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Cara Therapeutics, Inc. (NASDAQ:CARA)

Q2 2014 Results Earnings Conference Call

August 07, 2014, 04:30 PM ET

Executives

Jesse Baumgartner - Stern Investor Relations, Inc.

Derek Chalmers - President and CEO

Josef Schoell - Chief Financial Officer

Analysts

Alan Carr – Needham & Company

Chiara Russo - Janney Montgomery Scott

Operator

Good afternoon. And welcome to Cara Therapeutics Second Quarter 2014 Earnings Conference Call. At this time all participants are in a listen-on mode. There will be a question-and-answer session at the end. Please be advised that this call is being recorded at Cara's request.

I would now like to turn the call over to the Cara team. Please proceed.

Jesse Baumgartner

Good afternoon this is Jesse Baumgartner with Stern Investor Relations and welcome to Cara Therapeutics second quarter 2014 conference call. The news release with our second quarter financial results and corporate update became available at 4 o'clock today and can be found on our website at www.caratherapeutics.com. You may also listen to a live webcast and replay of today's call on the Investor's section of the website.

Before we begin let me remind you that statements made on today's call regarding matters that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of these forward-looking statements include statements concerning the expected timing of the company's clinical trials, statements concerning the potential results of planned clinical trials and future development milestones for the company's product candidates.

Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Risks are described more fully in Cara Therapeutics' filings with the Securities and Exchange Commission, including the Risk Factors section of the company's Annual Report on Form 10-K for the year ended December 31, 2013 and its other documents subsequently filed with or furnished to the SEC.

All forward-looking statements made on today's call speak only as of the date on which they were made. Cara Therapeutics undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.

Now let me turn the call over to Cara's President and CEO, Dr. Derek Chalmers.

Derek Chalmers

Okay. Thanks, Jesse. Good afternoon everybody, thanks for joining us on the call today. We have continued make rapid progress with our clinical development plans during the second quarter and earlier in the third quarter including a number of recent milestones that we think are very encouraging. So we're going to give you some color around those recent news items first. Then we're going to update you on what we expect for the rest of 2014. And then we will go through our financials and move into Q&A session after that.

So we're pleased to announce a number of significant news items during the past few months around both our clinical progress and some important internal corporate developments which will further support our late stage development trials for our lead candidate I.V. CR845 and beyond.

On the management side we're pleased to announce two important additions to the Cara team. The first was Robert Medve, as Chief Medical Officer, Robert brings more than 20 years’ experience in both successful drug development and clinical pain management most recently as the CMO at Nektar Therapeutics. He’s also held senior leadership positions at both J&J and also Nova Pharmaceuticals.

And secondly Eric Vandal, as Vice President of Commercial Operations here at Cara. Eric is primarily responsible for implementing commercialization and marketing strategies in support of ongoing clinical development programs. And very importantly laying the ground work necessary to build a commercial infrastructure to support I.V. CR845's launch into the hospital space. Eric brings two decades of experience in relation to marketing products into both the hospital market as-well-as the primary care acute and chronic pain markets. And he’s held previous senior positions at King Pharmaceuticals, of course at Pfizer, Alpharma and Endo Pharmaceuticals.

Recently we also announced the addition of both Dr. Jeffrey Ives and Harrison Bains to our Board of Directors replacing Ed Hurwitz and Dr. Charles Moller. We're very excited to bring both Jeffrey and Harrison here at an important time for the company and we would like to take this opportunity to thank both Ed and Charles for their significant years of service and support on the Board indeed all the way through our recent IPO earlier this year.

Next to the clinical front. We continue to execute on our development plans for both the I.V. And the oral formulations of 845. In July we announced the initiation of a human abuse liability trial of I.V. CR845 following specific protocol suggestions from both the FDA and the Controlled Substance Staff, specifically at the FDA. We view this trial as a significant milestone in the development path for CR845 and that data from the study will provide the basis for any ultimate scheduling decisions made before drug approval.

In this regard the agency guidance towards use of a schedule for active comparator, that was benzodiazepine as suppose to schedule 2 narcotic opioids such as morphine is in our view an encouraging indication of current opinion of CR845's possible level of abuse liability. So as a quick reminder here the DEA classifies drugs into five schedules according to both medical utility and abuse potential. So for example narcotics with a higher abuse potential like oxycodone and morphine are in schedule 2, while drugs with a lower abuse potential such as benzodiazepines are in schedule 4. So as such an ultimate scheduling of four or lower for 845 would be clearly differentiating in a market space that dominated by short acting opioids in schedule 2.

