Cara Therapeutics Q1 2023 Earnings Call Transcript

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May 15, 2023

There are 11 speakers on the call.

Operator

Good afternoon. My name is Latif, and I will be your conference facilitator. I would like to welcome everyone to the Cara Therapeutics First Quarter Financial Results and Update Conference Call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

Star and the number 11 again. Please be advised that this call is being recorded. I would now like to introduce Matt Murphy, Cara's Manager of Investor Relations. Mr. Murphy, you may begin your call.

Speaker 1

Thank you, operator, and good afternoon. After market close today, Cara issued a news release announcing the company's financial and operating results for the Q1 of 2023. Copies of this news release and the associated SEC filing can be found in the Investors section of our website atwww.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.

Speaker 1

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 ks for the year ended December 31, 2022, and any subsequent reports filed with the SEC, including its Form 10 Q for the quarter ended March 31, 2023. With that said, I'd like to turn the call over to Chris Posner, Cara's Chief Executive Officer. Chris?

Speaker 2

Thanks, Matt. Good afternoon, everyone, and thank you for joining our call. With me today are Ryan Maynard, our Chief Financial Officer and Doctor. Joanna Consalves, our Chief I'd like to start by giving a quick overview of what I'll address today. For the update on the KORSUVA Injection launch in the U.

Speaker 2

S, I will provide additional metrics that we are tracking to give better insight into the progress of demand and uptake. These will help to give some clarity and show the opportunity within the different customers and segments of the market. I will also review the launch progress in countries around the world. In addition, I will highlight our robust clinical stage pipeline and the advancement of our high value development programs for oral diphila keflin. I am pleased with the progress to date And can confirm that we continue to track to our previously communicated timelines.

Speaker 2

After that, Ryan will provide you with a financial update, and then we will open up the call to Q and A. I will begin with the launch of KORSUVA Injection in the U. S. For the Q1 of 2023, net sales for KORSUVA were $5,700,000 translating into $2,800,000 Profit recorded as revenue to us. Wholesaler shipments to dialysis clinics more than doubled quarter over quarter and raised 46,000 vials.

Speaker 2

64% of these vials were shipped to Fresenius or FMC clinics with the remainder split between DaVita and the other dialysis organizations. This increase in vial shipments suggests a meaningful acceleration in demand. Anecdotal feedback on KORSUVA from both providers and patients continues to be highly positive, supporting this expansion in breadth and depth in its utilization. At FMC, orders more than tripled quarter to quarter reaching 30,000 vials. By the end of the Q1, 500 FMC clinics or 18% had placed reorders, up from 7% of clinics at the end of Q4.

Speaker 2

More importantly, 1500 clinics or 56% of FMC clinics had dosed at least 1 patient, up from 29% of clinics at the end of Q4. Total patient demand remains difficult to assess without specific information about the levels of inventory remaining at individual clinics. However, we continue to see significant growth in the number of FMC clinics exhausting their Q3 2022 bolus inventory and expect that the majority of the FMC clinics We'll be in a reorder mode in the second half of this year. At DaVita, demand growth continues to be steady. At the end of Q1, 300 clinics or 11% of DaVita clinics had ordered KORSUVA, that's up from 7% of clinics at the end of Q4.

Speaker 2

Reorder rates among these clinics remain very encouraging With 70% 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 continues to perform well. At the end of the Q1, 13% of these clinics had placed orders And that's up from 11% at the end of Q4. In addition, 66% of these clinics have placed repeat orders.

Speaker 2

Now the strongest performance to date amongst this group has been at USRC and that's the largest of the midsized DOs. Roughly 66% of clinics have ordered KORSUVA and 72% of these clinics have placed repeat orders. Stepping back and looking at the big picture, KORSUVA's overall market penetration leaves significant room for growth with a vast majority of the market still untapped. To get there, CSL v4 continues to make progress building the market, navigating the idiosyncrasies of each segment across the entire deal landscape. This is reflected in key trends this quarter.

Speaker 2

Clinic orders doubled quarter to quarter. Almost 60% of FMC clinics are dosing a patient and each segment is seeing an increase in clinics ordering the product. We remain confident and our partner CSL v4 remains fully dedicated to capturing the latent upside in this market and maximizing the commercial potential of KORSUVA in the long term. Additionally, we are working in close collaboration with the kidney community to help CMS understand the need for a durable and appropriate reimbursement mechanism for TDAPA designated products post their TDAPA period. We remain confident that additional funding will be made available for TDAPA designated products and we remain hopeful that a substantive and positive update will be released during this year's rulemaking cycle.

