Good afternoon. My name is Shannon, and I will be your conference facilitator. I would like to welcome everyone to the Cara Therapeutics Third Quarter 2022 Financial Results and Update Conference Call. [Operator Instructions]. 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. Just after market close today, Cara issued a news release announcing the company's results for the third quarter of 2022. Copies of this news release and SEC filings can be found in the Investors section of our website at www.caratherapeutics.com. Before we begin, I would like to 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 they are subject to various risks and uncertainties. Actual results may differ materially due to various factors, and Cara is under no duty to update these statements publicly. Investors should read the risk factors set forth in Cara's 10-K for the year ended December 31, 2021, and the 10-Q for the quarter ended September 30, 2022, and any subsequent reports filed with the SEC. With that said, I'd like to turn the call over to Chris Posner, Cara's Chief Executive Officer. Chris?

Thanks, Matt, and good afternoon, everyone. The third quarter was about traction for Cara, where strong execution on our strategy has started to propel us on the road to accelerated growth for years to come. We believe our goal to become the world leader in pruritus has a unique long-term value proposition. Our clear focus is to provide potential solutions to this underserved condition affecting millions across many disease areas. As we gain strategic momentum, this focus is a differentiating factor. The third quarter showed that the pieces are in place for near-term and long-term success of our strategy. Demand for KORSUVA injection is accelerating, as we anticipated. We are quickly expanding internationally with the launch of KORSUVA and Kapruvia in countries around the world. And our rapidly advancing oral difelikefalin pipeline presents the opportunity to build sizable franchises in nephrology and dermatology. We are pleased with the launch progress for KORSUVA injection in the third quarter. Net sales for KORSUVA injection were $16.2 million. Cara's profit-sharing revenue was $7.4 million. And demand jumped a hundredfold to over 180,000 vials shipped from wholesalers to clinics. Product demand is the key to KORSUVA's injections momentum and how it builds towards a successful franchise. The significant quarter-to-quarter acceleration in demand is a result of continued strong execution from the CSL Vifor and Fresenius field forces. It also reflects the underlying strong value proposition of KORSUVA injection for the appropriate dialysis patients. As we outlined last quarter, large dialysis organizations are the key drivers of long-term sustainable demand. And in the third quarter, most of the demand acceleration did come from the LDOs, primarily from Fresenius. For some extra color, almost all Fresenius Medical Care clinics placed an order by the end of the quarter, and we are closely monitoring reorder rates to…

Thank you, Chris. I'm happy to be a part of this amazing team at this very exciting time in Cara's growth story. Now onto the Q3 results. As a reminder, the full financial results for the third quarter of 2022 can be found in our press release issued today after the market closed. Total revenue was $10.8 million for the 3 months ended September 30, 2022, compared to $20.3 million for the same period in 2021. Revenue this quarter consisted of $7.4 million of collaboration revenue related to the profit sharing revenue from CSL Vifor sale of KORSUVA injection to third parties and $3.4 million of commercial supply revenue. Revenue of $20.3 million in the comparable period of 2021 related to certain milestone payments associated with the regulatory approval of KORSUVA injection. Cost of goods sold during the 3 months ended September 30, 2022, was $3.1 million and relates to our commercial supply shipments in the quarter to CSL Vifor. R&D expenses were $24.7 million for the 3 months ended September 30, 2022, compared to $15.5 million in the same period of 2021. The increase in R&D expenses is due to the combination of the increased clinical trial spend related to our 2 Phase III clinical programs and the recognition of a $5 million milestone payment due to Enteris. G&A expenses were $6.9 million for the 3 months ended September 30, 2022, compared to $5.9 million in the same period of 2021. The higher G&A expenses for the 3 months ended September 30, 2022, were primarily due to increased headcount-related costs as we look to build out the key function to support Cara's growth. Cash, cash equivalents and marketable securities at September 30, 2022, totaled $179.5 million, compared to $236.8 million at December 31, 2021. The decrease in balance primarily resulted from $57.3 million of cash used in operating activities. Finally, 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 first half of 2024. This runway guidance now assumes a KORSUVA revenue profit share contribution going forward consistent with the levels we have reported for this quarter. I'd like to point out that this is not our forecast for forward-looking KORSUVA revenue, but rather a conservative runway outlook. I will now turn the call back over to Chris.

Thanks, Ryan. And with that, Ryan, Jo and I will be happy to take your questions. Shannon, you can now open up the call for questions.

