cara-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-36279

CARA THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

75-3175693

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

4 Stamford Plaza

107 Elm Street, 9th Floor

Stamford, Connecticut

06902

(Address of registrant’s principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (203) 406-3700

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

  

Accelerated filer

 

 

 

Non-accelerated filer

 

 

  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No.

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

CARA

The Nasdaq Stock Market LLC

 

The number of outstanding shares of the registrant's common stock, par value $0.001 per share, as of May 2, 2019 was: 39,751,606.

 


CARA THERAPEUTICS, INC.

 

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

 

PART I –FINANCIAL INFORMATION

 

 

 

PAGE

NUMBER

 

 

 

Item 1.

Financial Statements (Unaudited):

 

 

 

 

 

Condensed Balance Sheets as of March 31, 2019 and December 31, 2018

1

 

 

 

 

Condensed Statements of Comprehensive Loss for the Three Months Ended March 31, 2019 and 2018

2

 

 

 

 

Condensed Statements of Stockholders’ Equity for the Three Months Ended March 31, 2019 and 2018

3

 

 

 

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018

4

 

 

 

 

Notes to Condensed Financial Statements

5

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

42

 

 

 

Item 4.

Controls and Procedures

43

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

44

 

 

 

Item 1A

Risk Factors

44

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

 

 

 

Item 3.

Defaults Upon Senior Securities

44

 

 

 

Item 4.

Mine Safety Disclosures

44

 

 

 

Item 5.

Other Information

44

 

 

 

Item 6.

Exhibits

45

 

 

 

 

SIGNATURES

46

 

 

 


 

PART I

FINANCIAL INFORMATION

Item 1.  Financial Statements.

CARA THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS

(amounts in thousands, excluding share and per share data)

(unaudited)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

14,188

 

 

$

15,081

 

Marketable securities

 

 

120,265

 

 

 

146,302

 

Income tax receivable

 

 

749

 

 

 

664

 

Other receivables

 

 

1,019

 

 

 

926

 

Prepaid expenses

 

 

7,577

 

 

 

4,805

 

Restricted cash, current

 

 

361

 

 

 

361

 

Total current assets

 

 

144,159

 

 

 

168,139

 

Operating lease right-of-use asset

 

 

3,492

 

 

 

 

Marketable securities, non-current

 

 

21,687

 

 

 

21,396

 

Property and equipment, net

 

 

841

 

 

 

880

 

Restricted cash

 

 

408

 

 

 

408

 

Total assets

 

$

170,587

 

 

$

190,823

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

13,310

 

 

$

13,622

 

Operating lease liability, current

 

 

901

 

 

 

 

Current portion of deferred revenue

 

 

28,194

 

 

 

26,825

 

Total current liabilities

 

 

42,405

 

 

 

40,447

 

 

 

 

 

 

 

 

 

 

Operating lease liability, non-current

 

 

4,087

 

 

 

 

Deferred revenue, non-current

 

 

9,573

 

 

 

15,184

 

Deferred lease obligation

 

 

 

 

 

1,562

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock; $0.001 par value; 5,000,000 shares authorized at

   March 31, 2019 and December 31, 2018, zero shares issued and

   outstanding at March 31, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock; $0.001 par value; 100,000,000 shares authorized at

   March 31, 2019 and December 31, 2018, 39,575,044 shares and 39,547,558

   shares issued and outstanding at March 31, 2019 and December 31, 2018,

   respectively

 

 

39

 

 

 

39

 

Additional paid-in capital

 

 

430,724

 

 

 

428,059

 

Accumulated deficit

 

 

(316,314

)

 

 

(294,354

)

Accumulated other comprehensive income (loss)

 

 

73

 

 

 

(114

)

Total stockholders’ equity

 

 

114,522

 

 

 

133,630

 

Total liabilities and stockholders’ equity

 

$

170,587

 

 

$

190,823

 

 

See Notes to Condensed Financial Statements.

1


 

CARA THERAPEUTICS, INC.

