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

Good morning, everyone. My name is Daniel Wolle. I'm one of the analysts on this mid-cap biotech team. It's my pleasure to introduce Chris Posner from Cara Therapeutics. Following his presentation, rest of management will come up to the -- from podium. You can ask questions or you can ask through the portal as well. Without further idea, Chris?

Well, thank you, Daniel, and good morning, everyone. And before we dig in quickly on Slide 2, just a necessary reminder of our forward-looking statements in this presentation, and you could refer to this, and you could also refer to our filings, our regulatory filings on our website. So let's dig in. What's our mission? Our mission at Cara is to be the world leader when it comes to the treatment of pruritus. Now pruritus is more than just a niche. It's a significantly debilitating condition, and it really impacts a patient's quality of life. And despite this, millions of patients suffer and there's been very little innovation in this space. And we believe at Cara with our focus and with the assets we have in development, we think we could really significantly have an impact on these patients. So we have centered our R&D efforts on difelikefalin, and all our efforts stem from difelikefalin really being the platform that feeds our R&D engine. And difelikefalin very briefly is unique. It's a predominantly peripheral acting kappa opioid receptor agonist, and this design includes specific characteristics that limit its penetration in the blood brain barrier to the blood brain barrier that really allows it to avoid some of the typical CNS side effects like dysphoria or hallucinations. And also the kappa opioid receptor agonist, difelikefalin has high selectivity for the kappa receptor. And this allows it to avoid a very classic mu-opioid like side effects like euphoria, respiratory depression. Now as a kappa opioid receptor agonist, it's mechanism of action turns off the itch sensation by acting on the sensory nerves that really sends pruritus, and that's the central hypothesis of our development program, right? So our central hypothesis driving our development is that by acting on the peripheral nerves to sense pruritus, difelikefalin plays a role downstream and may be able to address pruritus regardless of the disease area. And with difelikefalin, we have a validated mode of action, and we have demonstrated its activity treating pruritus across multiple disease areas. A, we have an approved product, KORSUVA injection, and that's with our IV formulation. And this is for the treatment of patients undergoing dialysis that suffer from moderate to severe pruritus. We also have our pipeline that is centered on the oral formulation of difelikefalin, and we have demonstrated its activity across multiple different diseases. Now with this background in mind, our strategy is focused on expanding the utility of difelikefalin across 2 core franchises, nephrology and dermatology. And we believe with the asset we have, we can really create significant both near-term and long-term value. The pieces are squarely in place and, I'll first start with nephrology and our nephrology franchise. Now the foundation is in place with our approved product, KORSUVA injection, and the launch commenced in the second quarter of 2022. I'll talk more about that in the slide to come. But the approval represents the first and only drug approved by the FDA for the treatment of pruritus in adults suffering from moderate to severe price that are undergoing dialysis. This is a significant pool of patients, roughly 200,000 addressable that are currently being dialyzed that suffer from moderate-to-severe pruritus. Now our goal in nephrology is to expand this franchise. And we have taken our oral formulation of difelikefalin and initiated a Phase III program in the pre-dialysis advanced chronic kidney disease population. And there are no approved therapies there either. So we, again -- this suggests roughly 300,000 patients suffer from this condition. So we have a real opportunity to expand our nephrology franchise here. Now turning to our dermatology franchise. We are pursuing 2 indications: 1 in atopic dermatitis; and 1 in notalgia paresthetica. Let me comment first on atopic dermatitis. Based on our Phase II data as well as interactions with the FDA following that, we initiated a registration program in the first part of last year. And we certainly, with atopic derm, it's one of the most common of the inflammatory dermatologic conditions, and pruritus is the central symptom, quite frankly. And roughly 12 million patients suffer -- adult patients suffer from atopic derm, but the bulk of them reside in the mild-to-moderate space. And we think we have a significant opportunity there because around 3 million patients in this phenotype, which we call itch dominant, still have lasting chronic pruritus. So we feel like we have a real opportunity of where we're going to play and where we're going to win in that segment. Now turning to notalgia paresthetica, our NP program, notalgia paresthetica is a neuropathic disorder that is characterized by significant pruritus in the upper to middle back. And we estimate roughly 650,000 patients are currently under the treatment of a health care provider. Again, a significant unmet medical need in this space where there are no approved treatments. So again, when you look at our dermatology portfolio, again, we have a terrific opportunity in both atopic derm and NP. And I would tell you, the bottom line is that we could build 2 sizable franchises, both in nephrology and dermatology. So let's talk first around launch. And I'll talk about the progress we have made. But think it first deserves some time to spend on some of the critical success factors driving our launch and why we're so encouraged and expecting significant long term creation here. The first it