[Operator Instructions]. Our first question comes from the line of Sumant Kulkarni with Canaccord Genuity.

I have a couple. The first one is a clarification on the 184,000 or so vials that were sold in the -- or shipped in the third quarter. Is that a U.S.-only number? If it's worldwide, what would the U.S.-only fraction be? And my second question is on atopic dermatitis. When you get the internal readout for KIND 1 Part A in the second half of 2023, what do you expect to communicate to the Street on that?

Sumant, it's Chris. On your first question, the 184,000 vials is U.S. only. So that's shipments from the wholesalers to the dialysis clinics in the U.S. On the second question on AD, let me turn that to Jo.

Sumant, yes, so for atopic dermatitis, 2 things we'll be sharing: one will be the sample size, and the second will be the dose selected going into Part B and the second pivotal study.

Our next question comes from the line of Joseph Stringer with Needham & Company.

Two from us. One, on sort of margins here. It looks like the 3Q '22 margins came in very similar to what the 2Q margins were. Just curious if you think this was, again, in line with expectations? And do you expect this to continue going forward? And then the second question is on the addition of the Fresenius sales force. Were all of those -- the impact of that was -- is that -- were all those -- that sales force added in 3Q? Or are there some additional impact from that coming online in the fourth quarter and beyond?

Joe, it's Chris. Let me answer the last question, and then I'll turn it to Ryan. He can talk about the margins real quick. On your last question, the Fresenius renal sales force really came online in the beginning of the third quarter, so this is reflective of -- the numbers I mentioned are reflective of the Fresenius sales force in the third quarter. And then on margins, Ryan, do you want to...

Yes. So this is Ryan. You're right, and the margins are very consistent this quarter from last, and I would expect that, that would continue going forward.

Our next question comes from the line of Daniel Wolle with JPMorgan.

Just a clarifying question. How much of the $7.4 million revenue is driven by the 184,000 vials represent an increase in demand versus stocking? Given prior remarks that the 4Q demand should represent the biggest change from what was observed in 2Q in net user demand, and looking at the reported numbers today, how should we think about fourth quarter revenue? And then last is, should we expect full year guidance to be provided for 2023?

Daniel, it's Chris. Let me give question one and three to Ryan. Three is the guidance, Ryan.

Yes. So Daniel, thanks for your question. This is Ryan. So it's important to note that, that $7.4 million of revenue is shipments from Vifor to wholesalers. So that is not the 180,000 that you're talking about, which is wholesalers to clinics. So that's the important first piece. As far as full year guidance for revenue for KORSUVA, we're not yet at the stage. We're at the early innings, we're in the second quarter. We're reporting on the second quarter of launch, and we're not going to give full year KORSUVA revenue guidance. But we did, as you see, give guidance on our runway, which I thought was important to come off of the very conservative guidance we gave in Q2, which is to include 0 KORSUVA revenue. So I thought that was going to be prudent and helpful. And I'll turn it back to Chris for the second question.

Yes, Daniel, I said in the quarterly -- the 2Q quarterly call, my focus -- our focus is really on demand, on demand generation, that's true kind of in any launch I've ever been a part of. That's going to be the focus in 4Q. We're really pleased with the acceleration in Q3 in demand that primarily came from Fresenius, as I mentioned. But also, we saw a good acceleration in the MDOs, IDOs, and again, a gradual pickup in DaVita. So in the fourth quarter, our eyes are going to be on demand as well. And we're going to look closely see how the product is getting pulled through at Fresenius and continued uptake at DaVita. And I would fully expect this acceleration to continue.

Our next question comes from the line of Jason Gerberry with Bank of America.

This is Chi on for Jason. First one on the gross to net. I'm curious if you could comment on gross to net on IV KORSUVA, trying to get -- trying to make sense of the 184,000 vials shipped from wholesalers to dialysis centers. I understand that, that's not where the sales are recognized, but am I roughly right if I think about this price per vial, if you account for gross to net, is it around $20 million shift? Am I roughly in the ballpark? If you can comment on that, that would be helpful. The second question is on your penetration in the DaVita centers. I appreciate all the colors that you provided. You have a lot of orders from -- you've orders from -- primarily Fresenius order, almost all of them or almost all the centers they order in 3Q. So if you can give a little flavor on sort of your penetration in DaVita, what proportion of these centers ordered IV KORSUVA in 3Q? And with -- how do you see that -- what will be the main driver to get additional IV KORSUVA in DaVita dialysis centers, that would be helpful.