So we anticipate top line data as we said previously from this trial in Q4 of this year. In June we also announced that we had initiated a Phase 1 single ascending and multiple ascending dose trial of an oral tablet formulation of CR845. PK safety and biomarker data from this trial will inform appropriate dosing regimens to employ in POC Phase 2 trials with this tablet formulation going forward.

We see very significant potential for oral CR845 in both the acute pain space. For example as step down treatment for the post-operative patient and discharge and also within the chronic pain space including chronic pain conditions where peripherally acting potentially non-abuseable NOGs that could meet a large unmet need. So again we expect top line data from this trial in Q4 of this year.

In the context of unmet clinical need we've previously guided that we aim to explore additional non-pain clinical indications for CR845, particularly focusing on the anti-itch or anti-pruritic properties of CR845. So in this regard we were very pleased to announce last week the dosing of the first patients in the POC Phase 2 trial in uremic pruritus. This is an intractable type of itch in dialysis patients that's generally resistant to conventional treatments and diminishes quality of life for almost half of all kidney dialysis patients.

With no presently approved products in the U.S. or the EU for this condition CR845 may provide an important therapeutic approach for these particular patients. We expect top line data from this study in the first half of 2015 and positive data from this trial may also be indicative of the potential for 845 as a general novel anti-pruritic agent.

Our Japanese partner Maruishi Pharmaceuticals is focused on developing 845 as a novel treatment for both uremic pruritus and post op pain in the Japanese territory. And we recently announced the rapid progress that the Maruishi team had made in successfully completing its Phase 1 SAD and MAD studies of I.V. CR845 in a Japanese population and the consequent achievement of a Phase 1 development milestone for Cara. So we're pleased by Maruishi’s commitment and we look forward to reporting continued progress as we go forward with that relationship.

Looking ahead to milestones for the rest of 2014 in addition to reporting top line data for the HAL and the oral tablet trials we continue to work through CMC requirements for the I.V. CR845 ahead of requesting our end of Phase 2 meeting with the FDA in the second half of this year. This will allow synthesis of Phase 3 drug product and initiation of registration trials for CR845 in acute pain early in 2015 and maintain our timeline for NDA submission in 2016.

We remain in a very strong financial position from our IPO in February that raised $56.2 million in net proceeds for the company and we're certainly well capitalized to continue executing on the clinical development plan for 845 as we move forward here.

So with that I am going to turn it over to Joe to take you through the financial details related to this quarter. Joe?

Josef Schoell

Thank you, Derek. We reported a net loss available to common stockholders of $3.6 million or $0.16 per basic and diluted share, for the second quarter of 2014, compared to net income available to stockholders of $1.5 million or $0.34 per basic share, and $5.3 million, or $0.33 per diluted share for the same period last year. The weighted average number of shares used in the share calculations increased to 22.6 million shares, basic and diluted, from 4.3 million shares, basic and 16.0 million shares, diluted for the respective periods due to common shares sold by the company's IPO and the automatic conversion of convertible preferred shares into common shares in connection with the IPO during the first quarter of 2014.

License fee revenue was $0.3 million for the second quarter of 2014 relating to achievement of the Maruishi milestone in June 2014, compared to $9.6 million of the upfront payment received from the execution of the license agreement with Maruishi in April 2013. Of the remaining $0.2 million of the milestone earned during the second quarter of 2014, $0.1 million was recognized as collaborative revenue and $0.1 million was deferred.

Collaborative revenue was $0.7 million for the second quarter of 2014 compared to $0.3 million in the same period of 2013. And the collaborative revenue for the second quarter of ‘14 and 2013 included $526,000 and $306,000, respectively of revenue that had been deferred upon entry into the license agreement with Maruishi and $132,000 and $30,000, respectively from the sale of clinical compound.

R&D expenses were $3.2 million in the second quarter of 2014, compared to $2.0 million in the same period last year. The higher R&D expenses in the second quarter of 2014 were principally due to direct preclinical studies and clinical trial costs and consulting services in support of the preclinical studies and clinical trials. The increase in clinical trial costs resulted from the CR845 drug manufacturing costs, Phase 1 Oral CR845 trial and tablet formulation cost, and the Phase 2 I.V. CR845 hemodialysis/uremic pruritus trial preparation costs.

General and Administrative costs were $1.5 million in the second quarter of 2014, compared to $1.0 million in the same period last year. The increase in the second quarter of 2014 was primarily due to increases in stock option expense, insurance costs, payroll and related costs, public/investor relation costs, professional fees including director fees and accounting and auditing fees, partially offset by a decrease in consultant costs, primarily related to the success fee associated with obtaining the Maruishi license agreement in 2013.