starts with the product. We have a product where we could proudly say first and only. And that's what all pharma manufacturers try to do, develop a product with significant differentiation. Well, first and only signals significant differentiation. So we have a product that we launched in the U.S. in the second quarter of 2022. And this first and only tag also carries over to Europe. We received approval in EMA in the April of this year -- of last year, sorry, in 2022 as well as some other countries and again, first and only carries forward. We have strong commercial partnership with CSL Vifor. They are the premier nephrology company, and most times, in my experience, launches rise or fall with execution. And here with CSL Vifor, we have the right commercial partner with deep knowledge of the nephrology space. And they also come with a significant powerful relationship with Fresenius Medical Care. And Fresenius is one of the top 2 providers of dialysis in the United States. And in fact, they just deployed their sales force promoting KORSUVA in the third quarter of last year. And lastly, on the reimbursement, in typical pharma marketing and pharma product launch reimbursement, you're waiting constantly for new payers to come online and put you on a formulary like Express Scripts, et cetera. This is a Medicare population. And we have reimbursement via CMS under the designation called TDAPA, the transitional drug add-on payment adjustment. So it's now reimbursed outside the bundle, and that was given to us at the start of April of last year. And we've also been quite encouraged, and we have this for 2 years, which would expire next year, but we also are really encouraged with the progress we have made with CMS in the post-TDAPA period. Now what we saw in the 2023 rule making that came out in June of last year, is that now CMS acknowledges that in the post-TDAPA environment could cause some concerns and some challenges of providing access to this medicine and innovative medicines moving forward. And so in that rule-making process, they initiated a request for information with 4 different methodologies that all talked about continuing an add-on payment in some form or fashion. So we're, again, quite excited with where we are with CMS. We'll continue those policy initiatives with CSL Vifor throughout this year. So where are we with the launch? So first 2 quarters, I'm going to speak first on net sales. For the first 2 quarters, we recorded -- or CSL Vifor recorded $33 million in net sales. And that reflects shipments from CSL Vifor to the wholesaler. We recorded $15 million in profit revenue and profit share revenue. And now what's important here is that, that split at roughly 45% split of Cara's profit sharing revenue will hold true quarter-to-quarter in that range. That's based on a contractual relationship we have with CSL Vifor. Now in terms of demand, the best proxy we have for demand in this marketplace are vials being shipped from the wholesaler to the clinics. And again, in the U.S., there's roughly 7,500 or so clinics in the United States. And so through the first 2 quarters of launch, Q2 and Q3, 186,000 vials were shipped from the wholesaler to the clinics, namely to Fresenius. So we saw a significant step change in Q3 with the amount of product being shipped to the Fresenius clinics. And their intent was to really spur and accelerate trial in their clinics. Now I will say we would expect some quarter-to-quarter variability as the demand between clinics and patients and wholesaler inventory till that smooths out, I would expect in the next 2 or 3 quarters have to really smooth out. I would also point out here that we're really encouraged with what our partner and what we're hearing from patients and providers on -- basically does this product hold up in the clinic. And I think the resounding answer right now is yes. It holds up in the clinic. Patients are getting benefit from it, providers are liking what they see. So we're quite encouraged -- again, qualitative feedback to date, but we're quite encouraged with what we see. Not on this slide, but I will briefly speak to Europe. Europe, again, we got approval in April last year. We launched the product in 2 countries late last year, Germany and Austria. Qualitative feedback to date, again, quite encouraged, especially in Germany. And in fact, what we're hearing in Germany from patients and providers are very consistent to what we hear in the U.S. And also in Germany, they put -- it's called Kapruvia under that trade name in Europe. They put Kapruvia on the first-line recommendations in their guidelines. So they also see the need. So net-net, we feel very strongly we have the full support of CSL Vifor. They're doing a very good job. They have the commercial rights for outside the U.S. and in the U.S. And Fresenius is really supporting this product. So turning to our pipeline. Let me first start out with nephrology franchise. And I'll focus first on our oral difelikefalin in the pre-dialysis advanced chronic kidney stage. This -- again, significant unmet need here. We're going to really focus on stage 4 and 5 chronic kidney disease patients that are not on dialysis. Roughly 1.2 million patients are in this stage. And we estimate roughly 300,000 of them would be addressable for a product like oral difelikefalin. No approved therapies, significant clinical unmet need. So as you look at our development program here, we had positive Phase II data, had a great interaction with the FDA, and we initiated our Phase III registrational program in the first quarter of 2022. You can see here by the cartoon on the slide, we're conducting 2 double-blind, randomized controlled -- placebo-controlled trials over 12 weeks and -- called KICK 1 AND KICK 2. Now we would expect to read out -- top line readout in the beginning of -- in the first half of 2024. So again, quite excited about how we're accelerating