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

Thank you for standing by, and welcome to Cara Therapeutics Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Matt Murphy, Manager of Investor Relations.

Thank you, operator, and good afternoon. After market closed today, Cara issued a news release announcing the company's financial and operating results for the fourth quarter and full year 2023. Copies of this news release can be found in the Investors section of our website at caratherapeutics.com. Before we begin, let me remind you that during the course of this conference call, we will be making certain forward-looking statements about Cara and our program based on management's current plans and expectations. These statements are being made under the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties. Actual results may differ materially due to various factors, and Cara undertakes no obligation to update or revise these statements publicly as a result of new information or future results or developments. Investors should read the risk factors set forth in Cara's 10-K for the year ended December 31, 2022, and any subsequent reports filed with the SEC, including its Form 10-Q for the quarter ended September 30, 2023. With that said, I'd like to turn the call over to Chris Posner, Cara's Chief Executive Officer. Chris?

Thanks, Matt. Good afternoon, and thank you for joining our call. With me today are Ryan Maynard, our Chief Financial Officer; and Dr. Joana Goncalves, our Chief Medical Officer. Significant developments in 2023 led us to sharpen Cara's strategy and focus. We announced in January of this year that we have prioritized the program with the highest likelihood of clinical and commercial success, oral difelikefalin for notalgia paresthetica or NP. Focusing all our resources on NP extends our cash runway into 2026, which allows us to reach all value inflection milestones in this program. NP is a highly underserved neuropathic condition with a sizable patient population and no approved therapies. We are optimistic that oral difelikefalin, if approved, could become the first and only oral antipyretic therapy for NP. I want to highlight why NP has such potential and detail how our late-stage oral difelikefalin clinical program can address it. Notalgia paresthetica is an unexplored neuropathy, and yet NP is relatively common. The disease is a chronic neuropathic pruritic condition characterized by pruritus of the upper back, often leading to pigment changes as a result of excessive scratching. Notalgia paresthetica has been dramatically understudied. But as I will highlight in a bit, anecdotal evidence suggests and we believe that chronic neuropathic pruritus is often as onerous as chronic pain in terms of impacting the quality of life of patients. And while chronic pain has been targeted and studied extensively, chronic neuropathic pruritus has not. An estimated 34 million U.S. patients or 13% of the adult population suffer from chronic pruritus, and approximately $2.7 million or 8% of them have chronic neuropathic pruritus. Now out of those chronic neuropathic pruritus patients 650,000 or 24% are notalgia paresthetica patients under the care of a health care provider, predominantly a dermatologist. This number does not account for the many miss or undiagnosed patients. Notalgia paresthetica has a significant impact on the quality of life of patients, including on their mood, sleep and self-care activities. And yet this significant health challenge has no current treatment or wide-ranging efforts to address it. Anecdotal feedback from patients suggest that their pruritus is often constant and is as debilitating as pain. There are no approved treatments for notalgia paresthetica and off-label use of other therapies frequently topical and systemic treatments indicated for neuropathic pain are mostly ineffective or associated with significant side effects. In market research, almost 90% of NP patients responded that the treatments that they had been offered for NP had been minimally or not at all helpful. As a result, almost 75% of responders stated that they were not currently on any therapy for NP. It is clear from the literature and our market research that there is a significant unmet need for an effective, safe and well-tolerated treatment for NP. Our oral DFK program could lead the way to target and address notalgia paresthetica's hallmark chronic neuropathic pruritus. We believe oral DFK's neuromodulatory action presents an ideal mechanistic approach to treating chronic neuropathic pruritus. In our Phase II proof-of-concept study in NP, oral DFK at a 2 mg BID dose showed a statistically significant separation from placebo on the worst itch NRS scale as early as day 1. It also showed sustained efficacy throughout the double-blind 8-week treatment period. The publication of these data in the February 2023, New England Journal of Medicine has attracted a lot of attention from thought leaders, investigators and patients. Highlighting the significant unmet need, this excitement has resulted in rapid enrollment in the ongoing dose-finding portion of our Phase II/III KOURAGE 1 study. I am pleased to announce that we have completed enrollment in KOURAGE I Part A ahead of schedule, putting us on track to report top line efficacy and safety results in Q3 of this year. As a reminder, KOURAGE 1 is comprised of 2 parts. Part A, the dose-finding portion of the study is a double-blind, placebo-controlled 8-week study comparing 3 dosage strengths of oral DFK to placebo. We currently have 53 active sites in North America and Europe, and we plan to include additional sites for the pivotal portion of the program. The primary endpoint is the proportion of patients with a greater than 4-point improvement at week 8 from baseline in the worst itch NRS scale. The readout from this portion of the trial will provide key information specifically the dose and sample size to initiate the Phase III pivotal portion of the program, Part B of KOURAGE 1 and the second study KOURAGE 2. Ahead of these top line data, we will be hosting a panel of renowned dermatology KOLs to discuss the unmet need in NP and the potential role of oral DFK in this underserved disease and wide open therapeutic indication. We will issue an announcement with details of this event in the coming days, and we hope you will join us. Moving on to KORSUVA injection. In the fourth quarter 2023, we saw a strong quarter-to-quarter demand growth of 22% as reflected by the vial ship to individual clinics. This continued growth in demand is a clear testament to the value and clinical benefit KORSUVA offers to patients and their providers. However, with unfavorable reimbursement changes following the end of the TDAPA period on March 31 this year, we anticipate that DOs, dialysis organizations, will modify current treatment protocols and significantly restrict access to KORSUVA. As a result, we do not expect meaningful revenue contributions from KORSUVA going forward. Let me conclude by reiterating the following over the 3 months, we have taken decisive and swift action. We have evolved our strategy and meaningfully extended our cash runway by sharpening our focus on the program with the highest potential. Notalgia paresthetica has the ingredients for a breakout program with a high probability of clinical and commercial success. I am confident and optimistic that we are on the right path to unlock Cara growth potential and create sustainable value for all our stakeholders. I would now like to turn the call over to Ryan for additional details on our fourth quarter results. Over to you, Ryan.

