cara_Current_Folio_10Q

Table of Contents

 

 

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 SEPTEMBER 30, 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

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

 

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.

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of November 1, 2019 was: 46,678,977.

 

 

Table of Contents

CARA THERAPEUTICS, INC.

INDEX TO FORM 10‑Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

PART I –FINANCIAL INFORMATION

 

 

PAGE

NUMBER

 

 

 

Item 1. 

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Balance Sheets as of September 30, 2019 and December 31, 2018

1

 

 

 

 

Condensed Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2019 and 2018

2

 

 

 

 

Condensed Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2019 and 2018

3

 

 

 

 

Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

4

 

 

 

 

Notes to Condensed Financial Statements

5

 

 

 

Item 2. 

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

31

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

52

 

 

 

Item 4. 

Controls and Procedures

52

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

54

 

 

 

Item 1A 

Risk Factors

54

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

54

 

 

 

Item 3. 

Defaults Upon Senior Securities

54

 

 

 

Item 4. 

Mine Safety Disclosures

54

 

 

 

Item 5. 

Other Information

54

 

 

 

Item 6. 

Exhibits

55

 

 

 

 

SIGNATURES  

56

 

 

 

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements.

CARA THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS

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

(unaudited)

 

 

 

 

 

 

 

 

    

September 30, 2019

    

December 31, 2018

Assets

 

 

  

 

 

  

Current assets:

 

 

  

 

 

  

Cash and cash equivalents

 

$

34,705

 

$

15,081

Marketable securities

 

 

158,384

 

 

146,302

Income tax receivable

 

 

1,033

 

 

664

Other receivables

 

 

784

 

 

926

Prepaid expenses

 

 

8,556

 

 

4,805

Restricted cash, current

 

 

 —

 

 

361

Total current assets

 

 

203,462

 

 

168,139

Operating lease right-of-use asset

 

 

3,192

 

 

 —

Marketable securities, non-current

 

 

55,985

 

 

21,396

Property and equipment, net

 

 

748

 

 

880

Restricted cash

 

 

408

 

 

408

Total assets

 

$

263,795

 

$

190,823

Liabilities and stockholders’ equity

 

 

 

 

 

  

Current liabilities:

 

 

 

 

 

  

Accounts payable and accrued expenses

 

$

20,581

 

$

13,622

Operating lease liability, current

 

 

945

 

 

 —

Current portion of deferred revenue

 

 

26,773

 

 

26,825

Total current liabilities

 

 

48,299

 

 

40,447

 

 

 

 

 

 

 

Operating lease liability, non-current

 

 

3,602

 

 

 —

Deferred revenue, non-current

 

 

 —

 

 

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 September 30, 2019 and December 31, 2018, zero shares issued and outstanding at September 30, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common stock; $0.001 par value; 100,000,000 shares authorized at September 30, 2019 and December 31, 2018, 46,673,977 shares and 39,547,558 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

46

 

 

39

Additional paid-in capital

 

 

583,811

 

 

428,059

Accumulated deficit

 

 

(372,116)

 

 

(294,354)

Accumulated other comprehensive income (loss)

 

 

153

 

 

(114)

Total stockholders’ equity

 

 

211,894

 

 

133,630

Total liabilities and stockholders’ equity

 

$

263,795

 

$

190,823

 

See Notes to Condensed Financial Statements.

1

Table of Contents

CARA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

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

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

    

September 30, 2019

    

September 30, 2018

    

September 30, 2019

    

September 30, 2018

    

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

License and milestone fees

 

$

5,785

 

$

5,029

 

$

15,235

 

$

7,903

 

Clinical compound revenue

 

 

 —

 

 

33

 

 

140

 

 

33

 

Total revenue

 

 

5,785

 

 

5,062

 

 

15,375

 

 

7,936

 

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

Research and development

 

 

35,992

 

 

22,303

 

 

83,956

 

 

52,732

 

General and administrative

 

 

4,226

 

