Cara Therapeutics, Inc.

Good afternoon. My name is Lateef, and I will be your conference facilitator. I would like to welcome everyone to the CARA Therapeutics third quarter financial results and update conference call. All lines have been placed on mute to avoid any background noise. After the speaker remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star and the numbers one one on your telephone keypad. To remove your name from the queue, simply press star and the numbers 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.

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 third quarter of 2023. Copies of this news release and the associated SEC filing can be found in the investor 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 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 September 30th, 2023. That said, I'd like to turn the call over to Chris Posner, CARIS Chief Executive Officer. Chris?

Thanks, Matt. Good afternoon, everyone, and thank you for joining our call. With me today are Ryan Maynard, our Chief Financial Officer, Dr. Joanna Consalves, our Chief Medical Officer, and Scott Terillion, our General Counsel and Head of Government Affairs. Our strategy at Kera Therapeutics is to change the treatment of chronic pruritus with our innovative and differentiated asset, difelocephalin. Our highest priority is to execute on our three unique late-stage programs in dermatology and nephrology, which drive the greatest potential long-term value for our company. And we are excited to have multiple fully-funded value inflection milestones within these programs over the next 12 months. Today, I will provide an update on the funding of our wholly-owned oral diphthalocephalic pipeline. Next, I will discuss the progress in our three late-stage programs, including expectations for Part A of our KIND1 atopic dermatitis study, which is scheduled to read out in December of this year. Finally, I will address the performance of course of injection in the U.S., and discuss the recently released 2024 ESRD rule. After that, Ryan will provide a financial update, and we will subsequently open up the call to Q&A. With that, let me start with our recent announcement regarding the monetization of our ex-U.S. royalties for Corsuba Injection and Capruvia. On November 1st, we entered into a royalty interest purchase and sale agreement with Healthcare Royalty. Under the terms of the agreement, CARA received an initial payment of $17.5 million less certain expenses. We will receive an additional payment of $20 million upon Capruvia receiving a certain minimum price in Germany, which is expected to occur this quarter. In addition, CARA will receive a $2.5 million milestone payment based upon achieving certain 2024 performance levels of Corsuva in Japan. In exchange, healthcare royalty will receive all royalties due to CARA from Corsuva injection and Capruvia XUS license agreements with CSLV4 and Meriwishi. The aggregate royalty payments to healthcare royalty are capped at two times the payment to CARA if received before the end of 2029. Otherwise, the payments are capped at 2.8 times, after which CARA will resume receiving all royalties from both CSLV4 and Marawishi. The arrangement with healthcare royalty specifically excludes course of injection in the U.S. and all of CARA's oral diphyllocephalic internal development programs. Non-dilutive financing is an important part of our strategy to drive the continued development of our very promising pipeline, which has always been key to building sustainable, long-term value for CARA. Closing this non-dilutive transaction extends our cash runway into 2025. This helps us reach critical catalysts and milestones that we believe will display the potential of our difelicathlon pipeline and start to display the underappreciated value in CARA. Next, let me discuss the progress of our multiple late stage pipeline programs. First, our phase three kind one trial in pruritus associated with atopic dermatitis is approaching a key near-term milestone. We now plan to release top line efficacy and safety data for part A, the dose finding portion of this trial in mid-December in order to increase the visibility into this trial. Recall, chronic pruritus is the most common and most burdensome symptom of atopic dermatitis, affecting almost 100% of the approximately 12 million adult patients in the US. In recent years, there has been significant investments and innovation in the treatment of moderate to severe AD, resulting in the development and approval of new biologics and JAK inhibitors. Despite these developments, a large segment of the AD market remains underserved. We are targeting roughly one-quarter of the total AD market. These are mild to moderate AD patients with moderate to severe itch, also referred to as itch-dominant AD. Numerically, that's about 3 million addressable itch-dominant patients in the U.S., who are primarily managed with topical corticosteroids. While TCS may treat skin lesions, they often fail to effectively address the burdensome chronic itch that severely impacts these patients' quality of life. So there is a significant void in the treatment continuum and a need for an oral therapy with a favorable safety and tolerability profile to effectively treat the debilitating itch in these patients. Our KIND program is tailored to specifically address this unmet need for a targeted oral antipyretic treatment for mild to moderate AD patients who are very itchy. No company to date has focused on this market segment and enriched its trials with this patient phenotype. Today, we can confirm that 80% of the patients enrolled in Part A of Kind 1 have a baseline body surface area of less than 10% and a mean itch score of greater than seven, meaning most patients in the trial have mild to moderate skin lesions with severe itch. As you will recall, this is also the subgroup of patients that showed the best clinical benefit with oral difelocephalin in our CARE phase two monotherapy trial. In contrast to our phase two trial, our phase three