Cara Therapeutics, Inc. (NASDAQ:CARA) Q2 2023 Earnings Call Transcript

Cara Therapeutics, Inc. (NASDAQ:CARA) Q2 2023 Earnings Call Transcript August 7, 2023

Cara Therapeutics, Inc. misses on earnings expectations. Reported EPS is $-0.00058 EPS, expectations were $0.56.

Operator: Thank you for standing by, and welcome to Cara Therapeutics’ Second Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you I would now like to hand the call over to Matt Murphy, Investor Relations. Please go ahead.

Matthew Murphy: 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 second quarter of 2023. Copies of this news release and the associated SEC filings 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 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 June 30, 2023. With that said, I’d like to turn the call over to Chris Posner, Cara’s Chief Executive Officer. Chris?

Christopher Posner: Thanks, Matt. Good afternoon, everyone, and thank you for joining our call. With me today are Ryan Maynard, our Chief Financial Officer; Dr. Joana Goncalves, our Chief Medical Officer; and Scott Terrillion, our General Counsel and Head of Government Affairs. I’d like to start by giving a quick overview of what I’ll address today. First, I will give an update on the KORSUVA injection launch in the U.S., including clinic-level data to provide visibility into underlying demand trends across the different segments of the dialysis market. I will also briefly touch on the proposed calendar year 2024 ESRD PPS rule, which CMS published in late June. Next, I will review the Kapruvia launch progress in countries around the world.

Then I will discuss our wholly owned pipeline and the progress of our 3 late-stage programs for oral difelikefalin. Finally, Ryan will provide a financial update, after which we will open up the call to Q&A. With that, let me discuss the KORSUVA injection launch in the U.S. For the second quarter of 2023, net sales for KORSUVA were $11.4 million, translating into $5.4 million of profit recorded as revenue to Cara. Wholesaler shipments to dialysis clinics totaled approximately 67,000 vials, a 46% increase from the prior quarter. 67% of these vials were shipped to FMC clinics, with the remainder split between DaVita and the other DOs. This increase in vial shipments suggests a continued drawdown of inventory at FMC and an acceleration in demand across all DOs. Ongoing anecdotal feedback on KORSUVA from both providers and patients remains highly positive, highlighting that KORSUVA addresses a significant unmet need.

At FMC, orders grew by more than 50% quarter-to-quarter, reaching 45,000 vials. By the end of the second quarter, over 700 FMC clinics, or 27%, had placed reorders. That’s up from 18% at the end of the first quarter. More importantly, 1,300 clinics, or 50%, had dosed at least 1 patient. That’s up from 42% at the end of the first quarter. Note, this is a correction. Based on numbers provided to us by FMC, we reported on our first quarter call that 1,500 clinics had dosed at least 1 patient. The growth in the number of FMC clinics reordering as well as clinics dosing a patient suggests continued drawdown of inventory at the clinic level. If this trend continues at the current rate, we believe that the majority of FMC clinics will have depleted their inventory and will be in reorder mode this year.

At DaVita, we are seeing continued steady growth in demand. Orders grew by 43% quarter-to-quarter to 11,000 vials. Over 400 clinics, or 15%, had ordered KORSUVA at the end of the second quarter. That’s up 11% at the end of first quarter. Reorder rates remained very encouraging, with 73% of clinics placing repeat orders. Given the on-demand approach at DaVita clinics for ordering KORSUVA, the growth in clinic orders represents a good proxy for the growth in patient demand. At midsize and independent DOs, KORSUVA utilization continues its momentum. Orders grew by 28% quarter-to-quarter to 11,000 vials. At the end of the second quarter, 17% of clinics in this market segment had placed orders. That’s up from 13% at the end of the first quarter.

