Good afternoon and welcome to Cara Therapeutics Fourth Quarter and Full Year 2019 Financial Results Conference Call. All participants are in a listen-only 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 Cara Team. Please proceed.

Good afternoon. This is Jack Hildick-Smith with Stern Investor Relations, and welcome to Cara Therapeutics fourth quarter and full year 2019 financial results and update conference call. The news release became available just after 4:00 PM 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 Investors 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 data readouts from the company's ongoing clinical trials, the potential results of ongoing clinical trials, timing of future regulatory and development milestones for the company's product candidates including the company's projected time line for the submission of its first NDA, the potential for the company's product candidates to be alternative in the therapeutic areas investigated and the company's expected cash reach. 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 most recent Annual Report on Form 10-K and its other documents subsequently filed with or furnished to the Securities and Exchange Commission. All forward-looking statements made in 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. Participating on this call are Dr. Derek Chalmers, Cara’s President and CEO; and Mr. Rick Makara, VP and Head of Accounting. I'll now turn the call over to Dr. Chalmers.

Thank you, Jack. Good afternoon, everybody and thanks for joining us on the call today. 2019 was certainly a very significant and productive year for Cara as we advance the late-stage clinical development of our lead candidate KORSUVA across a range of pruritic clinical populations. In May of last year, we announced positive topline results from our KALM-1 pivotal Phase 3 trial of KORSUVA injection in hemodialysis patients with moderate to severe chronic kidney disease associated pruritus or CKD-aP. The full results from this trial were published in the New England Journal of Medicine in November of last year. In December of last year, we identified the appropriate tablet strength of oral KORSUVA to bring forward into a Phase 3 registrational program in non-hemodialysis patients with CKD associated pruritus following positive topline results from our dose ranging Phase 2 trial in this patient population. We also expanded our oral KORSUVA clinical development program into two new pruritic indications with high unmet need atopic dermatitis and chronic liver disease associated pruritus. And we initiated both of those Phase 2 trials in the middle of 2019. Lastly, we made important corporate advances in 2019 we strengthened our financial position with a public follow-on offering of approximately $136 million. We also entered into a commercial license agreement with Enteris BioPharma for oral formulation rights to its Peptelligence Technology to develop and commercialize oral KORSUVA in any indication. Building on this momentum from 2019 we expect multiple major clinical data readouts and regulatory advancements in 2020. And on the call, I'll provide an update on each of our programs and what we expect for the rest of this year. Before we dive into those programs as a quick reminder on KORSUVA's broad anti-pruritic mechanism of action, which is in contrast to other modalities that…

Thanks, Derek. As a reminder, the full financial results for the fourth quarter and full year 2019 can be found in our press release issued today after the market closed. For the year ended December 31, 2019, we reported a net loss of $106.4 million or $2.49 per basic and diluted share compared to a net loss of $74 million or $2.06 per basic and diluted share for 2018. For the fourth quarter of 2019, we reported a net loss of $28.6 million or $0.61 per basic and diluted share compared to a net loss of $20.7 million or $0.52 per basic and diluted share for the same quarter of 2018. Revenues for the year ended December 31, 2019 were $19.9 million compared to $13.5 million in 2018. Revenues in 2019 and 2018 were primarily related to our license agreement with Vifor Fresenius. Revenues in 2019 and 2018 also included $140,000 and $33,000 respectively from the sale of clinical compound to Maruishi. In the fourth quarter of 2019, we recognized revenue of $4.5 million related to the Vifor Fresenius collaboration agreement compared to $5.5 million during the same quarter in 2018. Research and development expenses were $113.8 million for the year ended December 31, 2019 compared to $75.5 million in 2018. The higher R&D expense in 2019 were principally due to net increases in clinical trial costs, increases in stock compensation expense, payroll and related costs as well as expense in connection with the Enteris license agreement in 2019. For the fourth quarter, we reported R&D expense of $29.9 million compared to $22.8 million in the same period of 2018. The higher R&D expenses in 2019 were principally due to a net increase in cost associated with clinical trials as well as increases in payroll and related costs. G&A expenses…

Thank you. [Operator Instructions] Our first question comes from the line of Chris Howerton with Jefferies. Your line is open.