Interest income, net was $56,000 of interest income in the second quarter of 2014, compared to a $1.6 million of interest expense in the second quarter of 2013. The decrease in interest expense was primarily due to the outstanding convertible promissory notes during 2013, which had generated interest expense.

At June 30, 2014, our cash and cash equivalents totaled $62.8 million, compared to $67.0 million at March 31, 2014 and $12.4 million at December 31, 2013.

Now let me turn it back over to the operator to start the Q&A session. Thank you all.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question comes on Alan Carr from Needham. Your line is open.

Alan Carr – Needham & Company

Hi. Thanks for taking my questions. I was wondering actually if you could comment a bit more about the abuse liability trial, before you all had talked about I think three different doses of 845 versus morphine and obviously as you mentioned earlier you have got a change in the comparator on there. So can you tell us about, I guess the pluses and minuses of using that one instead of morphine and is there any opportunity for maybe getting this drug not being scheduled? Thanks.

Derek Chalmers

Hi, Alan, thanks. Thanks for dialing in. I don't think there is any minuses to the guidance we got from the FDA and as you know we've waited for this for a reasonable amount of time now and I have to say I was quite surprised that they actually thought fairly well about us in terms of coming back with proposed changes for the protocol. So you are right we initially proposed we were going to compare three doses of our drug that would be a therapeutic dose, and we based on the [inaudible] data, a super therapeutic dose which is generally guided as three times the therapeutic, and then a sub therapeutic dose.

The guidance from the agency was for this particular molecule of course which is unlikely to have a U-shape curve, we've never seen -- it’s not CNS active, then a therapeutic dose and super therapeutic doses is [survasion] and we would agree with that. The comparator issue is the most important by far. So we previously assumed we would compare the drug to a standard narcotic opioid morphine which is currently used in the hospital setting and of course is schedule 2.

Morphine of course is almost pure opioid, smaller affinities of other opioid which occurs. The agency has recognized that our drug obviously doesn't have any new activity as a pure kappa and they have also recognized that based on the evidence we have so far I hope both pre-clinically and clinically that we have very little evidence of CNS responsiveness with drug. So we’ve endeavored to find a comparator that has kappa agonist activity as-well-as new activity and if you like less abuse liability in relation to the pharmacology and Pentazocine really checks all the boxes in that regard. Pentazocine does have some new activity, has been recorded as euphorigenic in standard abuse liability trials and is scheduled at level 4.

So we think that's a better comparison for us because it sets the baseline for the molecule at schedule 4 level as opposed to schedule 2. And if we see success in this trial and that success would be a molecule which not produce a drug liking response that was comparable to pentazocine then that would be an argument that the drug should be scheduled at a lower scheduling level than pentazocine that really on at least schedule 5 or non-schedule in that regard.

So in other words it's a shorter distance to non-scheduled from a level 4 and as from a level 2, so that's why we see this guidance is really -- is really win in relation to this trial.

Alan Carr – Needham & Company

Okay. One other one. Turning for next steps for Maruishi or actually what are the next steps and in time now that they have wrapped up Phase 1?

Derek Chalmers

Yeah. Japanese PMDA being the regulatory authority as it likes to see safety data also within the patient population for study. So their next phase is going to be Phase 1 in dialysis patients followed by POC study actually Phase 2 study in a larger population in the Japanese population. So I can't give you a specific timeline for that Alan, I don't know that exactly at this point but we anticipate that would be in the reasonable near future and of course that engenders another milestone to Cara as they move into Phase 1 in dialysis patients.

Alan Carr – Needham & Company

Okay. Great. Thanks very much.

Derek Chalmers

Thank you.

Operator

Thank you. Our next question comes from Annabel Samimy from Stifel. Your line is open.

Unidentified Analyst

Hi, Derek this is [Ching Li] on for Annabel. A few questions for you. I note the end of Phase 2 with the FDA is coming up. Is that the only rate limiting step before Phase 3 initiation?

Derek Chalmers

It is in terms of and it's an important one in terms of being able to initiate the Phase 3 trial. We simply have to get as you know drug product approved by the agency that's suitable for registration trial. So at this point we've a couple of ongoing CMC requirements prior to synthesis for that Phase 3 material. And both of which we really need for the end of Phase 2 CMC meeting.

And most important of those is the manufacturing process risk assessment study that's required to your standard practice and as you know that requires looking at every variable on every stage of the synthesis. And we have that ongoing and it looks like the timeline for that would be, we should complete that somewhere in Q4.