In addition, 68% of these clinics placed repeat orders, and that’s up 66% at the end of the first quarter. USRC remains the largest buyer of KORSUVA in the MDO and IDO segment. 73% of USRC clinics had ordered KORSUVA by the end of the second quarter. And 80% of these clinics have placed repeat orders. While KORSUVA continues to make meaningful progress in the U.S., a majority of the market remains untapped, and there is significant room for growth. Our partner, CSL Vifor, is fully committed to driving KORSUVA’s uptake in this unique ecosystem with the goal of maximizing its commercial potential in the long term. Now I will briefly touch on the ESRD PPS proposed rule for calendar year 2024. This rule, once it is final, will determine the framework for KORSUVA’s reimbursement after its TDAPA period.

In late June, CMS proposed a new add-on payment adjustment for certain new renal dialysis drugs after the TDAPA period ends. The post-TDAPA payment adjustment applies to all dialysis treatments for a period of 3 years immediately following the expiration of the drug’s TDAPA period. The proposed methodology calculates the add-on payment for each treatment based on the prevailing ASP and the drug’s utilization during the most recent 12-month period. CMS also proposed a risk-sharing arrangement with ESRD facilities calculated at a 35% discount to the prevailing ASP to account for any declines in other drug expenditures. We are pleased that CMS proposed additional funding that is not budget-neutral for innovative TDAPA-designated drugs that fall into an existing functional category.

We are also glad that the new funding starts immediately after the expiration of the TDAPA period and gets adjusted annually by the market basket update. However, there are certain limitations to the proposed methodology, which we plan to pointedly address with CMS in the coming months. Specifically, the add-on payment applies to all dialysis treatments and does not follow the patient. In addition, a 35% discount to the prevailing ASP does not take into account first-in-class drugs like KORSUVA that don’t have a therapeutic substitute. Since the proposed post-TDAPA reimbursement methodology makes a drug’s uptake during its TDAPA period a key factor in future reimbursement rate setting, we plan to also address the question around appropriate utilization data with CMS near term.

More specifically, we will be laying out a case for additional TDAPA time. We will furthermore press for changes to the proposed methodology to account for innovative, first-in-class products that target a minority of ESRD patients. We will continue to work closely with CMS and provide information to highlight the best solution for broad and equitable patient access to innovative drugs like KORSUVA in the final rule, which is expected later this year. Next, on the international front. The rollout of Kapruvia in Europe is progressing well. In the second quarter, Kapruvia generated $1.2 million in net sales, translating into $123,000 of royalty revenue to us. Launches have begun in 7 EU countries, with more lined up in the coming months. CSL Vifor continues to report positive feedback from patients and providers, in line with the testimonials we have received in the U.S. We are pleased with the recommendation by England’s National Institute for Health and Care Excellence, or NICE, for Kapruvia for the treatment of moderate to severe chronic kidney disease associated pruritus in adult patients on hemodialysis.

In Japan, we continue to expect a regulatory decision in the second half of this year. As a reminder, approval in Japan would trigger a $2 million milestone payment to Cara. We are pleased with the progress around the world and believe the success of the ex-U.S. launch to date underscores the significant unmet need for an effective antipruritic treatment for hemodialysis patients. Last but not least, let me touch on the development progress of our innovative, wholly owned pipeline. Enrollment in our Phase III programs in pruritus associated with atopic dermatitis and advanced chronic kidney disease is progressing well. We anticipate the internal readout of Part A of our KIND 1 AD trial in the fourth quarter of this year, with final top line results from this program in the first half of 2025.

We continue to expect top line results for our KICK program in advanced chronic kidney disease in 2024. Our Phase II/III COURAGE trial in notalgia paresthetica commenced in the first quarter of 2023 and is tracking to the internal readout of Part A in the second half of 2024. We expect top line results for the KOURAGE program in the first half of 2026. We strongly believe that oral difelikefalin is the centerpiece of our strategy of becoming the leader in the treatment of chronic pruritus and the key to unlocking the long-term value of Cara. And we remain committed to driving progress of our pipeline and building our unique nephrology and medical dermatology franchises with oral difelikefalin. To summarize, we are pleased with the continued progress of the U.S. KORSUVA launch, as evidenced by the acceleration in file shipments and reorder rates across the dialysis landscape.