Speaker 2

Next on the international front, the rollout of COPUVIA in Europe continues to gain momentum. In the Q1, COPUVIA generated $1,200,000 in net sales translated into $125,000 of royalty revenues to us. Rollout has begun in 4 additional countries, France, Finland, the Netherlands and Switzerland, bringing the total number of launch countries to 7. The initial feedback from patients and providers has been very encouraging and in line with the patient testimonials we have received in the U. S.

Speaker 2

We continue to expect the additional countries in Europe and other countries around the world to come online throughout the next 12 to 18 months once reimbursement is secured. Also a decision from the UK National Institute For Health and Care Excellence or NICE is expected imminently. In Japan, we continue to expect a regulatory decision in the second half of twenty twenty three. As a reminder, Approval in Japan would trigger a $2,000,000 milestone payment to Cara. Last but certainly not least, I'd like to briefly discuss our promising wholly owned oral pipeline.

Speaker 2

Fundamentally Cara is a development company and we are committed to building our nephrology and medical dermatology franchises with oral diphylacapolene. These efforts will drive us to our goal of being a differentiated company as the world leader in treating chronic pruritus in the long run. Enrollment in our Phase 3 programs in pruritus associated with advanced chronic kidney disease and in atopic dermatitis is progressing as expected. We anticipate the internal readout of Part A of our KIND-one AD trial in the Q4 of this year with final top line results from this program in the first half twenty twenty five. We also continue to expect top line results for our KICK advanced chronic kidney disease program in the second half of twenty twenty four.

Speaker 2

Startup activities for our Phase twothree program in Notalja paresthetica kicked off in the Q1 of this year and they are progressing well. The MP program is tracking to the internal readout of COURAGE-one Part A in the second half of twenty twenty four and final top line results for the program in the first half of twenty twenty six. To summarize, We are continuing to work closely with CSLV4 to accelerate the uptake of KORSUVA and we remain confident that these efforts will drive near Growth. Additionally, we remain optimistic regarding CMS' future decision on the post ADAPA funding mechanism and hope to see an update during this year's rulemaking cycle. Underscored by the highly positive feedback we are hearing From patients and providers around the world, we continue to believe in the long term success of KORSUVA Injection.

Speaker 2

More importantly, We see tremendous value creation for Cara with our 3 late stage programs with oral diphala catholin. We are fully committed to advancing these programs as rapidly as possible in order to maximize the potential of diphala Capelin within our 2 therapeutic franchises. We look forward to providing you with updates on our progress throughout this year. Now I'd like to turn the call over to Ryan for additional details on our Q1 financial results. Over to you, Ryan.

Speaker 3

Thank you, Chris. Total revenue was $6,200,000 for the 3 months ended March 31, 2023 compared $4,800,000 for the same period in 2022. Revenue this quarter consisted of $2,800,000 of collaborative revenue related to our profit from CSLV4's net sales of KORSUVA Injection to 3rd parties and $3,200,000 of commercial supply revenue. We also recognized $125,000 of royalty revenue this quarter, representing our royalties from the net sales of COPUVIA in the Q1 of 2023. Cost of goods sold during the 3 months ended March 31, 2023 was $2,600,000 and relates to our commercial supply shipments of KORSUVA Injection to CSLV4.

Speaker 3

Research and development expenses were $24,300,000 for the 3 months ended March 31, 2023 compared to $21,300,000 in the same period of 2022. The increase in R and D expenses is primarily due to the increased clinical spend related to our 3 late stage clinical programs. General and administrative expenses were $6,900,000 for the 3 months ended March 31, 2023, compared to $9,400,000 in the same period of 2022. The reduction in G and A expense was due to a decrease in stock based compensation in the Q1 of 2023 as compared to the same period in 2022. Stock based compensation in 2022 included costs related to the modification of Certain Equity Awards to our former CEO.

Speaker 3

Cash, cash equivalents and marketable securities At March 31, 2023, totaled $123,400,000 compared to 156.7 at December 31, 2022. The decrease in the balance primarily resulted from cash used in our operating activities. 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 the second half of twenty twenty four. This guidance assumes all the spend related to our 3 late stage clinical development programs and KORSUVA revenue profit share contribution. Finally, I'd like to highlight for everyone that we are exploring certain non diluted financing opportunities to extend our runway further.

Speaker 3

I will now turn the call back over to Chris.