Excellent. Thanks for taking the questions. And of course, congratulations on quite a year last year. So for me Derek, I think just a couple of questions, primarily related to the pipeline. So the CKD, oral CKD program and the results are what they are. What do you hope to get in terms of alignment with the FDA? And have you kind of thought any more about, what the ultimate primary endpoint, you think would be either received by the investment and clinician community that will get the best reaction?

Okay, Chris thanks. I thought you were going to have an additional question. Was that one question, one long question? Or do you have -- was that.

That was one long question. I like to hear myself talk, as you know.

Yeah. Yeah. It's -- I like those mellifluous tones, as well. So, on the CKD oral, as you know we were pleased with that data. We had our primary endpoint. It was a study designed to identify the optimal dose strengths to take forward. And we did so. And in terms of endpoint definition, as you know, we spent a long time on this, in terms of our hemodialysis patient analysis, essentially end-stage CKD. And when we looked at that actually in consultation with the FDA, as we discuss the designation of breakthrough for KORSUVA, we actually empirically took our data. And looked at clinical meaningfulness, in terms of reduction in itch NRS score for that patient class. And that number as you know is a little less than 3-points. And we were nice enough with our FDA plans went that up to 3-points. And that certainly is a clinically meaningful reduction for CKD patient with NRS scores. So, that would be our proposal, as a primary endpoint going forward, with the CKD oral study. Now we also, as you know, have a range of secondary endpoints. We're interested in there. And we would look at, most likely, higher threshold responder analysis there perhaps in the other ways in fleet. But as far as we have determined, again, empirically and part of our consultation with the FDA a 3-point responder, analysis does -- is the threshold for clinical meaningfulness there.

Sure. And so then, outside of perhaps, the primary endpoint are there other -- and I'm not -- I guess, I'm putting words in your mouth. But what -- what would you like to gain alignment with on the FDA, during that meeting? Or what are the things that you think, need to be worked out?

You've had the nail on the head right, Chris. We won agreement on our registration endpoint. And our proposal based again, on our analysis for CKD patients would be a 3-point responder.

Yeah.

And we would most likely look at, 4-point beyond that as well as our usual quality of life measures. And that's the main goal, ….

Okay.

…at least, in the clinical portion of our end of Phase II, meeting with the FDA.

Got it, okay. And is there -- the other topic of discussion with respect to the oral CKD program has been perhaps higher-than-expected, placebo response. Have you given any additional thought in terms of how you expect to control that, in further trials?

Yes, we have. You'll not be surprised to hear Chris, we have thought about that. More than one occasion, we've thought about that sure. So -- but let me say, outright. The aim of this Phase II trial of course is to be able to obtain, empirical data and the patient population we want to examine in Phase III. And actually based on our proposed endpoint use that data to power the Phase III appropriately, even to overcome which we think, based on our past experience in this patient population is an unusual anomalous placebo response. So that's the first thing to say. We have the data now that we can power that trial appropriately. And even if we are off the mark, in our proposed measures to reduce that placebo response, we still have an appropriately powered trial. And as you know, we're very fond of running, interim analysis to make sure we're on track in our larger trials. So that is our overall approach. So that's how we're going to solve this if you like to view it as a problem. But again, we have thought about this in terms of other elements, we could adopt into that Phase III that should help, the placebo response we believe. And we've mentioned this, before we do believe, there certainly was a potential for some expectation bias, in these patients. A lot of the sites we use, the clinical sites we used in our oral KORSUVA trial were sales that had previously participated, in KORSUVA injection trials for hemodialysis patients. So there was experience with the drug albeit in a different formulation, in the end stage if you like for that particular patient population. But certainly, that could have been a possibility. And the solution there is, somewhat obvious we're going to use de novo sites that haven't had the previous experience with the drug. So that's one thing we can easily adopt. We're also looking at the possibility of using a longer run in period. It's possible that these earlier stage CKD patients perhaps they have more labile pruritus that may wax and wane a little more than end-stage patients and so to identify the more consistent predications we can incorporate a longer run in period, which is easily incorporated. And then finally, by nature of the very design of the Phase 3 looking at one optimum dose versus placebo on one-to-one randomization that alone should reduce the placebo response from the designed 3:1 randomization we used in that Phase 2 trial. So certainly we're going to have that as part of our design. So those are all easy elements we can change that should help the placebo. Again ultimately we now have the data to power that trial and we'll make sure we do so. And then we'll confirm that we've maintained the power we desire there with interim analysis when we do run that trial.