 

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

(amounts in thousands, excluding share and per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Revenue:

 

 

 

 

 

 

 

 

License and milestone fees

 

$

4,242

 

 

$

 

Clinical compound revenue

 

 

140

 

 

 

 

Total revenue

 

 

4,382

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

23,608

 

 

 

13,427

 

General and administrative

 

 

3,908

 

 

 

3,697

 

Total operating expenses

 

 

27,516

 

 

 

17,124

 

Operating loss

 

 

(23,134

)

 

 

(17,124

)

Other income

 

 

1,089

 

 

 

311

 

Loss before benefit from income taxes

 

 

(22,045

)

 

 

(16,813

)

Benefit from income taxes

 

 

85

 

 

 

46

 

Net loss

 

$

(21,960

)

 

$

(16,767

)

Net loss per share:

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

(0.56

)

 

$

(0.51

)

Weighted average shares:

 

 

 

 

 

 

 

 

Basic and Diluted

 

 

39,552,277

 

 

 

32,681,661

 

Other comprehensive income (loss), net of tax of $0:

 

 

 

 

 

 

 

 

Change in unrealized gains (losses) on available-for-

   sale marketable securities

 

 

187

 

 

 

(44

)

Total comprehensive loss

 

$

(21,773

)

 

$

(16,811

)

 

See Notes to Condensed Financial Statements.

2


 

CARA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(amounts in thousands except share and per share data)

(unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2017

 

 

32,662,255

 

 

$

33

 

 

$

307,158

 

 

$

(220,341

)

 

$

(70

)

 

$

86,780

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

1,871

 

 

 

 

 

 

 

 

 

1,871

 

Shares issued upon exercise

   of stock options

 

 

37,688

 

 

 

 

 

 

263

 

 

 

 

 

 

 

 

 

263

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,767

)

 

 

 

 

 

(16,767

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44

)

 

 

(44

)

Balance at March 31, 2018

 

 

32,699,943

 

 

$

33

 

 

$

309,292

 

 

$

(237,108

)

 

$

(114

)

 

$

72,103

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2018

 

 

39,547,558

 

 

$

39

 

 

$

428,059

 

 

$

(294,354

)

 

$

(114

)

 

$

133,630

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

2,234

 

 

 

 

 

 

 

 

 

2,234

 

Shares issued upon exercise of

   stock options

 

 

17,291

 

 

 

 

 

 

234

 

 

 

 

 

 

 

 

 

234

 

Shares issued for consulting

   services

 

 

10,195

 

 

 

 

 

 

197

 

 

 

 

 

 

 

 

 

197

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(21,960

)

 

 

 

 

 

(21,960

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

187

 

 

 

187

 

Balance at March 31, 2019

 

 

39,575,044

 

 

$

39

 

 

$

430,724

 

 

$

(316,314

)

 

$

73

 

 

$

114,522

 

 

See Notes to Condensed Financial Statements.

3


 

CARA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(21,960

)

 

$

(16,767

)

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

2,234

 

 

 

1,871

 

Depreciation and amortization

 

 

50

 

 

 

125

 

Amortization expense component of lease expense

 

 

145

 

 

 

 

Accretion of available-for-sale marketable securities

 

 

(478

)

 

 

(217

)

Realized loss on sale of available-for-sale marketable securities

 

 

 

 

 

15

 

Deferred rent costs

 

 

 

 

 

(61

)

Deferred revenue

 

 

(4,242

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Income tax receivable

 

 

(85

)

 

 

(46

)

Other receivables

 

 

(93

)

 

 

39

 

Prepaid expenses

 

 

(2,574

)

 

 

(1,796

)

Accounts payable and accrued expenses

 

 

(312

)

 

 

(1,631

)

Operating lease liability

 

 

(211

)

 

 

 

Net cash used in operating activities

 

 

(27,526

)

 

 

(18,468

)

Investing activities

 

 

 

 

 

 

 

 

Proceeds from maturities of available-for-sale marketable securities

 

 

79,295

 

 

 

26,650

 

Proceeds from sale of available-for-sale marketable securities

 

 

 

 

 

10,850

 

Purchases of available-for-sale marketable securities

 

 

(52,885

)

 

 

(16,804

)

Purchases of property and equipment

 

 

(11

)

 

 

(2

)

Net cash provided by investing activities

 

 

26,399

 

 

 

20,694

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

234

 

 

 

263

 

Net cash provided by financing activities

 

 

234

 

 

 

263

 

Net (decrease) increase in cash, cash equivalents and restricted cash

 

 

(893

)

 

 

2,489

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

15,850

 

 

 

10,157

 

Cash, cash equivalents and restricted cash at end of period

 

$

14,957

 

 

$

12,646

 

Noncash investing and financing activities

 

 

 

 

 

 

 

 

Shares of common stock issued in exchange for consulting services

   (recorded as a prepaid expense)

 

$

197

 

 

$

 

 

 

See Notes to Condensed Financial Statements.