Thank you, Chris. I would like to first reiterate the importance of the financing transaction with HealthCare Royalty, which we completed in Q4. We were able to bring forward the value of our ex U.S.A. and Japan royalties and add to our balance sheet in a meaningful nondilutive manner. This, combined with our prioritization announcement in January of this year allowed us to extend our cash runway into 2026, thereby enabling us to reach all value inflection milestones in our NP program. Now I'd also like to highlight how the HCR agreement is reflected in our financial statements. In Q4, we recorded the total net proceeds as a long-term liability on our balance sheet. Royalties received from CSL and Maruishi under this agreement are recorded as noncash other revenue on our P&L. We also recorded noncash imputed interest. As a reminder, if the royalty payments received by HCR under this agreement exceed 2x HCR's initial contribution before 2029 and then the royalties thereafter would then revert back to us. Now on to the Q4 results. In the fourth quarter of 2023, KORSUVA injection generated net sales of $5 million. We reported revenue of $3 million for the 3 months ended December 31, 2023, compared to $3.3 million for the same period in 2022. Revenue this quarter consisted of $2.3 million of collaborative revenue related to our profit from CSL Vifor's sales of KORSUVA injection. And $0.7 million of other revenue related to royalties and milestone payments related to the HCR agreement. Demand for KORSUVA continued to grow in Q4 with wholesaler shipments to deals reaching 110,000 vials which was a 22% increase from the prior quarter. The majority of these vials were inventory that was reallocated within the Fresenius network of clinics, and therefore, did not translate into incremental revenue for Cara. Cost of goods sold was $0.6 million for the 3 months ended December 31, 2023, compared to $2.1 million for the same period in 2022. Cost of goods sold this quarter included mainly inventory adjustment charges rather than actual vials shipped to CSL before. Research and development expenses were $28.4 million for the 3 months ended December 31, 2023, compared to $26 million in the same period of 2022. The higher R&D expenses in '23 were primarily due to increases in clinical trial costs related to our 3 late-stage development programs, partially offset by a decrease in stock-based compensation expense. R&D expense in the 3 months ended December 31, 2023, included a $1.7 million expense related to an agreement for manufacturing commitments that are no longer needed due to the reduced demand expectations of KORSUVA in the United States. G&A expenses were essentially flat at $6.6 million for the 3 months ended December 31, 2023, compared to $6.4 million last year. Cash, cash equivalents and marketable securities at December 31, 2023, totaled $$100.8 million compared to $156.7 million for the same period in 2022. The decrease in the balance primarily resulted from $92.1 million of cash used in operating activities, offset by the $36.5 million of net proceeds received from HCR. Now finally, we expect that our current unrestricted cash, cash equivalents and available-for-sale and marketable securities will be sufficient to fund our currently anticipated operating plan into 2026. Our current operating plan reflects the impact of our prioritization announcement in January of 2024, which includes costs related to our planned pivotal program for NP. Now I'll turn it back to Chris.