Following CMS’ proposal for a post-TDAPA add-on payment, we are engaging with CMS to discuss potential modifications to the proposed methodology as well as an extension of KORSUVA’s TDAPA time. We hope to see meaningful changes reflected in the calendar year 2024 final rule later this year. Internationally, we continue to receive positive feedback from the rollout of Kapruvia, and we are optimistic about the growth trajectory as more countries come online. We also continue to execute on the most significant long-term value driver of our company, our differentiated innovative pipeline. Our 3 late-stage programs with oral difelikefalin have potential for tremendous value creation and set us apart as a leader in chronic pruritus. We remain laser-focused on advancing these programs in order to maximize the potential of difelikefalin within our 2 exciting therapeutic franchises.

I would now like to turn it over to Ryan for additional details on our second quarter financial results. Over to you, Ryan.

Ryan Maynard: Thank you, Chris. Total revenue was $6.9 million for the 3 months ended June 30, 2023, compared to $23 million for the same period in 2022. Now, revenue this quarter consisted of $5.4 million of collaborative revenue related to our profit from CSL Vifor net sales of KORSUVA injection, $1.4 million of commercial supply revenue and $123,000 of royalty revenue representing our royalties from net sales of Kapruvia. Now, revenue in the same period last year included a $15 million milestone payment for the approval of Kapruvia by the European Commission, as well as $8 million of collaborative revenue related to our profit from CSL Vifor sales of KORSUVA. Cost of goods sold during the 3 months ended June 30, 2023, was $1.4 million and relates to our commercial supply shipments of KORSUVA injection to CSL Vifor.

There was no cost of sales during the 3 months ended June 30, 2022, as there was no commercial supply revenue from CSL Vifor. R&D expenses were $30.3 million for the 3 months ended June 30, 2023, compared to $19.9 million in the same period of 2022. The increase in R&D expenses is primarily due to the increased clinical trial spend related to our 3 late-stage clinical programs, partially offset by a decrease in stock-based comp. G&A expenses were relatively flat at $7.5 million for the 3 months ended June 30, 2023, compared to $7.6 million in the same period of 2022. Cash, cash equivalents and marketable securities at June 30, 2023, totaled $101.7 million compared to $123.4 million at March 30, 2023. The decrease of $21.7 million this quarter was primarily due to cash used in operating activities.

We expect that our current unrestricted cash, cash equivalents and available for sale marketable securities are sufficient to fund our currently anticipated operating plan for at least the next 12 months. This guidance assumes all the spend related to our 3 late-stage clinical development programs and KORSUVA revenue profit share contribution. We continue to work to extend our runway past the guidance by focusing on non-dilutive funding sources. Now back to you, Chris.

Christopher Posner: Thanks, Ryan. I want to again emphasize our confidence in the commercial potential of KORSUVA, Kapruvia in Europe, as well as the tremendous upside of our pipeline for oral difelikefalin. We continue to believe that our long-term strategy will make Cara the leader in the treatment of chronic pruritus and will deliver meaningful value to our shareholders. With that, Ryan, Jo, Scott and I will be happy to take your questions. Operator, you can please open the line for Q&A.

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Q&A Session

Operator: [Operator Instructions]. Our first question comes from the line of Dennis Ding of Jefferies.

Dennis Ding: Congratulations on the progress in the second quarter. Two questions for me. Maybe — how do you guys think about the trajectory in the second half and the state of the launch curve? I mean, outside of the — outside of depleting inventory, what else needs to happen for the trajectory to really inflect in the back half of the year? And then my second question is around the CMS draft documents. Maybe remind us what you are looking for or pushing for in the final ruling in the Fall? And will it be considered a big win for Cara?