Yes, certainly, Chi. Let me pass on the gross to net to Ryan, and I'll come back and address the DaVita.

Chi, it's Ryan here again. So I understand it takes a little bit of clarification. So the gross to net that we report, and is all that we will report, is shipments from Vifor to wholesalers. And so we're not going to get into the gross to net related to the 180,000 vials that were shipped to the dialysis organizations. So the math that you are attempting to do you can't do based on what we've reported. So I hope that's helpful.

Yes. And Chi, on DaVita, I mentioned in my prepared remarks that we have seen a major acceleration in customer ramp-up, and that was primarily in the Fresenius clinics, but also we saw a strong acceleration across the other providers, including DaVita. Specific to DaVita, they tend to adopt new products and bring in new products and protocols more gradually. But we expect that ramp-up to continually gain steam, and we've seen an increase in the number of DaVita clinics ordering and, as I mentioned, fully expect this to continue. I'd also point out that KORSUVA is on formulary at DaVita, and they do have protocols in place. And I'd also point out the CSL Vifor, even though they have a very unique and special relationship with Fresenius, they also have a very strong relationship with DaVita, selling them their portfolio of dialysis products. And they even mentioned on their call, CSL Vifor's call, they actually just signed a recent deal on erythropoietin for treatment of anemia with DaVita. So net-net, we're really confident that DaVita is going to continue to gradually adopt this product and bring it in for their patients.

Our next question comes from the line of Chris Howerton with Jefferies.

First question for me. This is by the way. Just a clarification on the DaVita versus Fresenius sales. Is there a difference between that you've observed between the vials shipped to DaVita versus Fresenius at this time?

Yes, I mentioned -- I mentioned that the third quarter, the bulk of the demand really was in the Fresenius clinics, with also kind of acceleration in the MDOs, IDOs and, to a lesser extent, DaVita. So that's kind of the double-click on demand, if you will, in the third quarter.

Got you. So I can...

, I think you cut off. There you go.

Okay. Sorry about that. My second question is -- and then I have one more after this -- is on the commercial supply revenue. So how should we think -- how should we be thinking about the long-term steady state of inventory? Will it draw down over time? Or will it kind of equalize -- or how should we be thinking about that?

Sure. Ryan here again. So yes, it is definitely lumpy. I recognize that. But keep in mind that this is an agreement between us and Vifor that is focused solely on the manufacturing of the product and shipping it to Vifor. So the timing of which relates mainly to how it moves through the batch and the manufacturings and less with demand. So I'm not going to comment on how it's being manufactured, and I understand it's lumpy, but you can probably expect a little lumpiness going forward.

Okay. That helps with expectations. And then my last question is, are there any additional efforts by Cara and not just CSL Vifor to promote the awareness and the advocacy program?

Yes, I mean, CSL Vifor is our commercial partner. So we're not expending dollars to launch this product. This is on CSL Vifor. And quite frankly, they are an exceptional partner with exceptional market intimacy in nephrology. And you can see the results. They're doing a really good job as we move 2 quarters into launch. And remember, -- and you and I have talked before -- we're building a market and there's nobody better to build a market than somebody with that intimate know-how in the nephrology dialysis space than CSL Vifor. And then we added on, obviously, the Fresenius sales force, and that's a contract between CSL Vifor and Fresenius. And so we're actually incredibly pleased with the dedication of CSL Vifor and Fresenius to building this market, and we're really starting to see the results 2 quarters in.

Okay. Maybe more directly, would you consider advertising?

CSL Vifor is doing the advertising.

Our next question comes from the line of Stacy Lee with Stifel.

This is Stacy calling in for Annabel. Congrats on the great quarter. And then just 2 questions on RN. Realizing that you book revenues when you ship to wholesalers and then vials sold is when dialysis providers order from the wholesalers, is there a point when these 2 figures will square up? And then secondly, at what point will we have more clarity on the proposal that CMS made regarding the post-TDAPA period for innovative drugs? What are the next steps that need to occur in the time line before we see a change in the mechanism there?

