Clinical-Stage Biotech Stock Might Outperform Amgen

Stock3

Is it fair to compare a company like Amgen, with a market cap of almost $130 billion, to a small biotech like Cara Therapeutics which has a market cap slightly over $420 million? Keith Speights, writing for The Motley Fool, thinks so. Why? As a benchmark. Since its initial public offering (IPO) in 1983, Amgen’s stock has grown 52,350 percent, with a total return including reinvested dividends exceeding 60,000 percent. Speights argues that Cara potentially could be a better value. Let’s look.

Headquartered in Stamford, Connecticut, Cara Therapeutics focuses on developing drugs for pain, inflammation and pruritus. On Jan. 31, Cara initiated its Phase III trial of Korsuva (CR845/difelikefalin) in hemodialysis patients suffering from moderate-to-severe chronic kidney disease-associated pruritus (CKD-aP) in the U.S. The U.S. Food and Drug Administration (FDA) had already granted it Breakthrough Therapy Designation. There are no approved therapies for the indication.

The company doesn’t have any products on the market yet, so any revenue it has comes from licensing and partnership collaborations. The company is awaiting a readout from a Phase III trial of CR845 for post-operative pain in the first half of this year, in addition to the CKD-aP trial.

Speights writes, “What’s important to know about CR845 is that it’s a different kind of opioid than those used currently for relieving pain. Morphine, hydrocodone, and other commonly used painkillers target mu opioid receptors and enter the brain. CR845 is a kappa opioid receptor. It doesn’t easily penetrate the blood-brain barrier, and therefore doesn’t produce many of the side effects associated with mu opioids, including the potential for addiction, respiratory depression, nausea, and vomiting.”

Cara stock is currently trading for $12.01. If Speights is right, a few years down the road, a share in the company could be worth around $720,600. Quite an increase.

Amgen, on the other hand, is moving from fast growth to the more reliable steadiness of a blue-chip stock. Speights writes, “Amgen reported a year-over-year revenue decline and flat earnings growth in the fourth quarter of 2017. Sales for the biotech’s top drug Enbrel fell 13 percent from the prior-year period. Sales for the company’s No. 2 moneymaker Neulasta were stagnant. Newer drugs are key to Amgen’s future success. But so far, cholesterol drug Repatha hasn’t achieved its potential. However, Amgen won FDA approval to update the product label for the drug to include data indicating Repatha’s potential to prevent heart attack and stroke. This label change could help spur sales growth in 2018 and beyond.”

Amgen is also hoping that the FDA in April will approve label updates for its Kyprolis for multiple myeloma. And in May, it hopes the FDA will approve Aimovig for migraine. That could be a blockbuster, but Novartis has rights to the drug outside the U.S., Canada and Japan.

Wall Street has given Amgen a one-year price target based on an 8 percent improvement above its current share price. Earnings are expected to grow less than 4 percent yearly over the next five years.


Compare that to Cara. Speights writes, “The average Wall Street analyst’s one-year price target reflects a whopping 87 percent increase over Cara’s current share price. Cara isn’t profitable yet—and likely won’t be for several years, so earnings growth is a moot point for the small biotech right now.”

Biotech being what it is, both stocks could crash and burn if the expected FDA approvals fail to materialize, although Amgen would be a far better stock bet in that scenario than Cara. If upcoming drugs don’t pan out for Amgen, it still has strong revenue and a strong pipeline. If Cara’s drugs fail, the company could collapse. But in terms of high-growth potential, Speights prefers Cara Therapeutics.

Back to news