Christopher Posner: Yes. Thanks, Dennis. Nice hearing from you. So the first question, expectations for the remainder of the year. While we and our commercial partner, CSL Vifor, are not providing forward-looking guidance at this time, here’s what I will say. We’re certainly very encouraged with the accelerating trends in our key metrics, namely, vials being ordered by clinics that increased 46% versus the prior quarter. In addition, I mentioned in my prepared remarks, we’re also seeing more and more clinics dosing patients, specifically at the 2 LDOs we’re at FMC, Dennis, we’re at 1,300 clinics dosing. That’s roughly a 50% penetration. And at DaVita, we’re about 410 clinics now dosing, but importantly, that’s up over 40% versus the prior quarter.

And most importantly, IV KORSUVA is really holding up in the clinic, and the feedback from both patients and providers has been highly positive. The reorder rates, meaning once the clinic starts dosing patients, there is significant buy-in to the product, as over 70% of these clinics continue and consistently place additional orders. And I’ll just conclude with this, Dennis. Although we’re kind of early in third quarter, I can tell you that the growth we see coming out of the second quarter, we are seeing it continue in the early part of the third quarter. And our commercial partner, CSL Vifor continues to be highly motivated, and their promotional efforts continue in full force. That’s what I’ll say about the second half of this year and our expectations.

On CMS, let me introduce Scott, who heads up our government relations in addition to being our General Counsel. He has led the efforts with CMS over the last couple of years. So Scott, maybe you could address what we’re doing with CMS.

Scott Terrillion: Sure. Thanks, Chris. Yes, as Chris said in his remarks, with regard to the rule, we’re pleased that there was new money added. That is great, and that’s a very meaningful movement forward. In our interactions with CMS — and it’s not just us, the broader community is also taking up very similar issues with CMS. There’s 3 things with regard to the proposed rule that we’re going to be looking for. One is having the money follow the patient. That’s particularly important with a product like KORSUVA, where it is going to be used in a minority of patients. We want to make sure that the funding and the reimbursement is tied to their clinical decision directly to make sure that patients get access to the product. The second thing we’re going to be talking about is the 35% discount.

Again, we do agree that some sort of set off for savings for drugs that are not going to be used in the bundle as a result of a new drug ought to be offset in some way. That’s good fiscal policy, makes a lot of sense. However, with the drug like KORSUVA, where there isn’t any money in the bundle, there isn’t any money being spent to treat these patients or manage a condition before KORSUVA, we think it’s important that the set off is rational and it’s tied to the actual savings. And with KORSUVA, there’s not going to be anything there. The third thing we’re going to be looking for is for clarity after the third year because again, a drug like KORSUVA, there is no money in the bundle and what happens afterwards. So we’re going to be seeking clarity on that.

The other thing that we’re going to be pushing CMS on and having a discussion about is making sure that there is a TDAPA period for KORSUVA that allows the community to use the product in the same and knowing what the reimbursement and funding mechanism after the TDAPA period ends. Right now, the product is being used in a context where there isn’t any — the thought is there would be no money added. So we’re going to be trying to get the extra TDAPA period to try to make sure that there’s good data that appropriately lines up to the patient access.

Operator: Our next question comes from the line of Annabel Samimy of Stifel.

Annabel Samimy: So I had a few actually. Just — while we’re talking about CMS, I guess a couple of things. I guess, first, can you maybe — so I guess we understand the [indiscernible] got an extra year of TDAPA payment. I was just wondering if you can outline what similarities or differences you might have had with Parsabiv, given that’s pretty much the only other drug that’s gone through this and how they got that additional year. And then if KORSUVA stays within the bundle the way that they’ve described, with this structure, do you envision incentives for dialysis providers to not use the drug and just collect the payments as they might have done for Parsabiv. So I just wanted to understand the dynamic that we might see post-TDAPA. And then I might have another follow-up.