Deciding where to invest your money is a challenge. Ideally, you want something with low risk, but a high potential reward. Whether or not a stock fits that description is a matter of opinion and a function of how you define risk, but some industries have better chances than others for meeting that demand.
The pharmaceutical industry is rife with examples of companies that saw a pop in share price after a new medication was approved for use or even after passing a drug trial.
Moreover, while it takes a bit of luck and a lot of know-how to create a drug that is clinically proven to work and be worth the side effects, companies in this space hedge their bets by diversifying their portfolios. It is less risky for them and less risky for you.
However, there is more to investing in pharmaceutical stocks than picking a company with a promising drug in development. You have to look at the type of pharmaceuticals being developed. There are two basic ones traditional pharmaceuticals and biopharmaceuticals and the difference is a big one.
Traditionally, pharmaceuticals are developed using a mixture of plant-based compounds and known chemicals. Most of the biggest players in this industry do things the old-fashioned way.
Biopharmaceuticals are completely different. It’s like comparing biology to chemistry.
Biopharmaceutical companies look at the way living cells function then try to manipulate those traits. Modern technology has developed to a point where this is possible and many such treatments are showing real promise for many diseases and conditions that people once thought were incurable, such as autoimmune disorders or cancer.
Let’s look at one of these biopharmaceutical companies Cara Therapeutics, Inc. [NASDAQ: CARA] in greater detail.
Cara Therapeutics [CARA] is a biopharmaceutical company that specializes in peripheral kappa opioid receptors.
They want to use them to treat pain and pruritus (a symptom of several conditions, it is basically a short way of saying “severe, itchy skin”). However, those products are still under development.
Cara [CARA] is not currently selling any products. To date, any money the company has made comes from license agreements.
That said, Cara does have a strong candidate right now. It is an intravenous formula called KORSUVA (CR845/difelikefali) that is designed to manage pruritus in people going through hemodialysis with Chronic Kidney Disease-Associated Pruritus (CKD-aP).
KORSUVA is in Phase 2 clinical trials for its use amongst patients with moderate-to-severe CKD-aP and in Phase 3 for its use in milder CKD-aP cases.
According to Cara’s annual report, they “have partnered with VFMCRP, a joint venture between Vifor Pharma Group and Fresenius Medical Care, to commercialize KORSUVA injection in dialysis patients with CKD-aP worldwide, excluding the United States, Japan (Maruishi/sub-licensee Kissei), and South Korea (CKDP).”
The annual report goes on to explain that Cara will “retain all rights in the United States and will promote KORSUVA injection, if approved, with VFMCRP in U.S. Fresenius Medical Care North America, or FMCNA, dialysis clinics under a profit share agreement.”
KORSUVA has also helped reduce pain for many of these patients in after operations as well as the opioids normally prescribed for their pain management but without the harmful side effects.
Pruritus is a real problem. Many people with many different conditions experience this constant, irritating itch.
There are roughly 3.2 million people in the world going through dialysis. Some 70% of them experience some amount of pruritus and around 40% of those people have severe pruritus. It is not a small number and remember, there are other conditions that cause pruritus.
In the United States alone, there are more than 20 million people on prescriptions to manage their pruritus. Additionally, there aren’t any effective treatments for severe CKD-aP. It is a largely untapped market.
In other words, Cara [NASDAQ: CARA] is chasing down a formidable market and that’s just on the pruritus side of things.
KORSUVA may also be effective in postoperative pain management. Roughly 100 million surgeries happen every year in the United States and the US market for pain management medicines is around $45.3 billion. There is a massive possible market if KORSUVA or a related drug gets approved.
Cara also has important licensing agreements in place with companies like Maruishi Pharmaceutical in Japan and Chong Kun Dang Pharmaceutical in South Korea.
These licenses give those respective companies the right to develop and commercialize products containing KORSUVA for use in their home countries.
The Maruishi agreement is valued at over $25 million while the Chong Kun Dang agreement is worth $4.4 million if KORSUVA is developed fully by those companies.
Those are big opportunities for Cara but there are no guarantees in this or any other business.
Cara is still looking at years of clinical studies until KORSUVA could be marketable and the drug could fail at any point between now and then.
Further, it’s not like the company has a fallback. It does have other drugs under development, but they are still in a preclinical trial phase and may not be ready for some time.
To put it simply, Cara is a long shot and a long position.
If you buy in early, there will be room for the stock to run if its gamble on KORSUVA is successful, but you could lose just as much on the value of your investment if the drug fails so tread carefully.