Speaker 2

Thanks, Ryan. I want to reiterate that we are laser focused on making the KORSUVA Injection launch a success. And additionally, we remain confident in the massive potential of our pipeline behind oral diphala keflin. We have full confidence that our long term strategy will help us achieve our goal of becoming the world leader in the treatment of chronic pruritus and ultimately delivering significant value to our shareholders. With that, Ryan, Joe and I will be happy to take your questions.

Speaker 2

So Latif, let's open up the line for Q and

Operator

Our first question comes from the line of Joseph Stringer of Needham and Company. Please go ahead, Joseph.

Speaker 4

Hi. Thanks for taking my questions. Just 2 for Mazz. Do you have any visibility into the inventory in the clinics? Was that something that's still opaque?

Speaker 4

And would you ever gain visibility into this? And then secondly is on The inventory levels at the wholesalers, can you remind us again what that is just in terms of The inventory levels at wholesalers and do you expect that to remain relatively constant as the launch progresses here. Thank you.

Speaker 2

Hey, Joey, nice hearing you. Let me tackle both of those. So the First is around inventory at the Fresenius level. One of the things that we wanted to really focus on this quarter, and we and CSL, You knew we needed to provide additional metrics or key performance indicators to give more clarity on uptake demand and really opportunity in the market. And we felt it was particularly important with FMC and how its clinics were working through its existing inventory.

Speaker 2

So the metrics that we're providing around A penetration rate, that's what I mentioned, roughly 1500 clinics are actually dosing a patient at Fresenius. And that's the best insight we have to how product is being utilized at a clinic level. We don't have specific into how much inventory is still remaining, but that gives you a good sense of how many clinics are using the product and then you couple that with The second critical metric and that's reorder rates. And here what's important there is that that shows many clinics that have dosed a patient now are becoming recurring customers and for Fresenius that metric is particularly important because they've exhausted their inventory and that metric It's actually 500 clinics, and that's up from roughly 200 clinics in the end of Q4. So we're really encouraged about the drawdown in inventory.

Speaker 2

And I think the punch line there is that we believe by midyear, The majority of FMC clinics will have exhausted their inventory and really be in that reorder mode. And to your second question, Joey, around inventory at the wholesaler level, it's pretty standard. I don't know the specific contract between CSL and their wholesalers, but it's not really that atypical versus other traditional markets. So it could be a couple of weeks.

Speaker 4

Great. Thanks for taking our questions.

Operator

Thank you. Please hold for our next question. Our next question comes from the line of Annabel Samimy of Stifel. Your question please Annabel.

Speaker 5

Hi guys. Thanks for taking my questions and for progress. I just want to drill down on your comment that you're considering efforts To accelerate uptake, do you have any specific tools that you're working with to be able to do that with Fresenius V4? Yes, that's the first question and a follow-up with some others.

Speaker 2

Yes, Annabel, I mean, CSL v4 is doing a really nice job of really working the entire top down, bottom up stakeholder base. So they have a series of tactics that they've from peer to peer programs to direct to patient initiatives. And I'd also mention at Fresenius, right? I mean the Fresenius sales force is actually engaged as well and they've deployed their sales force to activate the clinics And really drive utilization. And the punch line there is that we're seeing increases in the number of clinics You're actually starting patients on therapy and that's now 1500 and that's up quite significantly versus Q4 And we're seeing a number of those clinics at Fresenius draw down that inventory and starting to kind of get in that reorder mode.

Speaker 2

So the things that CSLV4 is doing is really starting to pay dividends as they're building this market.

Speaker 5

Okay, got it. And if, I'm not sure if you see this level of details, but when a clinic starts Using, they get Fresenius start getting someone on board and they start using it. Are you noticing any pattern once they start? Are they pretty Vicky, those are the ones that start reordering it or is it still a little bit touch and go there?

Speaker 2

Well, we see across the board, Annabel, That there's really strong buy in once these clinics start using the product. And I say that There's 2 metrics I look at anecdotally we hear from the sales force and we hear actually from provider testimonials as well as patient testimonials that The product is really performing nicely, but the key metric that we look at is around reorders. And the majority of clinics that start Reorder the product on a continual basis and it becomes a growth annuity, if you will. And that's really what we're seeing in the data and that's why we're encouraged.

Speaker 5

Okay, great. So, yes, that's actually helpful. And I'm going to throw a question out there to Joe, Just you don't want to leave out the development program. So, on oral dislocateflin, so NP or Natalya Therapeutics has not been an indication with a tremendous amount of development. So what are your expectations for how rapid enrollment could be here, essentially as the first treatment with no real competing programs.