Right. So I think my phone cut out there for a minute, but that will make sense to me. And I guess just one maybe quick question would be what was the rationale for increasing the size of the atopic dermatitis trial?

Yeah. Again that was based on maintaining a high level of power to see a statistical difference. And when we started that trial, we really didn't have any oral KORSUVA data with pruritus endpoints. And of course as we've just discussed we know -- and we did at the end of last year achieve the primary endpoint for oral KORSUVA in CKD-aP patients. And with that data in hand, we could model based on some assumptions related to placebo rates, a powering analysis. And based on that, we decided it made sense to increase the sample size just to make sure we have the appropriate power. And again with the increased sample size, we also incorporated an interim conditional power analysis just to make sure that we were on track again. So that's really two new adaptations for AD. And that trial is recruiting very well and we do expect to complete the interim analysis next quarter.

Okay. Well, I have some more questions, but I’ll hop back in the queue to give other people a chance. I appreciate it. Thank you.

Thank you, Chris.

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

Thanks. So, Derek you may have addressed this, but I wanted to just drill down in more detail. Can you talk about the Phase 3 for oral KORSUVA and CKD in the context of backgrounds medications? And what are your thoughts on which background medications could be part of the inclusion criteria, and which would be excluded? And what did you learn from the Phase 2 study regarding the use of background medications? That's number one. And then number two is just a bigger picture question to the extent that you do have positive data in atopic dermatitis. That's obviously a different call point, a different physician vertical if you will. And is that something that you would plow ahead with in a Phase 3 on your own? Or is that something that you'd look to partner? And I guess the broader question is beyond CKD, what would you look to commercialize on your own? And what would you look to partner? Thanks.

Great. Thanks, David. So, on the first question we have looked -- I think we've mentioned this before we did look at the background meds in our Phase II trial for the pre-dialysis CKD patients. And there was some difference there between those patients and what we'd seen in hemodialysis patients. So a higher percentage of patients using centrally acting drugs such as gabapentin or pregablin. That doesn't seem to have heavily skewed our data however. But going forward, we're optimized that if we can eliminate these variables relatively easily and it doesn't interfere with recruitment than we would. Most likely we may leave patients with their antihistamines, which is a relatively small percentage in that patient population because that tends to help them sleep. But it's most likely we try to eliminate as much as possible in the Phase 3 design. So that's what we would do there. In terms of atopic derm, yeah, that's a different co point and it's a large population, of course, also ultimately from a commercial standpoint. I think we are perfectly capable of running a late-stage trial in atopic derm. As you know, we spent some time recruiting experienced development personnel into the company, so that we can handle that beyond the registration level trial. It's true that that would require some effort commercially and it's most likely at that point we'd look to partner that particular indication with a larger partner. But running late-stage trials is basically what we're designed to do here, as you know David, and I think we could easily accommodate a late-stage trial and atopic derm.

Okay. And I would imagine Derek the logic would apply to the liver disease setting as well as you run the late-stage study, but may explore a partnership there?

Yes. Yes. And just to reiterate and I think you and I have had this discussion I think on this call previously. Our strategy here in terms of ultimate label for the oral formulation of KORSUVA is of course a broad one, and the strategy, we're following is there are if you like various pathophysiologies that lead to pruritus. And they have definitive and separate if you like pathophysiologies. And we're looking to see activity in these different patient populations as evidence if you like ultimately. That this is a mechanism and we talked about the mechanism earlier that should have broad applicability. And so it's unlikely we'd run registration programs in every patient population, we're looking at here. We will be selective on the first patient populations we take forward. But ultimately all of this data is going to be useful when we have that discussion related to getting a broader label for moderate to severe pruritus.