 

 

 

4


CARA THERAPEUTICS, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

(unaudited)

 

1.

Business

Cara Therapeutics, Inc., or the Company, is a clinical-stage biopharmaceutical corporation formed on July 2, 2004. The Company is focused on developing and commercializing new chemical entities with a primary focus on pruritus as well as pain by selectively targeting peripheral kappa opioid receptors. The Company’s primary activities to date have been organizing and staffing the Company, developing its product candidates, including conducting preclinical studies and clinical trials of CR845/difelikefalin-based product candidates and raising capital.

As of March 31, 2019, the Company had raised aggregate net proceeds of approximately $383,200 from several rounds of equity financing, including its initial public offering, or IPO, which closed in February 2014 and three follow-on public offerings of common stock, which closed in July 2018, April 2017 and August 2015, and the issuance of convertible preferred stock and debt prior to the IPO. The Company had also received $88,900 under its license agreements for CR845/difelikefalin, primarily with Vifor Fresenius Medical Care Renal Pharma Ltd., or VFMCRP, Maruishi Pharmaceutical Co. Ltd., or Maruishi, and Chong Kun Dang Pharmaceutical Corp., or CKDP, and an earlier product candidate for which development efforts ceased in 2007. Additionally, in May 2018, the Company received net proceeds of $14,556 from the issuance and sale of 1,174,827 shares of the Company’s common stock to Vifor (International) Ltd., or Vifor, in connection with the Company’s license agreement with VFMCRP (see Note 10, Collaboration and Licensing Agreements).

As of March 31, 2019, the Company had unrestricted cash and cash equivalents and marketable securities of $156,140 and an accumulated deficit of $316,314. The Company has incurred substantial net losses and negative cash flows from operating activities in nearly every fiscal period since inception and expects this trend to continue for the foreseeable future. The Company recognized net losses of $21,960 and $16,767 for the three months ended March 31, 2019 and 2018, respectively, and had net cash used in operating activities of $27,526 and $18,468 for the three months ended March 31, 2019 and 2018, respectively.

The Company is subject to risks common to other life science companies including, but not limited to, uncertainty of product development and commercialization, lack of marketing and sales history, development by its competitors of new technological innovations, dependence on key personnel, market acceptance of products, product liability, protection of proprietary technology, ability to raise additional financing, and compliance with Food and Drug Administration, or FDA, and other government regulations.  If the Company does not successfully commercialize any of its product candidates, it will be unable to generate recurring product revenue or achieve profitability.  

2. Basis of Presentation

The unaudited interim condensed financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, or SEC. Accordingly, they do not include all information and disclosures necessary for a presentation of the Company’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States of America, or GAAP. In the opinion of management, these unaudited interim financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of results for the periods presented. The results of operations for interim periods are not necessarily indicative of the results for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by SEC rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. The condensed balance sheet data as of December 31, 2018 were derived from audited financial statements, but do not include all disclosures required by GAAP. These unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.  

 

 

5


CARA THERAPEUTICS, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

(unaudited)

 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from the Company’s estimates and assumptions. Significant estimates include the fair value of marketable securities that are classified as level 2 of the fair value hierarchy, useful lives of fixed assets, the periods over which certain revenues will be recognized, including licensing and collaborative revenue recognized from non-refundable up-front and milestone payments, the determination of prepaid research and development, or R&D, clinical costs and accrued research projects, the amount of non-cash compensation costs related to share-based payments to employees and non-employees and the periods over which those costs are expensed, the incremental borrowing rate used in lease calculations and the likelihood of realization of deferred tax assets.

Significant Accounting Policies

There have been no material changes to the significant accounting policies previously disclosed in Note 2 to the Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, except for the recent adoption of new accounting pronouncements as disclosed below.

