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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, 2020

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 5, 2020 was: 49,832,104.

Table of Contents

CARA THERAPEUTICS, INC.

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

PART I –FINANCIAL INFORMATION

PAGE

NUMBER

Item 1.

Financial Statements (Unaudited):

Condensed Balance Sheets as of September 30, 2020 and December 31, 2019

1

Condensed Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019

2

Condensed Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2020 and 2019

3

Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019

4

Notes to Condensed Financial Statements

5

Item 2.

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

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

57

Item 4.

Controls and Procedures

57

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

59

Item 1A

Risk Factors

59

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

103

Item 3.

Defaults Upon Senior Securities

103

Item 4.

Mine Safety Disclosures

103

Item 5.

Other Information

103

Item 6.

Exhibits

104

SIGNATURES

106

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, 2020

    

December 31, 2019

Assets

 

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

75,281

$

18,305

Marketable securities

 

45,588

 

136,701

Income tax receivable

 

1,252

 

816

Other receivables

 

462

 

971

Prepaid expenses

 

10,254

 

8,863

Total current assets

 

132,837

 

165,656

Operating lease right-of-use asset

2,654

3,036

Marketable securities, non-current

 

10,506

 

63,159

Property and equipment, net

 

731

 

700

Restricted cash

 

408

 

408

Total assets

$

147,136

$

232,959

Liabilities and stockholders’ equity

 

 

  

Current liabilities:

 

 

  

Accounts payable and accrued expenses

$

15,057

$

19,665

Operating lease liability, current

1,030

967

Current portion of deferred revenue

 

511

 

22,262

Total current liabilities

 

16,598

 

42,894

Operating lease liability, non-current

2,691

3,352

Commitments and contingencies (Note 15)

 

 

Stockholders’ equity:

 

 

  

Preferred stock; $0.001 par value; 5,000,000 shares authorized at September 30, 2020 and December 31, 2019, zero shares issued and outstanding at September 30, 2020 and December 31, 2019

 

 

Common stock; $0.001 par value; 100,000,000 shares authorized at September 30, 2020 and December 31, 2019, 46,892,552 shares and 46,720,225 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

47

 

47

Additional paid-in capital

 

598,663

 

587,223

Accumulated deficit

 

(471,226)

 

(400,727)

Accumulated other comprehensive income

 

363

 

170

Total stockholders’ equity

 

127,847

 

186,713

Total liabilities and stockholders’ equity

$

147,136

$

232,959

See Notes to Condensed Financial Statements.

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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, 2020

    

September 30, 2019

    

September 30, 2020

    

September 30, 2019

    

Revenue:

License and milestone fees

$

9,257

$

5,785

$

22,377

$

15,235

Clinical compound revenue

 

9

 

 

616

 

140

Total revenue

 

9,266

 

5,785

 

22,993

 

15,375

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

21,067

 

35,992

 

80,711

 

83,956

General and administrative

 

5,219

 

4,226

 

15,187

 

13,128

Total operating expenses

 

26,286

 

40,218

 

95,898

 

97,084

Operating loss

 

(17,020)

 

(34,433)

 

(72,905)

 

(81,709)

Other income, net

 

379

 

1,261

 

1,970

 

3,297

Loss before benefit from income taxes

 

(16,641)

 

(33,172)

 

(70,935)

 

(78,412)

Benefit from income taxes

 

132

 

330

 

436

 

650

Net loss

$

(16,509)

$

(32,842)

$

(70,499)

$

(77,762)

Net loss per share:

 

 

  

 

  

 

  

Basic and Diluted

$

(0.35)

$

(0.74)

$

(1.51)

$

(1.88)

Weighted average shares:

 

  

 

 

  

 

Basic and Diluted

 

46,885,424

 

44,517,134

 

46,803,659

 

41,314,044

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

 

  

 

 

  

 

  

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

 

(272)

 

(12)

 

193

 

267

Total comprehensive loss

$

(16,781)

$

(32,854)

$

(70,306)

$

(77,495)

See Notes to Condensed Financial Statements.