Okay. That's great. Thank you.

Thanks, David.

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

Hi. Thanks for taking my questions. And I like your use of the word, mellifluous. I hope I can live up to those expectations. So, just going back to the placebo gate for a minute. Can you tell us, I guess, hopefully at this point you've consulted with a number of physicians or consultants. Do you still feel that the AD population is less variable and that it's -- you're not going to see as much of a placebo response in that population? Second, when you upsize the trial did you assume the placebo assumptions of the CKD population? Or when you brought it to 320 and then did you have a set amount to upsize it to if necessary beyond -- at your interim analysis? Or is it just something that's calculated by the IDSMV or IDSM, ID, whatever…

IDMC, yes.

…right, IDMC at that moment based on their specific calculations. So that's my first long-winded question. I have a couple more.

Yeah. No, that's a great question. And so in AD population in terms of looking at placebo, there's a lot of data out there. As you know from a lot of different drug classes looking at particularly disease alterations in terms of endpoint, but also looking at pruritus. And so there's a lot of available information. So when we look at that and relate that and look at the normal placebo rates we see and then we looked at the variability we had within our CKD-aP oral trial. Those were really the two factors we thought about in terms of looking at what would be the sample size to maintain a high statistical power to see a specific treatment effect. And that's how we modeled it. So it was modeled based on if you like historical placebo rates that had been seen in the atopic population as well as the treatment effects we've seen with oral and to a certain extent the variability we'd seen in there. So that was the idea of paying emphasize to accommodate the possibility of an increased placebo response essentially. And again, you're right what was introduced in the interim conditional power assessment we can actually if you like confirm those assumptions when we have 50% of our patients complete. And, again, you're correct, based on the IDMC recommendation, we can then alter that sample size to make sure we're going to maintain our conservative power level to see a statistical difference. We're also interested in this particular trial and not only looking at mean NRS change. We're also going to be looking at responder analysis with that. So that was really the whole rationale. We had kind of historical data versus, if you like, in conjunction with data we generated with oral KORSUVA. That was the basis of upsizing that sample size there for atopic.

Okay. And if I understand correctly, you are now powered sufficiently to see statistical significance on the secondary endpoint for atopic dermatitis.

Well, I wouldn't say, we are not -- well we're -- that's our aim is to maintain sufficient power to see a response on that secondary endpoint as well. And again, that will have some advice on that from the IDMC, as you point out, when we have the analysis of 50% of the patients completing the treatment period.

Okay. And then just curious about the PBC trial. You didn't upsize that one. So are you treating that one differently? Is there something different about that trial?

Well, again, I think we've discussed this before and that we truly see as a proof-of-concept trial for liver disease. As you know, PBC is an orphan indication that’s quite difficult to recruit in the patient population where, in fact, expanding beyond the U.S. and to the U.K. at this point, to gather more patients for that. So there we want to make sure we can get enough patients to see a signal, but that's a much more challenging populations. And that gets back to the discussion I had with David, we hope to see data there that's going to be supportive ultimately of getting a broader label for oral KORSUVA in pruritus.

Okay. All right. Great. Thank you.

Thanks, Annabel.

Thank you. Your next question comes from the line of Jason Gerberry with Bank of America. Your line is open.

Hi. Good afternoon, good evening, everyone. This is Chi on for Jason. I guess, first question is, piggyback to your earlier question about alignment with FDA end of Phase II meeting for the oral CKD. Just curious, Derek. Given there are several hundred, if not thousand patients have exposed to the IV formulation of CKD. Curious on thoughts on whether there could be potential additional conversation with the FDA on the alignment or whether that could be a smaller trial to be run for Phase III, or maybe a smaller safety database, given you already have wealthy amount of safety database from the IV dose already? And then, I have a follow-up after that. Thank you.