Accounting Pronouncements Recently Adopted

Leases

 

On January 1, 2019, the Company adopted ASC 842, Leases, under which it elected not to adjust prior comparative periods, which are reported under ASC 840. In addition, the Company elected to adopt both the practical expedient to use hindsight when determining the lease term and the package of practical expedients available under ASC 842, including:

 

 

No re-evaluation of whether a contract is or contains a lease (embedded lease);

 

Lease classification is grandfathered

 

No reassessment of initial direct costs

 

Upon adoption of ASC 842, the Company had only one lease, the Stamford Lease (see Note 15, Commitments and Contingencies: Leases), which is included in operating lease right-of-use asset, or ROU asset, operating lease liability – current and operating lease liability – non-current in the Company’s Condensed Balance Sheets.

 

In general, the Company determines if a contract, at its inception, is a lease or contains a lease based on whether the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. To determine whether a contract conveys the right to control the use of an identified asset for a period of time, the Company assesses whether, throughout the period of use, it has both the right to obtain substantially all of the economic benefits from use of the identified asset, and the right to direct the use of the identified asset. Both of these criteria are met by the Stamford Lease.

 

Under ASC 842, the Company determines the amount of the operating lease liability based on the present value of the future minimum lease payments over the remaining lease term. The amount of the operating lease ROU asset is equal to the amount of the lease liability, less accrued rent and lease incentives received from the landlord. Initial direct costs were deemed to be immaterial.

 

Since the Stamford Lease does not provide an implicit interest rate, the Company used an annual incremental borrowing rate of 7% based on the information available at the date of adoption for the purpose of determining the lease liability during the term of the lease.

 

6


CARA THERAPEUTICS, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

(unaudited)

 

As noted above, upon adoption of ASC 842, the Company used hindsight in determining the term of the Stamford Lease. Although the Stamford Lease is renewable for one five-year term, upon inception of the lease the renewal term was not included in the lease term since it was not reasonably certain that the Company will exercise that option. Accordingly, the lease term of the Stamford Lease was not adjusted upon adoption of ASC 842 to determine the operating lease ROU asset and operating lease liability.

 

The Stamford Lease contains both a lease and non-lease component which are accounted for separately. The Company allocates the consideration to the lease and the non-lease component on a relative standalone price basis. Lease expense under ASC 842 is recognized on a straight-line basis over the lease term in the Condensed Statements of Comprehensive Loss.

 

There was no cumulative effect adjustment as a result of the adoption of ASC 842 on January 1, 2019, which reflects the difference between the amount of lease expense under ASC 842 that would have been recognized from inception of the Stamford Lease through December 31, 2018 and the amount of rent expense actually recognized under ASC 840 during that same period.

Other Accounting Pronouncements Recently Adopted

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, or ASU 2018-07, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. Accordingly, under ASU 2018-07, the fair value of stock options granted to nonemployees will be measured only on the grant date, the amount of which will be recognized as compensation expense over the nonemployee’s service (vesting) period in the same period(s) and in the same manner as if the Company had paid cash for the goods or services instead of paying with or using share-based payment awards. On an award-by-award basis, the Company may elect to use the contractual term as the expected term when estimating the fair value of a nonemployee award to satisfy the measurement objective. Prior guidance under Subtopic 505-50 required the fair value of nonemployee stock options to be marked to market at each reporting period during the service period, which resulted in volatility of compensation expense during that period. The Company adopted ASU 2018-07 on January 1, 2019 on a modified retrospective basis and remeasured, on that date, the fair value of all outstanding unvested stock options that had been granted to nonemployees. The adoption of ASU 2018-07 did not have a material effect on its results of operations, financial position or cash flows because grants of stock options to nonemployees have been insignificant.

 

Accounting Pronouncements Not Yet Adopted

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, or ASU 2018-18, which clarifies the interaction between Topic 808 and Topic 606 by (1) clarifying that certain transactions between collaborative arrangement participants should be accounted for under Topic 606; (2) adding unit-of-account guidance in Topic 808 to align with the guidance in Topic 606; and (3) clarifying presentation guidance for transactions with a collaborative arrangement participant that are not accounted for under Topic 606. ASU 2018-18 is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The Company has determined that ASU 2018-18 will not have any effect on its financial position, results of operations or cash flows since all three of its collaboration and licensing agreements are accounted for under Topic 606 (see Note 10, Collaboration and Licensing Agreements and Note 11, Revenue Recognition).

