Why Cara Therapeutics May Be A Better Opportunity Than GW Pharmaceuticals

| About: Cara Therapeutics (CARA)

Cara Therapeutics (NASDAQ:CARA) and GW Pharmaceuticals (NASDAQ:GWPH) are both recent IPO pharmaceutical companies that focus on new ways of treating pain, including Acute, Chronic, and Neuropathic pain. Neuropathic pain, which is on the rise in our aging society, is associated with many diseases including diabetes, cancer, autoimmune diseases, and multiple sclerosis.

Background:

The GWPH lead molecule, Sativex, a marijuana extract, is an oral cannabinoid approved for Multiple Sclerosis and currently in clinical trials for Cancer Pain (Phase III) and Neuropathic Pain (Phase II). Like THC, the active molecule in marijuana, Sativex binds to both CB1 (in brain) and CB2 (in periphery). The next drug in the GWPH pipeline, Epidiolex, which is under investigation for epilepsy, binds primarily to CB2, but also binds to CB1 a little. GWPH has several CB2 targeted drugs in its pipeline.

The "next level" of cannabinoid therapy is to reduce side effects by targeting drugs to either the CB1 receptor or, more importantly, the CB2 receptor. This is much like the difference between normal anti-inflammatory drugs (i.e. ibuprofen) that bind COX1 and COX2 receptors, and newer drugs such as Celebrex, which are specific to COX2 and may have enhanced safety (i.e. fewer stomach ulcers).

CB1, located in the brain, is the predominant contributor to the psychological effects of cannabis.

CB2 receptors are located mainly on immune cells and are believed to be important in treating many varied diseases:

  • Pain (Cancer pain, Bladder pain, Neuropathic pain)
  • Parkinson's Disease
  • Liver Diseases (Alcoholic Liver Disease)
  • Demyelinating Diseases (Multiple Sclerosis)
  • Malignant lymphoblastic disease

Here is an excellent one-paragraph Summary of CB1 and CB2 effect on pain.

Unlike GWPH, who has focused primarily treating pain through purified cannabis extracts which bind to cannabinoid receptors (CB1 and CB2), CARA has a more diverse portfolio of pharmaceutical compounds focusing on CB2 and on unique opioid analgesics.

CARA also has several CB agonists in development. CR701 is furthest along in development, and is a peripheral tissue CB2 agonist and will be studied in Neuropathic pain.

A study on the CARA website mentioning CR701 is titled "STUDIES ON THE EFFECTS OF CANNABIS (MARIJUANA) HAVE LED TO THE RECENT DISCOVERY OF AN ENDOGENOUS SYSTEM OF LIGANDS IN HUMANS INVOLVED IN A NUMBER OF PHYSIOLOGICAL PROCESSES INCLUDING PAIN AND INFLAMMATION."

CARA has thirteen patents, including the most recent where the compounds are useful as modulators of cannabinoid receptors and for the prophylaxis, treatment and inhibition of cannabinoid receptor-associated diseases and conditions, such as pain, inflammation and pruritis.

With all that said, the most exciting CARA compound is CR845, which is not a CB-acting drug. CR845 is unique because it acts on pain receptors in the same class as those acted on by morphine but it does not cross the blood-brain barrier, leading to significantly reduced side effects. This molecule is currently in Phase III studies for Post-Operative Pain, and had excellent morphine-sparing effects in Phase II results.

Addressable Market Size And Valuation

Canaccord Genuity recently initiated coverage on Cara Therapeutics with a Buy rating and price target of $25.00. Analyst Ritu Baral said:

"Cara's lead candidate is a peripherally restricted kappa subtype specific opiate receptor agonist. We think '845 could provide additional needed pain relief potentially superior to, but also complementary to, current post-op adjunct analgesics, without typical opiate side effects."

"We expect positive data from three upcoming post-op Ph3 studies in H2/15. We think '845 could gain significant market share and model potential US peak sales of $750M," she added.

After GWPH had its Initial Public Offering at $8, many analysts gave it price targets in the $20s. They have since changed those target ranges from a low range of $40 to a high range of $97. GWPH has a market capitalization of $902 million.

CARA recently had its initial public offering at $11. It raised $55 million in the IPO and does not have any material debt. It has recently been given initial targets in the $22-$25 range by analysts, much like GWPH initial targets. CARA closed in the $15s yesterday with a market capitalization of $337 million. If CARA had the same market capitalization of GWPH, its stock price would be $41.30.

In conclusion, when I compare what both companies have to offer, CARA appears to be undervalued at $15, and some may read the facts and consider it to be a better opportunity in the long term.

Risks

As with any pharmaceuticals stock, risks include the FDA approval process, which can be timely, cost consuming and a drug applicant could be rejected. Additionally, competition is always a risk when considering buying a pharmaceuticals stock.

I am releasing this article at 9:15 am EST Thursday February 27, 2014 on my blog at super-trades.com and to my subscription newsletter service on profit.ly at 9:15 am EST on Thursday February 27, 2014.

Disclosure: I am long CARA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.