Yes. Thanks, Chi. Yes, I think, we've also discussed that possibility previously here and that has been in our thought for oral CKD. We do have, as you point out, several thousand patient exposures with IV KORSUVA in CKD, if you like, end-stage patients. Actually, at a higher exposure level than that we obtained with our oral tablet formulation. So we do think it's a reasonable case that we should be able to reference those safety exposures as part of our Phase III program for oral CKD and pre-dialysis patients. Of course, ultimately that's a decision for the FDA, but I think it's reasonable that we could propose that as a path forward there. And perhaps, as an upside, as you indicate and that may result in a reduced number of registration trials for that particular program. Again, we can't guarantee that. It's certainly something we thought about and something we'll investigate when we have our FDA interactions.

Got it. And maybe, if I can clarify on the expanding the trial sites for other trial numbers for the -- I'm sorry, the subject size for AD. When you said you are modeling based on the historical AD response rates, based on available data and also the effect that you see in your own CKD trial. Are you taking into account the placebo response on the CKD or not? I wasn't sure about that. So I just want to confirm whether that is a factor on whether the -- factor into the trial size increase. Thank you.

Yes. Thanks, Chi. We're looking at the treatment effect we achieved with CKD oral, but predominantly we're looking at historical placebo rates in the atopic population and we realize these are completely different patient populations and it's much more likely that AD patients have had their condition for much, much longer than early stage CKD. So we do expect different placebo response rates from AD than we see in CKD, but with the benefit of the treatment effect, we've seen with oral that's something we can incorporate into those models. And that again in combination with what we expect in the AD population was the basis for increasing the sample size there.

Got it. And maybe if I can ask a quick follow-up, if you can provide any incremental color or guidance on how we should think about burn this year versus last year? Thank you.

Yes. Well, as Rick pointed out overall, we do expect our cash position to carry us through this year and into the second half of 2021 and that's obviously executing on all the programs, we've been discussing. The quarterly burn as you know we don't guide from quarter-to-quarter, it's going to be a lumpy through this year. And Rick, do you want to add anything to that?

Yeah. No, I mean I think with the higher level of trial activity, it would be expected that it will be higher in 2020 than it was in 2019.

As we complete our Phase 3 trials Chi and then file the NDA in the second half of the year.

Thank you so much.

Thanks, Chi.

Thank you. Our next question comes from the line of Charles Duncan with Cantor Fitzgerald. Your line is open.

Hi. This is Pete Stavropoulos on for Charles. Congratulations on 2019. So for the Oral KORSUVA, atopic dermatitis study, are you including or excluding any patients on a particular medication or refractory to any particular medication including dupilumab?

Well, hi, Pete. Yes we are. We're watching patients that have all their medications. So they're going to come clean into that trial no medications.

Okay. And for the KALM-2 study, when you increase the sample size in order to maintain statistical significance or I mean not powering. Is there any particular geography that you grab the new patients from? Or was it dispersed among all the centers?

Well, when we increase the sample it is about approximately 20% increase in sample size there. Most of those patients in fact almost all of those patients came from U.S. sites, the additional 20%. And all the vast majority of patients in KALM-2 are indeed from U.S. clinical sites.

Okay. And how many of the clinical sites actually overlap between the first study and the second study?

Virtually none, so those were separate in KALM-2 than from KALM-1.

All right. Thank you and again congratulations on the quarter.

Great. Thanks, Pete.

Thank you. Our next question comes from the line of Alan Carr with Needman & Compnay. Your line is open.

Hi. This is Joe on for Alan. Thanks for taking our question. A quick one on the AD coming results Phase 2. Maybe you can help us frame expectations potentially around maybe response rates or improvements in NRS. You mentioned, there's a number of oral and even some injectable data out there. But in terms of Phase 2 comparison what would be one or two in your view as best comparators?

