligible to receive an additional $50 million equity investment at a calculated premium to Cara's then stock price. Vifor will have the exclusive rights to commercialize Korsuva Injection in non-Fresenius Medical Care North America dialysis clinics in the U.S. under a Cara 60%-Vifor 40% profit-sharing arrangement based on profit from net non-FMC clinical sales. And recall from our original Cara-Vifor Fresenius license agreement, we have an established 50-50 profit split arrangement in Fresenius clinics in the U.S. already in place. Cara's also eligible to receive payments of up to $240 million upon achievement of prespecified tiers of U.S. net sales. So on Slide #7, there's a summary of the major key terms of the agreement just for clarity. So the licensed product here is specifically Korsuva Injection for the treatment of CKD-associated pruritus in dialysis patients, not in any other class of CKD patient. And the license does not confer any rights to Oral Korsuva. The licensed territory is U.S. dialysis clinics, excluding FMC clinics, as I pointed out. And the field is the treatment of pruritus in hemo and peritoneal dialysis patients. So in conclusion, the key elements of this agreement for Cara on Slide #8, we believe we maximize the potential commercial success of Korsuva Injection by employing Vifor's established nephrology-focused commercial team. Cara retains the potential commercial upside for Korsuva Injection by virtue of our profit-sharing arrangement here. And we, significantly and importantly, strengthen our balance sheet in a minimally dilutive manner. In fact, we expect that the economics of this agreement and the consequent commercial cost savings for the company will carry us through the planned commercial launch of Korsuva Injection next year and extend our cash runway into 2023. And that's excluding any additional milestones or estimations for projected revenue from our profit-sharing arrangement for U.S. net sales of Korsuva Injection. So overall, we see this as really an ideal agreement to provide both a sound foundation with a potential commercial success of Korsuva Injection in the U.S. market and as a vehicle for Cara to receive the appropriate economic rewards of that commercial success. And with this license in hand for Korsuva Injection, going forward we'll be able to focus the company's internal resources on expediting our Phase III programs for Oral Korsuva. And with that, I'm going to turn the call back to the operator for Q&A. Operator?

[Operator Instructions] Our first question comes from Chris Howerton with Jefferies.

Congratulations, Derek. It seems like, obviously, a really good deal, so congratulations.

Thanks, Chris.

Well, great. So I think maybe just a couple of questions from me, Derek. I think, first of all, you were mentioning for the Korsuva Injection that this agreement kind of obviates your need to build a nephrology-focused sales force. So with that statement in mind, when you are successful with Oral Korsuva in CKD, maybe the pre-dialysis population, what does that sales force look like? And then maybe just a quick clarification. In terms of the cash runway to 2023, is that inclusive of your upfront -- or the anticipated $50 million equity investment upon approval?

Yes. Great. Thanks, Chris. I'll do the latter question first. That's very simple. Now it doesn't improve the anticipated $50 million equity investment. So it's a cash runway extension solely based on the upfront payment here and, of course, the consequent cost savings from reducing commercial buildout. So yes, the way we look at this in terms of commercialization, we do want to push forward with the oral and take that all the way to commercialization. Really, that's a different proposition for us in terms of structure and focus, of course, with the Korsuva Injection being entirely focused on dialysis patients. And as I've said, that would be a nephrology-focused sales force we'd be developing there. With Oral Korsuva, there are multiple patient populations that we see as being relevant for that medication. So there, we'd be looking at a sales force that would be predominantly derm focused. A lot of these early CKD patients end up referred to dermatology because of their pruritus. And of course, any application we have in derm conditions would be derm focused. So it's likely that sales force would be predominantly derm focused.

Okay. Okay. And then maybe just a quick one with respect to dermatology. When might we get an update on the atopic dermatitis enrollment and expected kind of time lines there?

Yes. Well, we have a -- as you know, we have a quarterly call coming up, and I'll certainly provide an update there. But I've said recently publicly that enrollment goes well with our KARE Phase II trial. So yes, I will -- it's more certain I'll provide this within the quarterly call.

Okay. All right. Well, fair enough and congratulations again.

Great. Thank you, Chris.