this program, and it really expands our nephrology franchise from dialysis to pre-dialysis, pretty logical expansion. Turning to our dermatology franchise. I'll start first with atopic derm. Pruritus is certainly the hallmark of atopic dermatitis. Estimate roughly 12 million adults suffer from atopic derm, but the bulk of these folks died in the mild to moderate space. And that's where we intend to play. And in fact, we've narrowed that space a bit more where we believe there is this phenotype emerging where the mainstays of treatment still are topical therapies, namely topical steroids. Yet about 3 million patients still suffer from moderate to severe pruritus, and they have nowhere to go. So we think we offer a solution to these patients. Now we'll double-click on this a bit because this is a question I get a lot of where we intend to play in atopic dermatitis. Atopic derma is a space I come from previous to Cara. And it's certainly in the press a lot. And big pharma has invested a significant amount of dollars in atopic dermatology and that brought really significant innovative therapies to the market. But they really focused on the moderate -- really the severe disease state with oral JAK inhibitors and biologics. If you look at this chart, where we intend to focus is on the mild-to-moderate space where topical therapies, namely steroids are still the mainstay. And certainly, they clear up skin lesions. Certainly, they do. But they have limitations and also a significant number of patients, we estimate roughly 3 million patients still suffer from moderate-to-severe pruritus despite utilizing topical steroids. So as you look at our study, and we commenced our registrational program in the first quarter of 2022, we have really focused this on, first of all, a dose-ranging part, where we are now studying this on top of topical steroids. I would remind you that for atopic dermatitis, we had a very -- we showed -- and we demonstrated positive efficacy in the mild to moderate. And that was in monotherapy. So now we're going into a registrational program utilizing difelikefalin on top of topical steroids, which really mimics real utilization. So we intend to complete the dose selection process by the second half of this year and swiftly move into the confirmatory trials. Now on to rounding out our dermatology franchise, rounding out that is our notalgia paresthetica. notalgia paresthetica is a sensory neuropathic syndrome affecting the upper to middle back. Pruritus is the main symptom of notalgia paresthetica, significant impact on a patient's quality of life, no approved therapies in this space. And we estimate roughly 650,000 of these patients are currently being treated by a provider. This certainly has flown under the radar, not in the press like atopic dermatologist -- atopic dermatitis. But when you talk to dermatologists, they see this condition. So our program -- after we announced our positive Phase II proof-of-concept study data, in the second quarter of last year, in June of last year. We were quite pleased with what occurred in the clinic in terms of efficacy and safety. We've initiated our registrational program -- we will initiate that in the first quarter of this year. It's going to look pretty similar in terms of design to AD. We're going to do a dose selection process over 8 weeks, and then we'll swiftly follow that into confirmatory trials. So again, quite excited about where we are in notalgia paresthetica. Now in terms of the catalysts that are going to drive long-term growth over the next 3 years, I'll first focus on KORSUVA injection. Certainly, that launch is ongoing. Various countries and most of the European countries will come online in 2023. So we'll obviously pay close attention to that. But again, very encouraged of where we are with that launch. In terms of 2023 catalyst, what you're going to see is, first of all, what I just mentioned, we're going to initiate the notalgia paresthetica registrational trial this quarter. And we'll also have the dose selection internal readout in the second half of 2023 in atopic dermatitis. And you can see later on as we move through '24 and '25, namely '24, you'll see the readout of our nephrology development program in the pre-dialysis stage. So again, a very catalyst-rich first couple of years. On to our balance sheet. On to our balance sheet, I mean, we have guided at the end of Q3 to $180 million in cash. That takes us well into the first half of 2024. And I would say this is on the conservative end. We include this calculation and our CFO is here, who will be able to take questions after. We include in this calculation the quarter 3 revenue we got from KORSUVA around $7 million annualized. So it does include KORSUVA revenue at what we saw in Q3. And I would say this is on a very much conservative end. So with that, I would conclude by saying -- well, by saying we're really, really excited about where we are as a company for sure. I mean focus and execution are what drive success. And we have a very clear mission and a very clear purpose of who we are as a company and what we want to achieve, and that's to be the world leader in pruritus. First of all, we've done, I believe, what a lot of companies have not managed to do, and that's the brand a novel compound through development and to approval as a first-in-class therapy. We now have an approved product. We have a really strong commercial partner, and we're really excited about where we are in terms of the expectation of long-term potential here. We have a long-term positioning with our development program that -- with oral difelikefalin that we believe presents a significant larger commercial opportunity as we move forward. So with that, I'll conclude. I see I'm out of time, Daniel. I'll conclude, I'll ask Ryan Maynard, our CFO; and Dr. Jo Goncalves, our CMO, to come up and address any questions you may have. Thank you.