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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, 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

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Equity

Balance at December 31, 2019

46,720,225

$

47

$

587,223

$

(400,727)

$

170

$

186,713

Stock-based compensation expense

 

 

 

2,846

 

 

 

2,846

Shares issued upon exercise of stock options

 

7,500

 

 

75

 

 

 

75

Net loss

 

 

 

 

(28,922)

 

 

(28,922)

Other comprehensive loss

 

 

 

 

 

(238)

 

(238)

Balance at March 31, 2020

46,727,725

$

47

$

590,144

$

(429,649)

$

(68)

$

160,474

Stock-based compensation expense

 

 

2,993

 

 

 

2,993

Shares issued upon exercise of stock options

16,846

 

 

201

 

 

 

201

Shares issued upon vesting of restricted stock units

119,834

 

 

1,625

 

 

 

1,625

Net loss

 

 

 

(25,068)

 

 

(25,068)

Other comprehensive income

 

 

 

 

703

 

703

Balance at June 30, 2020

46,864,405

$

47

$

594,963

$

(454,717)

$

635

$

140,928

Stock-based compensation expense

3,305

3,305

Shares issued upon exercise of stock options

28,147

395

395

Net loss

(16,509)

(16,509)

Other comprehensive loss

(272)

(272)

Balance at September 30, 2020

46,892,552

$

47

$

598,663

$

(471,226)

$

363

$

127,847

See Notes to Condensed Financial Statements.

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Table of Contents

CARA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

Nine Months Ended

    

September 30, 2020

    

September 30, 2019

Operating activities

 

  

 

  

Net loss

$

(70,499)

$

(77,762)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

Stock-based compensation expense

 

10,770

 

9,182

Depreciation and amortization

 

147

 

150

Amortization expense component of lease expense

 

496

 

445

Noncash expense related to oral formulation license agreement

4,000

Amortization/(Accretion) of available-for-sale marketable securities, net

28

(1,168)

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

 

(126)

 

Deferred revenue

 

(21,751)

 

(15,235)

Changes in operating assets and liabilities:

 

 

Income tax receivable

 

(436)

 

(369)

Other receivables

 

509

 

142

Prepaid expenses

 

(1,391)

 

(3,751)

Accounts payable and accrued expenses

 

(4,608)

 

6,958

Operating lease liability

(714)

(651)

Net cash used in operating activities

 

(87,575)

 

(78,059)

Investing activities

 

  

 

  

Proceeds from maturities of available-for-sale marketable securities

 

119,895

 

195,839

Proceeds from redemptions of available-for-sale marketable securities, at par

22,035

Proceeds from sale of available-for-sale marketable securities

 

23,148

 

Purchases of available-for-sale marketable securities

 

(21,016)

 

(241,075)

Purchases of property and equipment

 

(182)

 

(18)

Net cash provided by (used in) investing activities

 

143,880

 

(45,254)

Financing activities

 

  

 

  

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

136,525

Proceeds from the exercise of stock options

 

671

 

6,051

Net cash provided by financing activities

 

671

 

142,576

Net increase in cash, cash equivalents and restricted cash

 

56,976

 

19,263

Cash, cash equivalents and restricted cash at beginning of period

 

18,713

 

15,850

Cash, cash equivalents and restricted cash at end of period

$

75,689

$

35,113

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.

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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)

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, 2020, the Company had raised aggregate net proceeds of approximately $519,600 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, respectively, and the issuance of convertible preferred stock and debt prior to the IPO. The Company had also received approximately $90,300 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, 2020, the Company had unrestricted cash and cash equivalents and marketable securities of $131,375 and an accumulated deficit of $471,226. 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 $16,509 and $32,842 for the three months ended September 30, 2020 and 2019, respectively, and $70,499 and $77,762 for the nine months ended September 30, 2020 and 2019, respectively, and had net cash used in operating activities of $87,575 and $78,059 for the nine months ended September 30, 2020 and 2019, respectively.