And our next question comes from David Amsellem with Piper Sandler.

So just a couple. So sort of thinking about the cost structure going forward, do you plan to take a more expansive view of clinical development of Oral Korsuva, in other words looking at other therapeutic settings where pruritus is a hallmark symptom, whether it's in dermatology or others? How should we think about that? And then secondly, just talking about the partnership structure, is there a steering committee that's going to jointly decide price of IV Korsuva? And who's driving the bus in terms of determination of pricing for the IV?

Yes. Thanks, David. These are good questions. So on the governance for the present license, yes, there's a customary joint steering committee. We have a joint commercialization committee with Vifor. As I've said previously, we already have good relationships with their entire team, so that should be easily put together for us. And those will be joint decisions on the key important elements for commercialization with a governance structure in place to make sure Cara has ultimate determination on -- I think very important for Korsuva Injection commercialization. I'd just to emphasize, perhaps the best way to look at this is we are employing Vifor's commercialization team exclusively as a commercial agent, but the NDA remains with Cara. We are the sponsor. All the regulatory submissions and regulatory work remains with Cara. So the ownership there remains intact with Cara. And then on your first question, yes, we are -- and we've said this several times now, we do believe the potential for Oral Korsuva is broad. And ultimately, we'd like to have that conversation with the agency in terms of achieving a broad label, broad anti-pruritus label for Oral Korsuva. So the way we're looking at that strategically, I think it's fairly self-evident we're looking at all the subgroups in terms of pathophysiology of pruritus. So with chronic kidney disease, we've covered the end organ disease-associated pruritus group. With atopic dermatitis, we've covered the derm-associated pathology pruritus. And there's 1 or 2 other areas, and we may make announcements relatively soon where we also may look at additional application that would satisfy another pathology associated with severe pruritus with the ultimate aim that, of course, we'll push one of these populations for our first label. And we aim to initiate those Phase III trials in '21 with the ultimate aim with all of that result and clinical data across these various pruritus populations then, we have a good, fundamental basis for an argument that the drug is broadly applicable regardless of the pathology. And as you know, based on the mechanism of action, that's something we believe and that it would be relevant that Oral Korsuva should receive a broad label, somewhat analogous to broadly applicable pain medications where you may see it start off looking at one particular patient subgroup and then that becomes a broad chronic pain label. So ultimately, we'd like to see a broad chronic pruritus label for Oral Korsuva.

That's helpful, Derek. And if I may just sneak in a follow-up. So do you envision building a U.S. commercial infrastructure where you're targeting different specialists? So in other words, a dermatology field force, perhaps a field force targeting GI doctors and hepatologists? I mean help me understand your strategic thinking there. Or maybe it's a little too early to comment, but I was hoping you could anyway.

Yes. Yes. No, no, it's a good question. I'll start on that, David, is that most of these severe pruritus patients end up getting referred to derm. And of course, all the dermatology-associated pruritus immediately is referred to derm. So that sales force we envision putting together for oral would naturally be predominantly dermatology focused.

Our next question comes from Annabel Samimy with Stifel.

And I guess along the lines of the Oral Korsuva sales force, given that you're looking at a broad label, is it -- and I know you're focusing on derm, but is it possible that with the breadth of that label in the various indications, you could still consider a partnership for that -- for Oral Korsuva? And does that -- are the savings that you get from, say, a dialysis sales force sufficient to support a dermatology sales force? So that's my first question. And the second question I have is related to economics. I just want to clarify, will you be just getting the profit share? Who will be reporting top line sales for this? Is it Vifor and Vifor Fresenius? Or are you going to -- how is the accounting going to work out?