Yeah. Thanks, Joe. I mean, it's hard to come up with a comparator, because as you know we are really the only company that is investigating this modality. There's not a lot of prior data using this approach other than with non-selective, if you like medications that are being used there. So there is a standard the FDA likes for derm conditions and that's a 4-point responder analysis and that's what we're looking at as our main secondary analysis here. Again, the reason we have used mean NRS as a primary and have done so consistently in all our Phase 2s that continuous variable is much more sensitive to identify an appropriate dose. And as you know, it's a dose-ranging trial, but we will be looking at the 4-point responder analysis. And again that was one of the reasons that we adjusted sample size in that trial.

Great. Thanks.

Thanks, Joe.

Thank you. Our next question comes from the line of Arlinda Lee with Canaccord. Your line is open.

Hi guys. It's Ben Shim on for Arlinda. Many of my questions have been answered. And I'd just like to maybe ask one thing. As we get closer to data and then to ultimately filing for the pruritus. Maybe could you provide us a little bit more detail on the cadence and magnitude of upcoming milestones that you may potentially earn from by for this year? And will they be accounted for in any special way or are they going to be just straight revenue? Thanks.

Great. Thanks, Ben. In terms of milestones with the four specifically, I think we've guided before and the total amount there and dated that in terms of regulatory and commercial. So, there is $30 million in regulatory milestones that will be coming to us via that particular arrangement. We haven't actually guided as to particular quarter. We expect to see these Ben. But that's the level of milestones that is part of that license agreement. Beyond that, there's another $430 million in commercial milestones through sales out west the U.S. But as we go forward and we file the NDA and we have more visibility on the time line for launch and approval, then we will guide us to when we expect those milestones. But again to reiterate and Rick said all the guidance we've given in terms of financial and runway here is excluding any projected milestones from Vifor Fresenius R&D, Maruishi or CKD Pharma.

Okay, great. Well, congrats on another great year and keep up the good work. Good luck to you.

Great. Thanks, Ben.

Thank you. Our next question comes from the line of Esther Hong with Janney. Your line is open.

Hi. I've got two questions. So, the first one regarding the interim statistical analysis next quarter for atopic dermatitis, what's the range lower and upper end of the increase in sample size if it's required? And then I've got a follow-up.

Hi, Esther. Thanks for that. So, we haven't actually divested publicly at the upper range of what we would increase the sample size. One thing I can say is that, we're going to look at that on a curve. We'll have an ability for the IDMC to guide us to a specific patient number. And also that will be directed towards if you like the most active dose that we see. Again, this is a dose-ranging trial. So, that's what we're most interested in. But we haven't actually got it as to what the upper limit of that would be at this point.

Okay. And then my follow-up is so as we get closer to KALM-2 data potentially launched. Can you remind us of your launch strategy, any additional details on how Vifor Fresenius plans to rollout KORSUVA? Will you initially focus on Fresenius clinics together leave that to Fresenius, any details? Thanks.

Yes. Unfortunately, I can't give you much detail on that. That's confidential at this point Esther. We are of course working with Vifor Fresenius to coordinate that. We have undertaken a whole range of activities and preparation for launch pre-commercial activities really across the company. We've established and we are expanding an MSL team here at Cara. We're working to broaden our KOL universe increase awareness of CKD associated pruritus. We've established regional national advisory boards. We're sponsoring strategic education opportunities including CME symposia at the appropriate meetings. And we're trying real hard to increase our KORSUVA publication footprint and that you're going to see that throughout this year. And then of course, on our commercial side, we will be hiring some senior level people in sales and marketing in market access later in 2020. So, there is an integrated cross-functional plan in place to accommodate a launch and we're also coordinating as you indicate with Vifor Fresenius specifically in relation to our co-promotion arrangement here in the U.S.

Okay. Thank you.

Thanks, Esther.

Thank you. Ladies and gentlemen, that concludes our Q&A session. I would now like to turn the call over to Derek Chalmers for closing remarks.

Yes, thank you everybody for participating on the call today. I'd also like to thank our hard-working Cara team, our study investigators and all the patients who continue to participate in our clinical trials. And we're very much looking forward to updating you real soon and throughout the year. So, thank you very much. Have a great night.

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