Speaker 6

Thanks, Annabel. I think we're very confident about The program, certainly the New England Journal was very helpful for us. And as we're in the operational phase and Having looking at sites to come on is many sites are very interested in participating, which Compared to our Phase 2 study where it was really starting to kick this program off, it was not As well sort of received as it is now. So I think that's very helpful, for sure. And as we've said before, dermatologists are The physicians who see these patients, so we remain encouraged and very confident about the timelines that we have put out

Speaker 5

Okay. And are these patients pretty concentrated among certain physicians or kind of scattered?

Speaker 6

Not that we've seen to date. So of course, this is a program that will be a little bit Bigger than our Phase 2 study. So we are having more sites on board and just to try and meet those timelines as well. So we're not concentrating in any particular area, but going quite, quite broadly.

Speaker 5

Okay, great. Thank you so much.

Operator

Thank you. Our next question comes from the line of David Amsellem of Piper Sandler. Your question please, David.

Speaker 7

Thanks. So wanted to drill down on more on your comments on DaVita. And I think, Chris, in the past you've said that DaVita tends to have a slower process in terms of activating accounts. So I'm just wondering if you could comment qualitatively What you're seeing out of DaVita? Are you surprised that the number of clinics that have ordered is at 11%?

Speaker 7

And What is your partner doing to try to jump start that? That's number 1. And then secondly, can you just comment if you can on pricing across Europe and Rest of World and relative to what we have in the United States. Thank you.

Speaker 2

Yes. Hey, David. Let me tackle the last one. That's a briefer conversation. So in Europe, We have a public price in Germany that I may have mentioned in the Q4 print, hopefully I did.

Speaker 2

And that price is €50 per vial. So by and large, it's about a third of the price of the vial in the U. S, which is a $150 list price. So it gives you a sense and that's what I could speak to publicly around Germany. And each country obviously will work with their national bodies to secure a price and reimbursement as they come online.

Speaker 2

Your first question around DaVita, yes, I have alluded to before, I mean, they have a different way they adopt new products. They tend to take a more phased approach where they try to gain real world experience in a more concentrated area of the country And then they roll it out nationally. It's available nationally now and you are starting to see a pickup in the number of clinics dosing of patients. I would say this, David, DaVita is a priority for us and our commercial partner. From my experience, it's really not that unusual for 2 different customers to do things a little Definitely.

Speaker 2

And certainly DaVita and Fresenius are doing things a little differently. DaVita doesn't have the luxury of an internal sales force. And one thing that we see with DaVita that's different than Fresenius is the ability to access the clinics. And that is a critical factor in driving utilization and educating renal nurses, Educating the lab techs, educating dietitians and social workers are a critical piece of the puzzle. And DaVita, you mentioned what's our partner doing?

Speaker 2

Well, they're doing a series of things. They have to be a bit more creative. And there's some lasting effects from the pandemic given these access restrictions. So we've learned a lot around engaging via digital means, Engaging at conferences and that's exactly what CSL v4 is doing. I think the significant point Here is that, yes, they're a little behind Fresenius clearly, but we are seeing month to month pickups in the number of new clinics ordering.

Speaker 2

And I always come back to this, David, that one of the most important things that is really encouraging to us and our partner is that Once a clinic starts to utilize the product, given the patient testimonials and provider testimonials, that really generates significant reorders. And over 70% of DaVita clinics that are ordering continue to reorder. So it's a really nice growth annuity.

Speaker 7

Okay. That's helpful. Thank you.

Speaker 2

You got it.

Operator

Thank you. Our next question comes from the line of Jason Gerberry of Bank of America Securities. Your question please, Jason.

Speaker 8

Hi. This is Chi on for Jason. Thanks for taking our questions. I guess first one on IV KORSUVA. You've gave some metrics, 64% of the order came from Fresenius, the rest have been there in other clinics.

Speaker 8

Obviously, trying to compare to the past 2 quarters. You might have given some metrics around it. Pardon me if I missed that earlier. And regarding How we should think about the timing on when sales will converge with underlying demand? I think you talked about that inventory Expect that to be drawn down by mid year, but what's your latest thoughts on when sales will converge with the underlying demand?

Speaker 8

And maybe like second one on Oral Korshuka. Can you walk us through the scenario with the internal readout? What are the outcome for the internal readout that we can expect with the AD trial in Q4. Thanks.

Speaker 2

Sure, Chi. Let me unpack that. Let me first speak to the evolution of demand orders. That was the first part of your question. Yes, we did mention this quarter 46,000 vials were ordered from the dialysis clinics and roughly 65% or 64% were driven by Fresenius ordered by Fresenius and you asked how that compares over the last two quarters.