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13, which modifies the disclosure requirements on fair value measurements in Topic 820 to remove the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also amends Topic 820 to clarify that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date. ASU 2018-13 also requires additional disclosure for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period as well as the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively

7


CARA THERAPEUTICS, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

(unaudited)

 

for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of ASU 2018-13. The Company will adopt ASU 2018-13, as applicable, on January 1, 2020. The Company does not expect that the adoption of ASU 2018-13 will have a material effect on its results of operations, financial position, cash flows or footnote disclosures.

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, which replaces the incurred loss impairment methodology in current GAAP, that delays recognition of a credit loss until it is probable that such loss has been incurred, with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 modifies the other-than-temporary impairment model for available-for-sale debt securities by requiring (1) estimating expected credit losses only when the fair value is below the amortized cost of the asset; (2) recording a credit loss without regard to the length of time a security has been in an unrealized loss position; (3) limiting the measurement of the credit loss to the difference between the security’s amortized cost basis and its fair value and (4) presenting credit losses as an allowance rather than as a write-down, which will allow the Company to record reversals of credit losses in current period net income, a practice that is currently prohibited. ASU 2016-13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. As such, the Company expects to adopt ASU 2016-13 on January 1, 2020 and is currently evaluating the effect it will have on its results of operations, financial position and cash flows.     

 

3. Available-for-Sale Marketable Securities

As of March 31, 2019 and December 31, 2018, the Company’s available-for-sale marketable securities consisted of debt securities issued by the U.S. Treasury, U.S. government-sponsored entities and investment grade institutions as well as municipal bonds.

The following tables summarize the Company's available-for-sale marketable securities by major type of security as of March 31, 2019 and December 31, 2018:

As of March 31, 2019

 

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

Type of Security

 

Amortized

Cost

 

 

Gains

 

 

Losses

 

 

Estimated

Fair Value

 

U.S. Treasury securities

 

$

15,921

 

 

$

16

 

 

$

 

 

$

15,937

 

U.S. government agency obligations

 

 

12,440

 

 

 

7

 

 

 

 

 

 

12,447

 

Corporate bonds

 

 

69,914

 

 

 

56

 

 

 

(10

)

 

 

69,960

 

Commercial paper

 

 

38,104

 

 

 

6

 

 

 

(2

)

 

 

38,108

 

Municipal bonds

 

 

5,500

 

 

 

 

 

 

 

 

 

5,500

 

Total available-for-sale marketable securities

 

$

141,879

 

 

$

85

 

 

$

(12

)

 

$

141,952

 

 

As of December 31, 2018

 

 

 

 

 

 

 

Gross Unrealized

 

 

 

 

 

Type of Security

 

Amortized

Cost

 

 

Gains

 

 

Losses

 

 

Estimated

Fair Value

 

U.S. Treasury securities

 

$

19,540

 

 

$

 

 

$

(1

)

 

$

19,539

 

U.S. government agency obligations

 

 

17,860

 

 

 

 

 

 

(1

)

 

 

17,859

 

Corporate bonds

 

 

75,999

 

 

 

5

 

 

 

(94

)

 

 

75,910

 

Commercial paper

 

 

50,413

 

 

 

 

 

 

(23

)

 

 

50,390

 

Municipal bonds

 

 

4,000

 

 

 

 

 

 

 

 

 

4,000

 

Total available-for-sale marketable securities

 

$

167,812

 

 

$

5

 

 

$

(119

)

 

$

167,698

 

 

8


CARA THERAPEUTICS, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

(unaudited)

 

All available-for-sale marketable securities are classified as Marketable securities, current or Marketable securities, non-current depending on the contractual maturity date of the individual available-for-sale security.

The Company classifies its marketable debt securities based on their contractual maturity dates. As of March 31, 2019, the Company’s marketable debt securities mature at various dates through March 2021. The amortized cost and fair values of marketable debt securities by contractual maturity were as follows.