In October 2020, the Company entered into a license agreement with Vifor pursuant to which the Company received an upfront payment of $100,000 and an additional payment of $50,000 for the purchase of an aggregate of 2,939,552 shares of the Company’s common stock (see Note 16, Subsequent Events).

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

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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)

make the information presented not misleading. The condensed balance sheet data as of December 31, 2019 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, 2019.

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. 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.

The ongoing COVID-19 pandemic has interrupted business operations across the globe. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these condensed financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the reported amounts of assets and liabilities or the disclosure of contingent assets and liabilities. These estimates, however, may change as new events occur and additional information is obtained, and are recognized in the condensed financial statements as soon as they become known.

Actual results could differ materially from the Company’s estimates and assumptions.

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, 2019, except for the recent adoption of new accounting pronouncements as disclosed below.

Accounting Pronouncements Recently Adopted

On January 1, 2020, the Company adopted Accounting Standards Update, or 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 prior 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.

The Company deems certain of its investments to be marketable securities if the investment, or in the case of money market funds, the securities underlying the money market fund, meet the definition of a debt security in Accounting Standards Codification, or ASC, section 320-10-20. The Company considers its marketable securities to be available-for-sale, which are its only financial instruments that are within the scope of ASU 2016-13 as of September 30, 2020. The Company’s investments in marketable securities, including U.S. Treasury securities, U.S. government agency obligations, corporate bonds and commercial paper, are highly rated by Moody’s and S&P and have maturities primarily

6

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

of less than one year but no longer than two years. Accordingly, credit risk associated with the Company’s available-for-sale debt security portfolio is mitigated.

ASU 2016-13 modifies the prior other-than-temporary impairment model for available-for-sale debt securities by requiring (1) estimating expected credit losses (the portion of the amortized cost basis of a financial asset that the Company does not expect to collect) 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 was previously prohibited. In April and November 2019, respectively, codification improvements were issued to help clarify and correct certain portions of ASU 2016-13.

The Company reviews each of its available-for-sale marketable securities for unrealized losses (declines in fair value below its amortized cost basis) at each balance sheet date presented in its financial statements and whenever events or changes in circumstances indicate that the amortized cost basis of an asset may not be recoverable. In accordance with the adoption of ASU 2016-13, the Company is required to determine whether any portion of the unrealized loss for any available-for-sale debt security is due to a credit loss, and if so, to measure the amount of the credit loss.

The Company will rely on both qualitative and quantitative factors to determine whether the unrealized loss for each available-for-sale debt security at any balance sheet date is due to a credit loss.

Qualitative factors may include a credit downgrade, severity of the decline in fair value below amortized cost and other adverse conditions related specifically to the security, as well as the intent to sell the security, or whether the Company will more likely than not be required to sell the security before recovery of its amortized cost basis. The Company’s assessment of whether a security is impaired could change in the future due to new developments or changes in assumptions related to any particular security. If material qualitative factors indicate that a credit loss has occurred, the Company will determine the magnitude of that credit loss using a discounted cash flow model or other quantitative method.

If the Company intends to sell the security or it is more likely than not that the Company will be forced to sell the security before recovery of the amortized cost of the security, the entire unrealized loss is deemed to be a credit loss, which is recognized in net income (loss). Otherwise, the portion of the unrealized loss that is due to a credit loss will be recorded as an Allowance for Credit Loss, which will offset the balance of Marketable Securities on the Condensed Balance Sheets and as credit loss expense within other income, net on the Condensed Statements of Comprehensive Loss. The portion of the unrealized loss that is not due to a credit loss as well as all unrealized gains will be recorded in Accumulated Other Comprehensive Income (Loss), or AOCI, net of taxes, on the Condensed Balance Sheets. There was no cumulative effect adjustment as a result of the adoption of ASU 2016-13 on January 1, 2020 (see Note 3, Available-for-Sale Marketable Securities, and Note 5, Fair Value Measurements).