Yes. Thanks, Annabel. The latter question first is so in that case, as Vifor is marketing basically across most of the market now in the U.S., they will be booking sales, and then they'll be paying us our proportion of profit share from their recorded sales. That just makes sense since they're distributing and they're marketing the product. So that's how that's going to be structured. Within that license agreement, as you're well aware, we have a previous license agreement with Vifor Fresenius related to marketing within Fresenius clinics in the U.S. And that remains intact, and the economics of that remain intact. But in that case, Vifor would be taking over, if you like, Cara's marketing rights within the Vifor Fresenius JV charter. And I know this is getting in the weeds a little bit, but within that structure, there is also an option agreement that the JV can step in, particularly with relation to Fresenius clinics. So -- but the bond -- the simple answer to that is Vifor or -- and/or Vifor Fresenius will be booking sales, and they will be paying us our percentage profit share from those recorded sales. And then on your first question, yes, I think the way the economics work from this going forward in our projections related to profit share, it now makes it very viable that we could field our own dermatology-focused sales force, and I think that would be -- that make a lot of sense for going forward with Oral Korsuva. Previously, it may have been more difficult. That would be a larger sales force, as we've discussed before, and nephrology focused. But with this agreement intact, with the consequent milestones we expect to receive here and the projected profit share from this agreement and, of course, our royalty and milestones that we expect to pick up from EU sales, we haven't touched on that yet, but Vifor is very keen to get their EMA submission and -- as quickly as possible behind our NDA. So we do expect that to go in by early '21. So there'll be significant economic benefit here for Cara after Korsuva Injection launch. So that would adequately pay for fielding our own dermatology-focused sales force. And if there's opportunities beyond that, that makes sense within any particular patient subgroup where we can leverage an already established sales force as we've done, frankly, today with Vifor, then we'd look at those opportunities if that made sense economically. But at this point, we believe and our strategy will be that we push forward with Oral Korsuva development, and we take that to commercialization.

Our next question comes from Jason Gerberry with Bank of America.

Most have been asked already, but Derek, I'm just curious, from the time of the initial Vifor arrangement to this expanded arrangement, what's changed ultimately? Do you feel like perhaps generating more pivotal data has allowed you to get better terms than maybe when you initially embarked upon an arrangement with Vifor? Just curious maybe what's changed from your initial arrangement to now that has allowed you to expand the arrangement. And then just one modeling question. I just want to make sure I understand this right. So you'll just book the profit share, Cara won't incur any expense, and then that kind of gets reconciled in the profit share line? I just want to make sure I understand the terminology co-promote. I just want to make sure, are there going to be any commercialization costs with IV Korsuva that you'd book in your P&L?

Yes. Now to the latter, yes, it's quite simple. It's not -- essentially profit share rather than co-promotion. So Cara will not be involved in any promotion unless -- as that would be solely a Vifor endeavor and albeit their cost. And there'll be an agreed fee as part of the profit share calculation related to projected marketing costs for Vifor, but we will not be incurring direct costs related to marketing or distribution. So it's quick, simple structure. And then in terms of the deal itself, I think as you pointed out, we're -- our original deal was 2018. At that point, we had completed one Phase II trial in dialysis patients with a limited number of patients in that trial when we signed that deal with Vifor Fresenius. At this point, we've completed our Phase III program. Vifor is obviously intimate with all of that data since they will be using that data for their European submission. So I think they understand the robustness of that data in that patient population. I think they also have a greater understanding of commercial potential through their analysis of potential patient population here in conjunction with Fresenius, of course, who has a large, large database on that. So I think it's a validation for them. The commercial applicability here is significant, and I think that's reflected in the economics of this deal.

[Operator Instructions] Our next question comes from Charles Duncan with Cantor Fitzgerald.

This is Pete Stavropoulos on for Charles. Congratulations on the new agreement.

Thank you, Pete.

I have 2 quick questions. First one regards the deal. Is the stock purchase locked up? And does Vifor have a stance to -- regarding broadening interest in Cara?

So yes, the stock price is locked up. So they acquired their initial $50 million investment at just over $17 a share. We haven't disclosed any details in terms of the conditions of the stock purchase agreement, so that's something I really -- I can't discuss, Pete, in terms of details there. But the stock price they paid for their initial investment is done. And on their second equity investment upon Korsuva Injection approval, that will also be at a calculated 20% premium based on the moving average of our stock price at that time.

Okay. And one more question. As the deal enables focus on Oral K for several different indications, in addition to leveraging the balance sheet, how does the concentrated efforts facilitate the company making progress with these programs?