So we can start the question and answer. I think there's someone raised their hands over there.

Thanks for the presentation. I have a quick question on sales. Q1 -- Q2 and Q3, you saw kind of like a flat sale on the revenue side. What are your expectations for Q4 and going forward?

Yes. Thanks for the question. So we're obviously, at this point, not going to provide Q4 results, yet we have a partner, CSL Vifor, and we'll do that as we announce earnings in March. I mean here's what we're seeing in the market right now. So you saw -- I'll just speak to demand first, and I'll dovetail that to sales. So in demand, we saw a significant step-up in demand, i.e., product being shipped to the clinics in Q3. That's where we saw a real step-up. So what we're expecting in Q4, moving forward is that product was brought into the Fresenius clinics mainly. They're in that trial phase. So I would expect that trial to continue, and we're also seeing clinics beginning to adopt that product. So we're kind of in that trial to adoption phase jumping off of the Q3 step-up in orders. In terms of sales, again, how we recognize revenue is that's when CSL ships product to the wholesaler. So as demand starts to kind of move through that trial to adoption stage. That's when I would expect to see the sales will converge and follow suit.

I'm going to ask the question, sir. So what can you tell us about the order rate from Fresenius and DaVita clinics? And how would you characterize if there are any reorders? And maybe related to that persistency of scripts for the KORSUVA injection?

Yes. So Daniel, I mean -- and you know this is a 2-company market. Fresenius and DaVita dominate the dialysis in the United States. So they have different approaches to bring in new product and thus, what we've seen is a different approach to KORSUVA in terms of their launch uptake. So with Fresenius, as I mentioned, they deployed their sales force in Q3. And what we really saw was this big step-up in orders. It was a significant 180,000 vials essentially. And basically, what happened is Fresenius supporting this product, brought product in and all their clinics pretty much ordered the product to try it and accelerate that trial to adoption sequence. So that's what we're seeing now with Fresenius. With DaVita, it's been more gradual, DaVita's more organic. A, they don't have their own internal sales force. But what we're seeing with DaVita, they came online about the same time as Fresenius. And what we're seeing is a number of their clinics ordering, but we're really encouraged as I'll speak for CSL Vifor as well is that the reorder rates on those that are ordering, the majority do reorder. So that's a very good signal. So the curves are different. The way they adopt new products are different.

Can you just talk about how the financials work to whether it's CSL or the clinics, who are paying for the drug?

Yes. So the drug -- so in the dialysis market, it's a capitated system, where you get a flat fee per session. I think it's roughly $257. And the way innovative drugs like KORSUVA, which has now got the TDAPA designation, it's reimbursed outside the bundle at ASP. So ASP was just made public for the first quarter of 2023 based on third quarter. So it's -- the ASP is roughly $144, $145, I believe. The WAC price is $150, so you could see the delta there. So right now, it's -- if you write the product, you get reimbursed at ASP, and that's where the reimbursement works during this TDAPA period.

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Well, there is a bit of a financial incentive. I mean, CSL Vifor does do contracting on the acquisition price with the dialysis organization certainly. And that's why you see some of the discounting even in the ASP versus WAC. So yes, there is some discounting. So there's certainly a financial incentive for these clinics and these organizations.

So with the large shift in demand, do you think it's possible to rationalize on an ongoing basis, what drives the revenue reported in the U.S. as profit share that is, is it wholesaler shipment to dialysis centers? Or is it shipment to distributors?