Thanks, Ryan. Cara is fundamentally a development company. By sharpening our strategic focus on notalgia paresthetica, we have set care on the path to becoming a pioneer in the field of medical dermatology. Based on preclinical and clinical data, oral DFK is uniquely suited to address the unmet medical need in this highly underserved disease. And we look forward to sharing the data from the dose-finding portion of the Phase II/III trial with you in Q3. Now with that, Ryan, Joe and I will be happy to take your questions. So operator, you can please open the line for Q&A.

[Operator Instructions] Our first question comes from the line of Annabel Samimy of Stifel. Your question please, Annabel.

So obviously, NP looks like a pretty attractive category for the difelikefalin's mechanism. How large a clinical program do you think this could be in Phase III? And when you think about the dose to take forward, would you want only 1 dose to take forward? Would you look for a couple of doses just for that optionality for the patient? And then separately, given the rapid enrollment, and clearly, the high interest from the community that you got after the general publication, do you think that you could partner or you would want to partner this opportunity even in the late stages development rather just for commercialization. So just -- I know that I realize that you're a development company, but given that interest, I'm just wondering if you're getting expressions of interest from those publications.

Thanks, Annabel. Let me turn the first part to Jo, and then I'll tackle the second part of your quarter.

Yes. Thanks, Annabel. So just to address how large the part being the pivotal program will be. This will be based upon our results from Part A. We'll take results together with outcome for data into account when assessing the size of the study. So more to come once we get that data. As far as how many doses, ideally always it's best to take 1 dose forward. It just makes a simpler pivotal program. So that will be our aim.

Yes. Annabel, on the second part of your question on partnering. As you know, this asset is totally unencumbered, which is great. And given the strategic prioritization we did in the beginning of this year, we have the cash available into early '26 to complete all the key -- the key clinical programs. So right now, our intent is to continue the development of NP. Like you said, I mean, we're super excited what we saw in the rapid enrollment is certainly indicative, we believe, of the large unmet need spurred by the New England Journal, but also by the physician interest now. And we intend to continue down this path.

Okay. And if I could just follow up with one question for Jo. I know right now, it's BID. Is this -- was there ever any thought to exploring the once daily scheduled for this or it was never an option. And any other [ piece ] associated.

Yes, good question, Annabel. As you know, that the drug is predominantly excreted by the kidneys. And based on the PK profile with this healthy patient population twice daily is what is needed for this patient population. So it will remain as a BD dose.

Our next question comes from the line of Joseph Stringer of Needham & Company. Please go ahead, Joseph.

Just a few on the expectations on the Part A readout. In the Phase IIa NP trial at the 2 mg dose on that key efficacy endpoint, the 4-point responder analysis at week 8, you had around -- I think it was 41% response for KORSUVA and around 18% for placebo. So I guess, is this what you consider a reasonable bar for success for -- and what you'd consider a win when the Part A data come out? And what gives you confidence that you can replicate this data in Part A?

Yes. Jo.