Cara Therapeutics Inc (NASDAQ:CARA) Can't Stay This Cheap For Long

Cara Therapeutics Inc (NASDAQ:CARA) just ran up 15% on the release of its third quarter financials and business update, but for us, the company remains one of the most undervalued at this end of the biotech space. The next six months are going to be pivotal for Cara from an operational perspective, and there can only be a limited period left before markets latch on to the company's current undervaluation and Cara revalues to the upside.As a brief introduction to Cara, the company is a development stage healthcare company focusing on pain management and – specifically – recruiting peripheral pain sensing receptors to treat pain in a way that overcomes the side effects associated the the current standard of care in its targets – opioid administration.The receptors are called kappa opioid receptors, and the company's lead in targeting these receptors is called CR845. It's a compound that interacts with the peripheral receptors to induce pain management properties, but doesn’t interact with the receptors that are responsible for things like euphoria, addiction and withdrawal – issues that dog the current opioid landscape.There's also a cannabis derivative asset, CR701, and there's the potential for some collateral valuation inflation on the back of the marijuana space hype right now, but we're not going to focus on that too much right now (other than to say it has the potential to paint Cara as a partnership candidate, or even a buyout target, near term).Here's an important point. Back at the beginning of 2016, the FDA placed a clinical hold on Cara's lead, and the company collapsed from more than $17 a share to less than $5 a share over a period of a few weeks – a 70% decline across the period. Over the subsequent ten months, Cara has failed to recover from this hold, despite its lifting and enrollment continuing within a few months of the initial announcement. At last close, and this is with the above mentioned 15% gains, the company traded for a little over $8.3 a share for a market capitalization of circa $230 million.So what's going to catalyze a revaluation?Simply put, there is a raft of catalysts set to hit press early next year, and as these catalysts roll out, we expect markets to start paying attention to Cara's long term potential.The data will represent top line from trials involving more than 900 patients, and should give markets a solid indication of the chances of success (and just as importantly, the pivotal protocols) for CR845 going forward.First up, we've got top line during the first quarter of next year from the first part of a two part phase 2/3 trial of IV CR845, an intravenous formulation of the drug, in patients undergoing dialysis. The trial is investigating the asset's impact on severe uremic pruritus (UP), an intractable systemic itch condition in patients with chronic kidney disease (CKD). It's a common occurrence in patients undergoing dialysis for CKD, and there's basically no available treatment right now (a few off-label symptom targets, but nothing else).Second, we're watching top line during the same quarter from a pharmacokinetic safety trial of multiple doses of an oral formulation of CR845 in hemodialysis patients, with the goal being to establish an effective oral dose to treat, again, UP in CKD patients.Finally, and what will probably prove the biggest mover as it hits, is top line from a phase 2b in osteoarthritis patients. This one is another oral formulation, and it's currently under investigation in 330 patients across the US. The importance of this one cannot be understated. OA patients suffer chronic pain, and the current SOC calls for opioid administration. Many patients don’t want opioids based on risk of addiction and – beyond that – withdrawal, and many physicians don't want to prescribe them for the same reason.If Cara can prove its treatment effective in managing pain in OA patients, without creating the above mentioned adverse events, there's a massive market waiting for it if it can successfully hit commercialization post-NDA submission.Capitalization isn’t an issue right now, with just shy of $72 million cash on hand set to last through first quarter 2018 – beyond the completion of the current trials. Dilution is likely mid 2018 (if the company doesn’t pick up a partnership before then, that is) but market cap should have expanded by then to the pint that any 2018 dilution will have been offset by growth between now and then, on a position initiated near term, ahead of the catalysts.We will be updating our subscribers as soon as we know more. For the latest updates on CARA, sign up below!Disclosure: We have no position in CARA and have not been compensated for this article.