Well ultimately it'll be shipment to the clinics. That's demand. So demand drives the whole supply chain, the whole product flow chain, right? So -- but early on in the launch given the launch dynamics, that's a bit different, right? So early on the launch and you saw this in Q2, Daniel, that the channel, the trade takes on product anticipating demand. And that's what we saw in Q2. They took in about $17 million in net sales and actually was shipped to the clinic was only 1,800 vials. It was really the MDOs, the midsize and independents that really came online early. We've now started to see that largely converge. 186,000 vials, if you total up both quarters and $33 million in sales of shipments from CSL Vifor that's largely converged. So end of the day, it's going to be about demand. And it's going to be about moving from what's in the clinics to the patients, and we believe strongly that, that's going -- that cadence will continue to increase over time.

How should we then think about the shape -- sorry, the peak market opportunity for KORSUVA keeping in mind the TDAPA period and potentially the extension that could come with CMS and CMC negotiation?

Well, let's first focus on the size of the population and what's currently out there for these patients. First of all, there's about 200,000 or so patients that are suffering from moderate-to-severe pruritus that are undergoing dialysis. So we know the patient population addressable is significant. There are no approved therapies for these patients. They continue to predominantly get antihistamines or just go untreated. And what we're seeing now is that urgency to treat increasing as we brought a new treatment to bear. So we think strongly in terms of the population that's addressable, we think very strongly that the expectation should be strong for this product, given that there's nothing out there for these folks. Now TDAPA, how this is going to be reimbursed after TDAPA? Like I mentioned in my prepared remarks, I mean, we're encouraged with the dialogue we've had with CMS. And I would say what's the proof point behind that? Well, in the rule-making cycle just last year, they put a whole section, as you know, a request for information, where they actually teed up 4 different methodologies that talked about continuing an add-on payment in some shape or form. That was encouraging. That was very encouraging because there's no need for them to do that. It could just stuck with the current rule. So I think net-net, to me, Daniel, is that I'm really encouraged. I'm optimistic on the long-term potential of this drug and the durability of this drug.

So you mentioned 4 methodologies. Maybe can you go over what those 4 potential outcomes could be? And do you consider all 4 outcomes as significant?

Yes. I got asked that question earlier. All 4 methodologies they proposed have some form of an add-on payment for me and for our company, and I'll even speak for the other manufacturing partner, I take any of those 4. I think they're all support of ensuring that this product has the additional reimbursement it needs to continue on a very steep trajectory. So again, we're encouraged. I can't give odds on what the government is going to do. But we feel strongly that CMS has an open mind, and they acknowledge that this post-TDAPA environment could be challenging for dialysis providers.

Any questions? I will continue. So you are in the process of launching in Europe, and you mentioned in Germany and in France. But maybe can you briefly cover the opportunity there and approach to commercialization on a country-by-country basis following reimbursement?

Sure. I mean the actual opportunity in Europe is not that dissimilar to the U.S. I mean we estimate roughly 150,000 patients addressable in Europe. Our commercial partner, CSL Vifor. They have the full commercial rights to this product in Europe. And they've already started to launch in several countries, namely last year, Austria and Germany. In Germany, obviously, is one of the biggest, if not the biggest, is European country. So again, quite encouraged in early days. We'd expect these countries to come online, the bulk of the EU countries to come online as they secure reimbursement from their governments in 2023. So in terms of the effort, it's really not that dissimilar to the U.S. I mean, we're building a market. And when you build the market, the major task is really convincing nephrologists and nurses to systematically screen and identify patients and give them Kapruvia in Europe, KORSUVA in the U.S. So that behavioral objective is no different in U.S. than in Europe. I mean the systems are a little different. Reimbursement is different in Europe by country, right? There is no TDAPA. So -- somebody said, well, slow and steady in Europe and have a lot of durability, maybe. We'll see how that goes in '23. But already in Germany, I'll tell you, we've been quite encouraged, especially when the guidance came out and put Kapruvia as a first-line choice in the guidelines at launch. That's a really good sign. It's certainly a good sign. So I'd also point this out, Daniel, for Cara, the economics are a little different in Europe with our partner, CSL Vifor than in the U.S. In Europe, we received a low mid-double-digit royalty on net sales. In the U.S., we have a profit-sharing split with them, as you could see by the $33 million and the $15 million, we get about 45% of the net sales. So it will be a little different in Europe and probably more modest to our top line in 2023 than U.S.

Okay. Part of -- one of the catalysts is approval of KORSUVA in Japan that's expected in 2023. So should we expect any financial milestones coming to Cara in this year?

Yes. I mean, Ryan, do you want to?