Cara Therapeutics, Inc. (NASDAQ:CARA) Q4 2022 Earnings Call Transcript

Cara Therapeutics, Inc. (NASDAQ:CARA) Q4 2022 Earnings Call Transcript March 6, 2023

Operator: Good afternoon. My name is Josh, and I will be your conference facilitator. I would like to welcome everyone to the Cara Therapeutics Fourth Quarter and Full Year 2022 Financial Results and Update Conference Call. I would now like to introduce Matt Murphy, Cara’s Manager of Investor Relations. Mr. Murphy, you may begin your call.

Matt Murphy: Thank you, operator, and good afternoon. Just after market close today, Cara issued a news release announcing the Company’s results for the fourth quarter and full year of 2022. Copies of this news release and the associated SEC filing can be found in the Investors section of our website at www.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 programs 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 various 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. With that said, I’d like to turn the call over to Chris Posner, Cara’s Chief Executive Officer. Chris?

Chris Posner: Thanks, Matt, and good afternoon, everyone. With me today are Ryan Maynard, our Chief Financial; and Dr. Joana Goncalves, our Chief Medical Officer. First, I want to give a quick overview of 2022 and our significant progress executing our strategy to become the world leader in the treatment of chronic pruritus. Then, I will share the latest insights into the KORSUVA injection launch and the progress in our development progress for oral difelikefalin. Ryan will follow with a financial update. After that we will be available to take your questions. The U.S. launch of KORSUVA injection in the second quarter of 2022 rang in a new era for the treatment of chronic pruritus and propelled care forward in our journey to be the category defining leader in this condition.

Chronic pruritus is often a severe, intractable problem for patients in a wide range of diseases, and it is underserved by currently used treatments. In light of this lack of treatment options, chronic pruritus remains underreported, even though it can have a significant negative impact on the quality of life of millions of patients. We are committed to enhancing the awareness of this disease and improving the treatment protocols for patient care so that our novel science benefits the most patients possible. Over the past year, we made great strides in translating our mission into action and firmly establishing our two core franchises in nephrology and dermatology. The launch of KORSUVA injection created the foundation for our nephrology franchise.

Together with our commercial partner CSL Vifor, we are laser focused on driving the trial and adoption in the U.S. and in countries around the world. Moreover, we are expanding this differentiated and promising nephrology franchise with oral difelikefalin and the late stage program in non-dialysis dependent CKD patients. Enrollment is progressing well, and we continue to target the top line data release for the second half of 2024. Switching to our dermatology franchise, enrollment in our late stage atopic dermatitis program is progressing well. And we continue to track to our internal readout in the second half of 2023. The positive Phase 2 results of oral difelikefalin in notalgia paresthetica not only confirmed our hypothesis, that difelikefalin can target pruritus independent of the origin of itch but also created a distinct opportunity to complement our program in AD.

This gives us a unique one-two punch to build a truly one of a kind dermatology franchise. We are excited about the launch of our Phase 2/3 program in NP and the recognition from the New England Journal of Medicine which recently published our Phase 2 results. Now, let me provide some more details on the quarter and the progress within the strategic priorities of our two franchises. First, on the launch of KORSUVA injection, we are making meaningful progress in the U.S. For the fourth quarter of 2022, net sales for KORSUVA injection were $2.3 million, translating into $1.1 million of profit recorded as revenue to us, and wholesaler shipments to dialysis clinics totaled approximately 21,000 vials. This quarterly performance is reflective of the unique launch dynamics in this ecosystem and represents a transition from the stocking and trial phase to the adoption and demand based performance phase.

After the initial inventory building at both the wholesaler and certain clinics in the second and third quarter, we have started to see inventory being drawn down and orders accelerating. We are pleased to see this momentum continuing through the first two months of 2023. Equally as important, feedback on KORSUVA from providers and patients has been highly positive. And we continue to hear that KORSUVA is delivering on the promise it demonstrated in the clinical studies and performing as we expected. Let me break out the different dynamics at the various DOs. Starting with Fresenius, we are pleased with the commitment from FMC to the long-term success of KORSUVA as reflected by both the addition of the FMC field force in the promotion of KORSUVA and the push for its rapid adoption.

In the third quarter with patient care as their number one priority, Fresenius took a non-traditional approach and stock product in most of its clinics to facilitate trial across its network. While this strategy demonstrates FMC’s belief in the unmet medical need in CKD-associated pruritus and confidence in KORSUVA’s value proposition, it created an atypical inventory dynamic. In the fourth quarter, we saw a steady growth in the number of FMC clinics utilizing their initial inventory and placing reorders, a clear reflection of their move from trial to adoption. Simply put, and what is very encouraging, when clinics start using KORSUVA, there is a strong buy in and these clinics become repeat customers. This positive trend has accelerated in 2023.