KIND program is designed to mimic likely future real world utilization in patients. Difelocephalin is used on top of mid potent TCS and compared to TCS alone, an active comparator. With this higher clinical hurdle and four treatment arms, Part A of Kind 1 is not powered for statistical significance. We've enrolled 287 patients with the intent to select the most favorable dosage strength and determine the sample size for the confirmatory part of the Phase III program. The Kind 1 Part A readout is a significant catalyst and mirrors the future of this program. We believe that Part A will be a good proxy for the likely outcomes of the confirmatory KIND 1 Part B and KIND 2 studies. The patient enrollment criteria, study conduct, and endpoints in the confirmatory studies are expected to be the same as for KIND 1 Part A. In addition, the study sites from Part A will participate in Part B along with some new added sites. We are excited to share the results of KIND 1 Part A with you in the near future. Now turning to our other two late-stage programs that also target sizable patient populations with a lack of treatment options. Enrollment in our phase three KIK1 and 2 trials in pruritus associated with advanced chronic kidney disease is progressing well, and we continue to expect top-line results in the second half of 2024. The approval of Corsuva injection validated this mechanism laying the foundation for our nephrology franchise. We see a natural extension of difelocephalin into earlier stage patients with the oral formulation. There are roughly 300,000 predialysis advanced stage CKD patients who suffer from moderate to severe pruritus in the U.S. alone. Importantly, these patients do not fall under the capitated reimbursement system that covers dialysis patients. Hence, we see a significant commercial opportunity in this underserved patient population. Our Phase 2-3 COURAGE-1 trial in Notalgia Parasetica is tracking to its first data readout of Part A in the second half of 2024. With no approved therapies and an addressable population of at least 650,000 patients in the U.S. who are under the care of a provider, most often a dermatologist, we believe oral difalocephalin has the potential to unlock a sizable new market in dermatology. Now let me turn to the performance of Corsuva injection in the U.S. For the third quarter of 2023, net sales for Corsuva were $4.4 million, translating into $1.9 million of profit recorded as revenue to CARA. Wholesaler shipments to dialysis clinics totaled 91,000 vials, a 36% increase from the prior quarter. 68% of these vials were shipped to Fresenius clinics, and the remainder split between DaVita and the other dialysis organizations. At Fresenius, orders grew by more than 37% quarter to quarter, reaching 62,000 vials. By the end of the third quarter, over 1,000 Fresenius clinics or 37% had placed reorders, that's up from 27% at the end of the second quarter. Additionally, 1,478 clinics, or 55%, had dosed at least one patient at the end of the third quarter. Importantly, following the ESRD prospective payment system rule, for CENIUS, decided to reallocate remaining inventory that was shipped in the third quarter of 2022 within its network of clinics. As a result, we expect shipments from CSL V4 to wholesalers to be small in the fourth quarter of this year and the first quarter of 2024, translating into minimal revenues accrued to CARA in these quarters. At DaVita, We continue to observe steady growth in demand. Orders grew by 20% quarter to quarter to 13,000 vials. Over 500 clinics, or 19%, had ordered Corsuva at the end of the third quarter. That's up from 15% at the end of the second quarter. Reorder rates remain strong, with 76% of clinics placing repeat orders. As a reminder, since there is minimal inventory held at the VITA clinics, We believe the growth in clinic orders represents a good proxy for the growth in patient demand. At midsize and independent dialysis organizations, Corsuva utilization continued its momentum. Orders grew by 47% quarter to quarter to over 16,000 vials. At the end of the third quarter, 18% of clinics in this market segment had placed orders. That's up from 17% at the end of the second quarter. In addition, 77% of these clinics placed repeat orders, up from 68% at the end of the second quarter. U.S. Renal Care remains the largest buyer of Corsuva in the MDO-IDO segments. Approximately 80% of USRC clinics had ordered Corsuva by the end of the third quarter, and 83% of these clinics had placed repeat orders. Our expectations for Corsuva injection are now greatly reduced, but we remain confident in the mechanism of action and benefit of Corsuva. The provider and patient feedback for Corsuva remains highly positive, and its good clinical performance has continued to fuel growth and vile demand. But its use will not likely reflect the existing clinical need. The significant challenges in the uptake of Corsuva even with its Tdapa designation, stem from the unique capitated dialysis reimbursement system in the U.S., which really does not foster innovation. On October 27th, CMS published the end-stage renal disease prospective payment system final rule for the calendar year 2024. We are disappointed that CMS rejected our request to extend the Tdapa period for Kursuva. Furthermore, CMS maintained the proposed methodology for calculating the add-on adjustment, which in our view is flawed and results in a significant shortfall in funding for Corsuva and other innovative drugs with Tdapa designation in the future. As a result, we now believe that Corsuva's commercial potential will be meaningfully lower than we previously expected. However, Kara fundamentally is a development company, and our greatest source of value is our wholly-owned oral diflukephalin pipeline. We remain laser-focused on maintaining a strong balance sheet and driving progress in our three late-stage programs to deliver value catalysts ahead. I would now like to turn it over to Ryan for additional details on our third quarter financial results. Over to you, Ryan.