 

3,227

 

 

13,128

 

 

10,609

 

Total operating expenses

 

 

40,218

 

 

25,530

 

 

97,084

 

 

63,341

 

Operating loss

 

 

(34,433)

 

 

(20,468)

 

 

(81,709)

 

 

(55,405)

 

Other income

 

 

1,261

 

 

1,002

 

 

3,297

 

 

1,780

 

Loss before benefit from income taxes

 

 

(33,172)

 

 

(19,466)

 

 

(78,412)

 

 

(53,625)

 

Benefit from income taxes

 

 

330

 

 

66

 

 

650

 

 

264

 

Net loss

 

$

(32,842)

 

$

(19,400)

 

$

(77,762)

 

$

(53,361)

 

Net loss per share:

 

 

 

 

 

  

 

 

  

 

 

  

 

Basic and Diluted

 

$

(0.74)

 

$

(0.51)

 

$

(1.88)

 

$

(1.54)

 

Weighted average shares:

 

 

  

 

 

  

 

 

  

 

 

  

 

Basic and Diluted

 

 

44,517,134

 

 

38,034,216

 

 

41,314,044

 

 

34,696,835

 

Other comprehensive income, net of tax of $0:

 

 

  

 

 

  

 

 

  

 

 

  

 

Change in unrealized gains (losses) on available-for-sale marketable securities

 

 

(12)

 

 

70

 

 

267

 

 

83

 

Total comprehensive loss

 

$

(32,854)

 

$

(19,330)

 

$

(77,495)

 

$

(53,278)

 

 

See Notes to Condensed Financial Statements.

2

Table of Contents

CARA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(amounts in thousands except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

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

Sale of common stock under license agreement

 

1,174,827

 

 

 1

 

 

14,555

 

 

 —

 

 

 —

 

 

14,556

Stock-based compensation expense

 

 —

 

 

 —

 

 

2,069

 

 

 —

 

 

 —

 

 

2,069

Shares issued upon exercise of stock options

 

184,444

 

 

 —

 

 

1,485

 

 

 —

 

 

 —

 

 

1,485

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(17,194)

 

 

 —

 

 

(17,194)

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

57

 

 

57

Balance at June 30, 2018

 

34,059,214

 

$

34

 

$

327,401

 

$

(254,302)

 

$

(57)

 

$

73,076

Sale of common stock in a follow-on public offering ($19.00 per share), net of underwriting discounts and commissions and offering expenses of $6,248

 

5,175,000

 

 

5

 

 

92,072

 

 

 —

 

 

 —

 

 

92,077

Stock-based compensation expense

 

 —

 

 

 —

 

 

1,819

 

 

 —

 

 

 —

 

 

1,819

Shares issued upon exercise of stock options

 

155,301

 

 

 —

 

 

1,888

 

 

 —

 

 

 —

 

 

1,888

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(19,400)

 

 

 —

 

 

(19,400)

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

70

 

 

70

Balance at September 30, 2018

 

39,389,515

 

$

39

 

$

423,180

 

$

(273,702)

 

$

13

 

$

149,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Total

 

 

Common Stock

 

Paid-In

 

Accumulated

 

Comprehensive

 

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

Stock-based compensation expense

 

 —

 

 

 —

 

 

2,681

 

 

 —

 

 

 —

 

 

2,681

Shares issued upon exercise of stock options

 

378,706

 

 

 1

 

 

3,974

 

 

 —

 

 

 —

 

 

3,975

Shares issued upon vesting of restricted stock units

 

74,166

 

 

 —

 

 

1,235

 

 

 —

 

 

 —

 

 

1,235

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(22,960)

 

 

 —

 

 

(22,960)

Other comprehensive income

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

92

 

 

92

Balance at June 30, 2019

 

40,027,916

 

$

40

 

$

438,614

 

$

(339,274)

 

$

165

 

$

99,545

Sale of common stock in a follow-on public offering ($23.00 per share), net of underwriting discounts and commissions and offering expenses of $8,950