Encouragingly during the first eight weeks of this year, clinic reorders from the wholesalers have already exceeded the entire FMC order volume in the fourth quarter of 2022. Looking ahead, we expect to see continued growth in the number of FMC clinics utilizing their inventory and reordering. And as trial shifts to adoption across the FMC network, we expect most of the inventory at the clinic level will be utilized by mid-2023. At DaVita, we see steady growth in the number of clinics order in KORSUVA. For those clinics that have purchased KORSUVA we continue to see a high reorder rate, which clearly suggests a positive experience with this product. We continue to work with CSL Vifor on top down and bottom up initiatives to accelerate the adoption of KORSUVA at DaVita clinics.

On the MDO and IDO front, uptake continues to be strong, both in terms of the number of clinics ordering as well as the reorder rates. While this segment of the market represents less than 20%, we feel that the progress at these organizations underscores the positive experience of patients and providers with KORSUVA. To summarize, given the launch and inventory dynamics during the first few quarters, we expect a more normal uptake curve for KORSUVA to emerge mid-2023. More specifically, we anticipate that the future sales and vial shipped to dialysis clinics will not be related to any significant stocking at the wholesaler or clinic level. However, until the remaining inventory at the clinic level is depleted, it is important to emphasize that it is the combination of inventory draw-downs at the clinics and new wholesaler shipments to clinics that together represent true patient demand.

Overall, we are encouraged by the progress in the U.S. launch and we remain confident in the long-term potential of KORSUVA. On the international front, the rollout of Kapruvia in Europe continues to gain momentum. Launches in the first four countries Austria, Germany, Sweden and Denmark are progressing well and we expect most of the other countries in Europe to come online in 2023. The initial feedback is very encouraging and in line with the provider and patient testimonials we have received in the U.S. Furthermore, all four of the access consortium countries, Canada, Australia, Singapore and Switzerland approved the product in 2022, and we expect launches in these countries to commence once reimbursement is secured in the next 12 to 18 months.

Based on the regulatory submission in the second half of 2022 and positive interactions with the PMDA, we continue to expect a regulatory decision in Japan in the second half of 2023. As a reminder, if the product is approved in Japan, we will receive a milestone payment from our partner Maruishi. The JV of CSL Vifor and FMC also recently announced signing a long-term exclusive licensing agreement for the co-development and commercialization of KORSUVA with Winhealth in China. We are very excited by this positive development and we look forward to work starting in the near-term. Lastly, let me briefly touch on TDAPA. In the second quarter of 2022, as part of the proposed rule for the calendar year 2023, CMS issued an RFI regarding an appropriate payment mechanism for drugs with TDAPA designation post the TDAPA period.

We generally believe that the different payment mechanisms outlined in the RFI would provide adequate reimbursement for KORSUVA post the expiration of its TDAPA period. We further support the concept of linking drug payment to drug utilization in appropriate patients. We continue to work closely with other stakeholders to support CMS in its decision-making process. And while we do not have clear visibility as to the exact timing of a final decision regarding the post TDAPA reimbursement mechanism, we continue to hope for a substantive and positive update from CMS during this year’s rulemaking cycle. Moving on to our pipeline. We are building two therapeutic franchises through our work to expand the utility of difelikefalin. Last year, we launched our Phase 3 programs of oral difelikefalin in both pruritus associated with non-dialysis dependent advanced CKD as well as atopic dermatitis.

Enrollment in both programs is progressing well and we expect top line results for the CKD program in the second half of 2024 and for the AD program in the first half of 2025. We continue to track to the second half of 2023 for the internal readout of part A of the Phase 3 KIND 1 study. Additionally, last year, we reported positive data from our Phase 2 trial of oral difelikefalin in notalgia paresthetica. In the fourth quarter of 2022, we had a positive interaction with the FDA, which cleared the path to initiating our Phase 2/3 program in NP. Like our AD program, we designed the NP program with the goal to enhance our operational efficiency to advance the studies as rapidly as possible and to maximize the potential for success. We expect the internal readout of the dose finding portion of the KOURAGE 1 study in the second half of 2024, with final top-line results for the program in the first half of 2026.

In conclusion, we believe 2022 was a pivotal year for Cara. Our progress laid the foundation for sustained growth and value-creation for our stakeholders and the promising future of our company. On the KORSUVA injection launch, we expected variability and a fluctuating dynamic over the first year of launch. We are seeing positive trends in product uptake and remain confident in the long-term potential of KORSUVA injection. We have three late-stage programs underway, demonstrating significant progress toward establishing our two therapeutic franchises and maximizing the potential of difelikefalin. I would now like to turn it over to Ryan for additional details on our fourth quarter and full year results. Over to you Ryan.

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Ryan Maynard: Thank you, Chris. Well, I’ll be focusing my commentary primarily around the fourth quarter. The full year results for 2022 can be found in our press release issued today after the market closed. Total revenue was $3.3 million for the three months ended December 31, 2022, compared $0.8 million for the same period in 2021. Revenue this quarter consisted of $1.1 million of collaborative revenue related to our profit from CSL Vifor’s net sales of KORSUVA injection to third parties, and $2.1 million of commercial supply revenue. We also recognized $72,000 of royalty revenue this quarter, representing our royalties from the net sales of Kapruvia in Europe in the fourth quarter of 2022. I also want to highlight that for the year, we have now recognized a total of $16.6 million of collaborative revenue related to our share of the profit of KORSUVA injection sales.