Speaker 2

Given kind of what Fresenius did in Q3, Chi, as you're aware, They did a significant stocking order. So the primary Driver of the Q3, I think there was 184,000 vials that was pretty much all Fresenius about 180,000 of that was to Fresenius. And then in Q4, they're obviously starting to utilize that product. So of the 21,000 vials used in Q4, I would say Probably about 40%, 45% was Fresenius and the rest was split between DaVita and the midsize and independent D. O.

Speaker 2

So our expectation moving forward is it would be probably more akin to what we're seeing in Q4, where Fresenius will be the key driver at least in 2023 in terms of vials order of demand. Your second question around the normalization of demand and sales. Yes, we mentioned that by mid year, we would expect the majority of FMC clinics to have kind of drawn down, utilize their inventory and what I say be in reorder mode. So I would say probably as we get into the second half of the year, you'll start See sales and demand sort of converge. And then the last part of your question, let me give that to Joe around the oral.

Speaker 6

Hi, Chi. Thanks for the question. So, as a reminder, Part A is what we are currently enrolling And we have 280 patients that we will be enrolling in this Part A. And just as a reminder, this is an appropriate number of patients That will give us the information to continue into Part B or kind 2. And so what we'll be specifically looking at Is looking at the dose as well as the sample size and we will look at all the data that we will take.

Speaker 6

So specifically looking at efficacy and safety to be able to select the most favorable dose that demonstrates the best benefit risk profile, and we will be able to assess the sample size. So that's what we will be specifically focusing on and sharing for Part A.

Speaker 8

If I can clarify, is there a go or no go decision baked in there or is this just basically determining the dose selection that samples are heading into Part B?

Speaker 6

Well, we are looking, yes, exactly for the dose and the sample size, but we will be reviewing the data and assessing What the outcome of the data demonstrates and assessing whether to move forward or not, of course.

Speaker 8

Yes. Okay, great. Thank

Speaker 9

you. Thanks, Jay.

Operator

Thank you.

Speaker 10

Our next question comes from the line

Operator

of Sumant Kulkarni of Canaccord Genuity. Your question please, Samant.

Speaker 9

Good afternoon. Thanks for taking my question and I'll follow the details on some of the current market dynamics. Do you expect your partner to hit steady state operating margins on this product before TDAPA ends? And how important would that be for That happens so you could start realizing substantial collaboration revenues.

Speaker 2

Sumant, maybe you could Clarify, you're asking me it was a little muffled my friend. So, you're asking me to comment on the

Speaker 9

So not specifically any quantitative, but How important would it be for the product to hit a steady state operating margin before TDAPA ends, I guess, is the question?

Speaker 3

I don't Ryan. Maybe are you focused on utilization? Utilization is

Speaker 9

Not really. I mean like for example, if the product is in launch mode for a longer time than otherwise thought, Wouldn't that impact the rate of collaboration revenue that you recognize and that flows on to your bottom line? That's why I was asking.

Speaker 2

I got it. Yes. So he's asking about the profit split, Ryan. Maybe you can Oh, I see. It's agnostic to that.

Speaker 3

Yes. I think the guidance that I've given on How the profit split works, which is we get roughly 46% of every dollar and the mix between Fresenius and DaVita, More Fresenius, more DaVita fluctuates that percentage by maybe 1 or 2 points. So it's really not material. So it's going to be pretty steady from that point of view. Yes.

Speaker 2

And Sumon, I just comment like on the marketing expense line on their controllable expenses from a CSLV for that, that doesn't necessarily impact that profit split.

Speaker 3

Yes, it's pretty fixed, Sumant.

Speaker 9

Great, great. Now I was talking with absolute dollars more than profits, but thanks.

Operator

Thank you. At this time, I'd like to turn the call back to Christopher Posner for closing remarks. Sir?

Speaker 2

Thanks, Latif. Yes, I just want to take a minute just to wrap things up. I said in my comments, If you look at the key performance indicators of the business, specifically with KORSUVA Injection, we're encouraged. I mean, CSL v4 continues to make progress building this market. It's really reflected in the key trends this quarter.

Speaker 2

Clinic orders doubled, 60% of the FMC clinics are dosing a patient and each segment is really seeing increases in clinic orders. So it is encouraging And we're getting very positive feedback from both patient and physicians on the product and that's really translating into very strong reorder rates. Again, very positive in terms of where we are. We continue to make really good progress and Joe mentioned a little of that in our pipeline to our stated commitments. So net net, we look really forward to continuing to update you on the progress of the KORSUVA launch and our pipeline as we progress.

Speaker 2

So with that, I'll end the call.

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