 

6,325,000

 

 

 6

 

 

136,519

 

 

 —

 

 

 —

 

 

136,525

Issuance of common stock upon entry into License Agreement with Enteris Biopharma, Inc. ($23.42 per share)

 

170,793

 

 

 —

 

 

4,000

 

 

 —

 

 

 —

 

 

4,000

Stock-based compensation expense

 

 —

 

 

 —

 

 

2,835

 

 

 —

 

 

 —

 

 

2,835

Shares issued upon exercise of stock options

 

150,268

 

 

 —

 

 

1,843

 

 

 —

 

 

 —

 

 

1,843

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(32,842)

 

 

 —

 

 

(32,842)

Other comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(12)

 

 

(12)

Balance at September 30, 2019

 

46,673,977

 

$

46

 

$

583,811

 

$

(372,116)

 

$

153

 

$

211,894

 

See Notes to Condensed Financial Statements.

3

Table of Contents

CARA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

Nine Months Ended

 

 

    

September 30, 2019

    

September 30, 2018

 

Operating activities

 

 

  

 

 

  

 

Net loss

 

$

(77,762)

 

$

(53,361)

 

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

  

 

 

 

 

Stock-based compensation expense

 

 

9,182

 

 

5,759

 

Depreciation and amortization

 

 

150

 

 

318

 

Amortization expense component of lease expense

 

 

445

 

 

 —

 

Noncash expense related to oral formulation license agreement

 

 

4,000

 

 

 —

 

Accretion of available-for-sale marketable securities

 

 

(1,168)

 

 

(1,177)

 

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

 

 

 —

 

 

32

 

Deferred rent costs

 

 

 —

 

 

(89)

 

Deferred revenue

 

 

(15,235)

 

 

47,542

 

Changes in operating assets and liabilities:

 

 

  

 

 

 

 

Income tax receivable

 

 

(369)

 

 

192

 

Other receivables

 

 

142

 

 

(70)

 

Prepaid expenses

 

 

(3,751)

 

 

(2,583)

 

Accounts payable and accrued expenses

 

 

6,958

 

 

5,497

 

Operating lease liability

 

 

(651)

 

 

 —

 

Net cash (used in) provided by operating activities

 

 

(78,059)

 

 

2,060

 

Investing activities

 

 

  

 

 

  

 

Proceeds from maturities of available-for-sale marketable securities

 

 

195,839

 

 

85,500

 

Proceeds from sale of available-for-sale marketable securities

 

 

 —

 

 

28,250

 

Purchases of available-for-sale marketable securities

 

 

(241,075)

 

 

(138,689)

 

Purchases of property and equipment

 

 

(18)

 

 

(49)

 

Net cash used in investing activities

 

 

(45,254)

 

 

(24,988)

 

Financing activities

 

 

  

 

 

  

 

Proceeds from the sale of common stock in a follow-on public offering, net of issuance costs

 

 

136,525

 

 

92,077

 

Proceeds from the sale of common stock under license agreement

 

 

 —

 

 

14,556

 

Proceeds from the exercise of stock options

 

 

6,051

 

 

3,636

 

Net cash provided by financing activities

 

 

142,576

 

 

110,269

 

Net increase in cash, cash equivalents and restricted cash

 

 

19,263

 

 

87,341

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

15,850

 

 

10,157

 

Cash, cash equivalents and restricted cash at end of period

 

$

35,113

 

$

97,498

 

Noncash investing and financing activities

 

 

 

 

 

 

 

Shares of common stock issued in connection with oral formulation license agreement

 

$

4,000

 

$

 —

 

Shares of common stock issued in exchange for consulting services

 

 

197

 

 

 —

 

 

See Notes to Condensed Financial Statements.

 

 

4

Table of Contents

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 designed to alleviate pruritus 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 and raising capital.