Cost of goods sold during the three months ended December 31, 2022 was $2.1 million and relates to our commercial supply shipments of KORSUVA injection to CSL Vifor. Research and development expenses were $26 million for the three months ended December 31, 2022, compared to $22.8 million in the same period of 2021. The increase in R&D expenses is due to the increased clinical trial spend related to our two Phase 3 clinical programs that were initiated in 2022. General and administrative expenses were $6.4 million for the three months ended December 31, 2022, compared to $11.5 million in the same period of 2021. The reduction in G&A expense was due to a decrease in stock-based compensation in the fourth quarter of 2022 as compared to the same period in 2021.

Stock-based compensation in 2021 included costs relates to the modification of certain equity awards to our former CEO. Cash, cash equivalents and marketable securities at December 31, 2022 totaled $156.7 million, compared to $236.8 million at December 31, 2021. The decrease in the balance primarily resulted from cash used in our operating activities. Now, we expect that our current unrestricted cash and cash equivalents and available for sale marketable securities are sufficient to fund our currently anticipated operating plan into at least the first half of 2024. This guidance assumes all the spend related to our three late-stage clinical development programs and KORSUVA revenue profit share contribution. I will now turn the call back over to Chris.

Chris Posner: Thanks, Ryan. I want to again emphasize how confident we are in the year ahead giving the momentum of the KORSUVA launch and the significant progress in our pipeline. We believe that Cara is well on its way to becoming the world leader in the treatment of chronic pruritus and we look forward to providing you additional updates in the near-term. With that Ryan, Jo, and I’ll be happy to take your questions. So, I could turn it back over to Josh and we can open up the call for questions.

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Q&A Session

Operator: Our first question comes from Sumant Kulkarni with Canaccord Genuity.

Sumant Kulkarni: Good afternoon. Thanks for taking my questions. I have two. Given the significant volatility associated with KORSUVA and the way the supply chain dynamics work, could you give us roughly what percentage of the 207,000 vials that were shipped during the 2022 year might have already been used? Do you have a fraction on that?

Chris Posner: Hey Sumant, it’s Chris. So, of the 207 — I mean, what we look at is we have 20,000 vials that were ordered by the clinics in the Q4 of 2022. What I can tell you is roughly 180,000 of those vials were shipped to Fresenius in Q3 as we reported in the Q3 call.

Sumant Kulkarni: But any sense of how that might translate to actual patient — vials used during the year?

Chris Posner: Yes. So, if you look at — if you break it out by customer segments, so if you look at for Fresenius first. So, Fresenius — over the first three quarters, Fresenius primarily took in 180,000 vials in Q3, and now they’re — obviously, a lot of clinics are starting to pull through that, burning through that inventory and utilizing that. But you also remember there are other segments, namely DaVita in the mid-size that are ordering in a more traditional way. Fresenius did a very atypical thing in terms of stocking. So what we expect is probably by mid-2023, you will start to see more normal — I call it more normal demand based trajectory.

Sumant Kulkarni: Got it. And then, a question on the TDAPA part, we understand that CMS currently requires reporting on the percentage of a vial that has been unused. I — think that data might be able to be used for, if at all?

Chris Posner: So Sumant your question is wastage of a vial based on dry body weight? That’s your question. I want to make sure I understand it.

Sumant Kulkarni: That’s right. And I understand that data needs to be collected or stored somewhere. But do you foresee any potential use of that and where, or is that just a procedural thing?

Chris Posner: That’s a procedural thing.

Operator: Our next question comes from Joseph Stringer with Needham and Company.

Joseph Stringer: We’re just curious if there’s a point in the future where you’d be able to report IV KORSUVA, TRX or scripts written instead of vials shipped.

Chris Posner: Hey Joe, it’s Chris. No is the short answer. Think about this as almost like a Part B type drug. So we get data from the wholesalers of what they ship to the clinics. And typically, Joe, as we talked about before, this does represent the best proxy for demand because we do know that clinics don’t typically hold inventory unless they have a patient already on the product. As I mentioned, this case is very different given this unique ecosystem that we’re in, namely, with Fresenius, where they in Q3 took on a significant amount of product to activate their entire network, and they invested in that strategy. So, like I said before, by mid-2023, especially in the Fresenius side, that metric — quantitative metric that we report, it’s unusual right now, but it’ll be really the best proxy for patient demand as we get to mid-2023 for Fresenius.

The rest, DaVita and the mid-size and independents, it’s still the best proxy for demand because it we know they did not employ the same strategy FMC did in activating their network. It’s more traditional.

Operator: Our next question comes from Annabel Samimy with Stifel.