 

 

 

As of March 31, 2019

 

 

As of December 31, 2018

 

Contractual maturity

 

Amortized

Cost

 

 

Fair

Value

 

 

Amortized

Cost

 

 

Fair

Value

 

Less than one year

 

$

120,201

 

 

$

120,265

 

 

$

146,363

 

 

 

146,302

 

One year to two years

 

 

21,678

 

 

 

21,687

 

 

 

21,449

 

 

 

21,396

 

Total

 

$

141,879

 

 

$

141,952

 

 

$

167,812

 

 

$

167,698

 

 

The following tables show the fair value of the Company's available-for-sale marketable securities that have unrealized losses and that are deemed to be only temporarily impaired, aggregated by investment category and length of time that the individual investments have been in a continuous unrealized loss position.

As of March 31, 2019

 

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

Corporate bonds

 

$

14,761

 

 

$

(10

)

 

$

 

 

$

 

 

$

14,761

 

 

$

(10

)

Commercial paper

 

 

15,884

 

 

 

(2

)

 

 

 

 

 

 

 

 

15,884

 

 

 

(2

)

Total

 

$

30,645

 

 

$

(12

)

 

$

 

 

$

 

 

$

30,645

 

 

$

(12

)

 

As of December 31, 2018

 

 

 

Less than 12 Months

 

 

12 Months or Greater

 

 

Total

 

 

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

 

Fair

Value

 

 

Gross

Unrealized

Losses

 

U.S. Treasury securities

 

$

16,392

 

 

$

(1

)

 

$

 

 

$

 

 

$

16,392

 

 

$

(1

)

U.S. government agency obligations

 

 

5,596

 

 

 

(1

)

 

 

 

 

 

 

 

 

5,596

 

 

 

(1

)

Corporate bonds

 

 

71,322

 

 

 

(94

)

 

 

 

 

 

 

 

 

71,322

 

 

 

(94

)

Commercial paper

 

 

39,445

 

 

 

(23

)

 

 

 

 

 

 

 

 

39,445

 

 

 

(23

)

Total

 

$

132,755

 

 

$

(119

)

 

$

 

 

$

 

 

$

132,755

 

 

$

(119

)

 

As of March 31, 2019 and December 31, 2018, the Company held a total of 18 out of 73 positions and 69 out of 84 positions, respectively, that were in an unrealized loss position, none of which had been in an unrealized loss position for 12 months or greater. Based on the Company’s review of these securities, the Company believes that the cost basis of its available-for-sale marketable securities is recoverable and that, therefore, it had no other-than-temporary impairments on these securities as of March 31, 2019 and December 31, 2018. The Company does not intend to sell these debt securities before maturity and the Company believes it is not more likely than not that it will be required to sell these securities before the recovery of their amortized cost basis, which may be maturity.  

9


CARA THERAPEUTICS, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

(unaudited)

 

4. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in accumulated other comprehensive income (loss), or AOCI, net of tax, from unrealized gains (losses) on available-for-sale marketable securities, the Company's only component of AOCI, for the three months ended March 31, 2019 and March 31, 2018.

 

 

 

Total

Accumulated

Other

Comprehensive

Income (Loss)

 

Balance, December 31, 2018

 

$

(114

)

Other comprehensive income before reclassifications

 

 

187

 

Amount reclassified from accumulated

   other comprehensive income

 

 

 

Net current period other comprehensive income

 

 

187

 

Balance, March 31, 2019

 

$

73

 

 

 

 

 

 

Balance, December 31, 2017

 

$

(70

)

Other comprehensive loss before reclassifications

 

 

(59

)

Amount reclassified from accumulated other

   comprehensive loss

 

 

15

 

Net current period other comprehensive loss

 

 

(44

)

Balance, March 31, 2018

 

$

(114

)

 

The reclassifications out of AOCI and into net loss were as follows:

 

 

 

Three Months Ended

March 31,

 

 

Affected Line

Item in the

Statements of

Component of AOCI

 

2019

 

 

2018

 

 

Operations

Unrealized gains (losses) on available-

   for-sale marketable securities

 

 

 

 

 

 

 

 

 

 

Realized gains (losses) on sale of securities

 

$

 

 

$

(15

)

 

Other income

 

 

 

 

 

 

 

 

Benefit from income taxes

 

 

$

 

 

$

(15

)

 

 

 

The amounts reclassified out of AOCI into net loss were determined by specific identification.