As of September 30, 2019, the Company had raised aggregate net proceeds of approximately $519,700 from several rounds of equity financing, including its initial public offering, or IPO, which closed in February 2014 and four follow-on public offerings of common stock, which closed in July 2019, 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 September 30, 2019, the Company had unrestricted cash and cash equivalents and marketable securities of $249,074 and an accumulated deficit of $372,116. 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 $32,842 and $19,400 for the three months ended September 30, 2019 and 2018, respectively, and $77,762 and $53,361 for the nine months ended September 30, 2019 and 2018, respectively, and had net cash (used in) provided by operating activities of $(78,059) and $2,060 for the nine months ended September 30, 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

Table of Contents

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

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

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.

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

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

(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 will adopt ASU 2018-18 on January 1, 2020, and 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 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 or cash flows.

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. In April 2019, codification improvements were issued to help clarify and correct certain portions of ASU 2016‑13. ASU 2016‑13 will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company will adopt ASU 2016-13 on January 1, 2020 and believes ASU 2016-13 will primarily impact the Company’s assessment of any potential impairment of its investments in debt securities, specifically its assessment of whether any portion of an unrealized loss in a given period relates to a credit loss.

 

3. Available-for-Sale Marketable Securities

As of September 30, 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.

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Table of Contents

CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

The following tables summarize the Company’s available-for-sale marketable securities by major type of security as of September 30, 2019 and December 31, 2018:

As of September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Unrealized

 

Estimated Fair

Type of Security

    

Amortized Cost

    

Gains

    

Losses

    

Value

U.S. Treasury securities

 

$

12,842

 

$

27

 

$

(9)

 

$

12,860

U.S. government agency obligations

 

 

22,426

 

 

12

 

 

(11)

 

 

22,427

Corporate bonds

 

 

108,108

 

 

145

 

 

(27)

 

 

108,226

Commercial paper

 

 

65,340

 

 

19

 

 

(3)

 

 

65,356

Municipal bonds

 

 

5,500

 

 

 —

 

 

 —

 

 

5,500

Total available-for-sale marketable securities

 

$

214,216

 

$

203

 

$

(50)

 

$

214,369

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Unrealized

 

Estimated Fair

Type of Security

    

Amortized Cost

    

Gains

    

Losses

    

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

 

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 September 30, 2019, the Company’s marketable debt securities mature at various dates through September 2021. The amortized cost and fair values of marketable debt securities by contractual maturity were as follows.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2019

 

As of December 31, 2018

Contractual maturity

    

Amortized Cost

    

Fair Value

    

Amortized Cost

    

Fair Value

Less than one year

 

$

158,274

 

$

158,384

 

$

146,363

 

 

146,302

One year to two years

 

 

55,942

 

 

55,985

 

 

21,449

 

 

21,396

Total

 

$

214,216

 

$

214,369

 

$

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.

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Table of Contents

CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

As of September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

12 Months or Greater

 

Total

 

 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Gross

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair 

 

Unrealized

 

    

 Value

    

Losses

    

Value

    

Losses

    

Value

    

Losses

U.S. Treasury securities

 

$

3,177

 

$

(9)

 

$

 —

 

$

 —

 

$

3,177

 

$

(9)

U.S. government agency obligations

 

 

5,487

 

 

(11)

 

 

 —

 

 

 —

 

 

5,487

 

 

(11)

Corporate bonds

 

 

27,689

 

 

(27)

 

 

 —

 

 

 —

 

 

27,689

 

 

(27)

Commercial paper

 

 

11,906

 

 

(3)

 

 

 —

 

 

 —

 

 

11,906

 

 

(3)

Total

 

$

48,259

 

$

(50)

 

$

 —

 

$

 —

 

$

48,259

 

$

(50)

 

As of December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 Months

 

12 Months or Greater

 

Total

 

 

 

 

 

Gross

 

 

 

 

Gross

 

 

 

 

Gross

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

    

 Value

    

Losses

    

 Value

    

Losses

    

 Value

    

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)