The pharma sector is full of one-drug wonders and sometimes those drugs fail their tests. Cara Therapeutics was one of those companies that soared on expectations and collapsed on the news.
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CARA - Cara Therapeutics - Company Profile
Cara Therapeutics, Inc., a clinical-stage biopharmaceutical company, focuses on developing and commercializing chemical entities designed to alleviate pain and pruritus by selectively targeting kappa opioid receptors in the United States. It is developing product candidates that target the body's peripheral nervous system. The company's lead product candidate comprises I.V. CR845, which is in Phase III clinical trials for the treatment of patients with acute postoperative pain in adult patients, as well as in Phase II/III clinical trial for the treatment of uremic pruritus disease. It is also developing Oral CR845 that is in Phase IIb clinical trial to treat moderate-to-severe acute and chronic pain, as well as in Phase I clinical trial to treat uremic pruritus; and CR701, which is in preclinical trial for the treatment of neuropathic and inflammatory pain. The company has license agreements with Maruishi Pharmaceutical Co., Ltd to develop, manufacture, and commercialize drug products containing CR845 for acute pain and uremic pruritus in Japan; and Chong Kun Dang Pharmaceutical Corporation to develop, manufacture, and commercialize drug products containing CR845 in South Korea. Company description from FinViz.com.
Cara had two drugs in the pipeline. CR701 is a cannabis derivative for pain management that is not an opiod. It would seem to be a promising drug but the company is not pushing it towards acceptance.
Their hot new drug CR845 is a kappa-opioid receptor that is being studied for severe itching caused by chronic kidney disease and for various types of pain.
Last week they reported results for a phase 2b study on CR845 that were not statistically significant. The three levels of medication included 1.0 mg, 2.5 mg and 5.0 mg. The 1.0 and 2.5 failed to show any results. The 5.0 mg showed only a minute improvement in pain that could have been related to the placebo effect or simply random chance. The trial was a failure.
CARA had run up significantly on the hopes for the drug. Shares imploded over five days to give back half their value. I would not normally recommend a position with such a large decline but the six day rally before the results was roughly $9 so an $11 drop just erased that last bit of irrational exuberance. With CR845 in limbo until new trials and new uses can be developed and CR701 apparently on hold for some unknown reason, the company suddenly has no appeal for investors. If light support at $13.40 fails we could see $8.50 very quickly. Investors are suddenly fleeing this sinking ship.
Expected earnings August 3rd.
Sell short CARA shares, currently $13.62, initial stop loss $15.95.
Alternate position: Buy Aug $12.50 put, currently 85 cents, initial stop loss $17.50.
Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 at the market open.