5. Fair Value Measurements

As of March 31, 2019 and December 31, 2018, the Company’s financial instruments consisted of cash, cash equivalents, available-for-sale marketable securities, prepaid expenses, restricted cash, accounts payable and accrued liabilities. The fair values of cash, cash equivalents, prepaid expenses, restricted cash, accounts payable and accrued liabilities approximate their carrying values due to the short-term nature of these financial instruments. Available-for-sale marketable securities are reported on the Company’s Condensed Balance Sheets as Marketable Securities at their fair values, based upon pricing of securities with the same or similar investment characteristics as provided by third-party pricing services, as described below.

Current accounting guidance defines fair value, establishes a framework for measuring fair value in accordance with ASC section 820, and requires certain disclosures about fair value measurements. The valuation techniques included in the guidance are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances.

10


CARA THERAPEUTICS, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

(unaudited)

 

The Company classifies its investments in a fair value hierarchy that is intended to increase consistency and comparability in fair value measurements and related disclosures. The fair value hierarchy is divided into three levels based on the source of inputs as follows:

 

Level 1 – Observable inputs – quoted prices in active markets for identical assets and liabilities.

 

Level 2 – Observable inputs other than the quoted prices in active markets for identical assets and liabilities – such as quoted prices for similar instruments, quoted prices for identical or similar instruments in inactive markets, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 – Unobservable inputs – includes amounts derived from valuation models where one or more significant inputs are unobservable and require the Company to develop relevant assumptions.

Valuation Techniques - Level 2 Inputs

The Company estimates the fair values of its financial instruments categorized as level 2 in the fair value hierarchy, including U.S. Treasury securities, U.S. government agency obligations, corporate bonds, commercial paper and municipal bonds, by taking into consideration valuations obtained from third-party pricing services. The pricing services use industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, benchmark yields, issuer credit spreads, benchmark securities, and other observable inputs. The Company obtains a single price for each financial instrument and does not adjust the prices obtained from the pricing service.

The Company validates the prices provided by its third-party pricing services by reviewing their pricing methods, obtaining market values from other pricing sources and comparing them to the share prices presented by the third-party pricing services. After completing its validation procedures, the Company did not adjust or override any fair value measurements provided by its third-party pricing services as of March 31, 2019 or December 31, 2018.

The following tables summarize the Company’s financial assets measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018.

Fair value measurement as of March 31, 2019:

 

Financial assets

 

 

 

 

 

Quoted prices in

 

 

Significant other

 

 

Significant

 

 

 

 

 

 

 

active markets for

 

 

observable

 

 

unobservable

 

 

 

 

 

 

 

identical assets

 

 

inputs

 

 

inputs

 

Type of Instrument

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds and checking accounts

 

$

14,188

 

 

$

14,188

 

 

$

 

 

$

 

Available-for-sale marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

15,937

 

 

 

 

 

 

15,937

 

 

 

 

U.S. government agency obligations

 

 

12,447

 

 

 

 

 

 

12,447

 

 

 

 

Corporate bonds

 

 

69,960

 

 

 

 

 

 

69,960

 

 

 

 

Commercial paper

 

 

38,108

 

 

 

 

 

 

38,108

 

 

 

 

Municipal bonds

 

 

5,500

 

 

 

 

 

 

5,500

 

 

 

 

Restricted cash:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial money market account

 

 

769

 

 

 

769

 

 

 

 

 

 

 

Total financial assets

 

$

156,909

 

 

$

14,957

 

 

$

141,952

 

 

$

 

 

11


CARA THERAPEUTICS, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

(unaudited)

 

Fair value measurement as of December 31, 2018:

 

Financial assets

 

 

 

 

 

Quoted prices in

 

 

Significant other

 

 

Significant

 

 

 

 

 

 

 

active markets for

 

 

observable

 

 

unobservable

 

 

 

 

 

 

 

identical assets

 

 

inputs

 

 

inputs

 

Type of Instrument

 

Total

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds and checking accounts

 

$

15,081

 

 

$

15,081

 

 

$

 

 

$

 

Available-for-sale marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

 

19,539

 

 

 

 

 

 

19,539

 

 

 

 

U.S. government agency obligations

 

 

17,859