Yes, Stacy, so in terms of kind of the trade inventory and demand, I would expect to see some variability still. Ryan likes to say lumpiness over the next few quarters. And that's pretty typical in any launch. I would expect that to start to normalize as we head into 2023. I can't give an exact date, but I would expect that to settle down and kind of more equate in 2023. CMS, it's a great question. CMS came out with their final rule last week or 2 weeks ago. And they did not address the comments in the RFI, in the final rule. What they did do, though, is they acknowledged the comments and indicated they're going to consider them as they consider possible future rulemaking to address post-TDAPA reimbursement for innovative drugs. So what we expect is to hear something probably more in the final rule for 2024, which would be this time kind of next year. That's our expectation. That's what we expected even with this rule-making cycle. I'd also say, Stacy, as well, we, Cara, CSL Vifor and other key stakeholders will be -- will continue to be in contact with CMS and doing lobbying efforts, et cetera. And I feel very strongly that CMS really has an open mind here. They understand that it's important -- that there is resolution before KORSUVA comes out of this TDAPA period in 2024. So we are really hopeful that more clarity will come as part of the 2024 rule-making cycle.

Our next question comes from the line of David Amsellem with Piper Sandler.

So just a couple. So just a clarification question. Will 4Q revenues sort of look more like an approximation of demand? Or is it going to be -- is there still going to be some real inventory in there just given that we're still in the early stages of the launch? So I just wanted to get a sense for what 4Q may or may not look like vis-à-vis inventory. I think that would be helpful. And then secondly, you mentioned earlier, Chris, about DaVita and how uptake tends to be -- ordering new product in general tends to be more gradual, if you will. So just wanted to get a sense from you as to why that is. Why does DaVita's uptake tend to be slower? Is it anything specific to KORSUVA? Is it just sort of a general standard operating procedure? That would be helpful.

Yes, David, nice to hear from you. So your first question around expectations for 4Q, obviously, we're not going to give forward-looking guidance. But I would still expect there to be, again, Ryan's word, lumpiness in terms of trade inventory and demand. What I'm looking at is a continued ramp-up in demand. That's what's critical. And as I just mentioned to the previous question from Stacy is that I would expect that to start to normalize sometime next year. And that's pretty typical when you're building a market and people are taking on product. Your last question on DaVita. Yes, David, it is a gradual adoption. We saw it with Parsabiv. And in terms of rationale, I mean, just that organization tends to bring on a product more gradually to get experience, adjust their algorithms appropriately. It's not specific to KORSUVA. Also, to be clear, DaVita doesn't have a sales force like Fresenius does as well. So that's another important lever in terms of more rapid uptake that we're seeing at Fresenius. I would also point out, though, which is significant, is that we are seeing a good pickup in DaVita, right? We are seeing clinics coming on board week to week, and we are seeing those that are coming on board actually having a very strong reorder rate. So we actually feel really good about where we are and meeting our expectations from the DaVita organization. And we're really excited about kind of the quarters to come.

[Operator Instructions]. Our next question is a follow-up from Sumant Kulkarni with Canaccord Genuity.

This question is independent of the rule-making process where we have some time lines to look forward to. But what is the latest thought process on how this quarter's vials are trending relative to setting a good utilization rate when TDAPA ends? If this is still a premature question, how many quarters do you think we'll need to see vials sold to get a better run rate on this variable that's key for reimbursability post-TDAPA?

Yes, Sumant, again, a super question and on the CMS in terms of how they look at utilization. I mean, listen, we're building a market. We're 2 quarters in. And really, if you think about the LDOs really just came on board in the third quarter, namely with a strong acceleration of Fresenius. So I would fully expect utilization, obviously, to continue to ramp up. And as we near the end of TDAPA, I think we're going to have a really good -- a really good sense of what sort of patient population we have on KORSUVA that will help CMS in terms of their estimation of potential funding either through kind of the rule-making cycle, potential add-on payment or within the bundle itself. And Sumant, I'll just conclude, too, they typically look at the full 2 years of utilization. And we saw with Parsabiv, I think it was really important, there was an additional year added on to TDAPA to get a good steady state, 2 years of utilization data, to calculate the funding.

Thank you. I'm currently showing no further questions at this time. I will now turn the call back over to the Cara team for closing remarks.

Yes. Thank you, Shannon. And really, thank you, everyone, for joining our quarterly call, and we're really excited about where we are as a company in terms of adding both short-term and long-term value. And we'll continue to focus on execution with our partner, with IV KORSUVA and, under Jo's leadership, continue to execute our clinical trial programs. So with that, I'll conclude the call. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.