Unidentified Analyst

Okay.

Derek Chalmers

And so obviously we need that prior to submission and then once we have an agreement from the agency in relation to that and the spec analysis from two independent batches then we can synthesis drug product. The second crucial item that's ongoing is we have a tech transfer underway from our drug product manufacturer which is to this point use the UK base and we're moving that into central Europe. So that requires a little bit of time again that looks like that's going to complete in Q4 also. So we need both of those pieces complete and finalized and then we need agreement with the agency and that allows us to actually synthesis drug product.

Unidentified Analyst

Okay. A question about uremic pruritus. I note that in the past you talked about how it could go into broad label. Are you thinking about also -- are you also thinking about it in terms of oral form versus I.V only?

Derek Chalmers

Yes, to both of these actually. We're really using the I.V. Formulation for ease of use at this point simply because we were further along with I.V. We had already established safety in the dialysis population with our I.V. Formulation, so it's easier to file that IND and move in to POC work with the I.V. Formulation. But we do see this as an indicator of the possibility and potential of using 845 as a general anti-pruritic agent simply because we know if you like kappa's action in relation to anti-pruritic responses is based on its on its localization on the C fibers that initially mediates the itch response.

So there is good evidence already out there from older previous kappa agonists and clinically indicating that there are anti-pruritic against a number of clinical situations and a number of different drug types. So we see no reason why 845 shouldn't have the same pharmacological response. So yeah we think and indeed we filed the IND in this regard there is potential to move 845 particularly in the oral form forward into other clinical conditions associated with chronic pruritus.

Unidentified Analyst

And let me just ask you this final question about the abuse profile. I mean it looks promising but in terms of the pentazocine being a competitor is it in some ways much more difficult because it's schedule 4, do you see any issues coming up because of that?

Derek Chalmers

Yeah, actually that's a great question. And when we look at the data already published in relation to pentazocine I am sure you could find this fairly readily in terms of abuseability. The response to that particular molecule obviously the appropriate dose is not too far off the euphorigenic response you would see from a standard oxycodone type response. So that's one answer to the question and it's certainly as euphorigenic.

The other answer of course which I think is what you are most concerned with is do we have a narrow window in to which to see the signal and the answer to that is the protocol for this type of study always involves a drug discrimination test for the actual measurement. So we established that we're recruiting subjects who can discriminate a euphoric response with the particular active comparator. And so we're fairly confident with that piece of the protocol in place that we will be using subjects who are sensitive to pentazocine related euphoria.

Unidentified Analyst

Okay. And I just want to confirm this. You guys are on track with proof-of-concept for your oral acute pain table, right?

Derek Chalmers

Yes. We've already in terms of the Phase 1 trial we've already actually completed the singular dose, singular ascendant dose cohorts and we're very shortly about to move into multiple ascending dose.

Unidentified Analyst

Yeah. Okay.

Derek Chalmers

And we will have all that data hopefully to report to you somewhere into our next call.

Unidentified Analyst

Yeah. Well that's all the questions I have. Thank you.

Derek Chalmers

Great. Thanks for dialing in.

Operator

Thank you. (Operator Instructions). And our next question comes from Chiara Russo from Janney Montgomery Scott. Your line is open.

Chiara Russo - Janney Montgomery Scott

Great. Thanks for taking my call. These are just some quick house-keeping questions. Can we assume that level for R&D and G&A very approximately seeing going through to the second half of the year?

Josef Schoell

I think we're going to see some increases as far as R&D is concerned, G&A would probably stay about the same.

Chiara Russo - Janney Montgomery Scott

Okay. And your run rate is good how far do you sort of envisage your cash use at this point?

Josef Schoell

Right now we're looking certainly good through 18 months from now. And that's excluding any milestone payments that we do foresee getting but without that we still have runrate to take us 18.

Chiara Russo - Janney Montgomery Scott

Okay. That's was actually I think all I had. Everybody else has kind of answered -- asked my questions.

Josef Schoell

Okay. Thanks for calling in.

Chiara Russo - Janney Montgomery Scott

Okay. No problem.

Operator

Thank you. And I am showing no further questions at this time. I will now turn the call over to Dr. Derek Chalmers for closing remarks.

Derek Chalmers

So thank you everybody for calling in especially on a warm August day and we look forward to reporting our progress again on a cold November day some point in the future. So take care everybody. Thank you.

Josef Schoell

Thank you very much.

Operator

Ladies and gentlemen this concludes today's conference call. Thank you once again for your participation. You may now disconnect. Everyone have a great day.

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