Accrued interest receivables are excluded from the Company’s amortized cost bases for its available-for-sale marketable securities and are included within Other Receivables on the Company’s Condensed Balance Sheets. The Company’s policy is to not measure an allowance for credit losses on accrued interest receivable balances at each reporting period since it elects to write off uncollectible accrued interest receivable balances as credit loss expense in a timely manner, which is by maturity date for all categories of its debt securities.

On January 1, 2020, the Company adopted ASU 2019-08, Compensation – Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), or ASU 2019-08, which requires the Company to measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. The amount recorded

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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 a reduction to the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award in accordance with Topic 718. The grant date is the date at which a grantor (supplier) and a grantee (customer) reach a mutual understanding of the key terms and conditions of a share-based payment award. The classification and subsequent measurement of the award are subject to the guidance in Topic 718 unless the share-based payment award is subsequently modified and the grantee is no longer a customer. The adoption of ASU 2019-08 did not have a material effect on its results of operations, financial position or cash flows since the Company has not historically granted share-based payment awards to customers.

On January 1, 2020, the Company adopted 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. The adoption of ASU 2018-18 did 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).

On January 1, 2020, the Company adopted 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. Upon adoption of ASU 2018-13, the Company did not have any assets or liabilities that are included in Level 3 fair value measurements and no retrospective treatment was applicable. As a result, the adoption of ASU 2018-13 did not have a material effect on its results of operations, financial position or cash flows.

Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), or ASU 2019-12, which removes specific exceptions to the general principles in Topic 740. ASU 2019-12 eliminates the need for an organization to analyze whether the following apply in a given period: (1) exception to the incremental approach for intra-period tax allocation; (2) exceptions to accounting for basis differences when there are ownership changes in foreign investments; and (3) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss. ASU 2019-12 also simplifies the accounting for income taxes for: (i) franchise taxes that are partially based on income; (ii) transactions with a government that result in a step up in the tax basis of goodwill; (iii) separate financial statements of legal entities that are not subject to tax; and (iv) enacted changes in tax laws in interim periods. The amendments in ASU 2019-12 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption of the amendments is permitted. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period and must adopt all the amendments in the same period. The amendments in ASU 2019-12 related to separate financial statements of legal entities that are not subject to tax should be applied on a retrospective basis for all periods presented. The amendments related to changes in ownership of foreign equity method investments or foreign subsidiaries should be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The amendments related to franchise taxes that are

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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)

partially based on income should be applied on either a retrospective basis for all periods presented or a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. All other amendments should be applied on a prospective basis. As such, the Company expects to adopt ASU 2019-12 on January 1, 2021 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 September 30, 2020 and December 31, 2019, 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 of December 31, 2019, the Company’s available-for-sale marketable securities also consisted of municipal bonds.

The following tables summarize the Company’s available-for-sale marketable securities by major type of security as of September 30, 2020 and December 31, 2019:

As of September 30, 2020

Gross Unrealized

Estimated Fair

Type of Security

    

Amortized Cost

    

Gains

    

Losses

    

Value

U.S. Treasury securities

$

9,081

$

98

$

$

9,179

U.S. government agency obligations

 

3,499

 

8

 

 

3,507

Corporate bonds

 

41,827

 

256

 

 

42,083

Commercial paper

 

1,324

 

1

 

 

1,325

Total available-for-sale marketable securities

$

55,731

$

363

$

$

56,094

As of December 31, 2019

Gross Unrealized

Estimated Fair

Type of Security

    

Amortized Cost

    

Gains

    

Losses

    

Value

U.S. Treasury securities

$

16,052

$

31

$

(2)

$

16,081

U.S. government agency obligations

 

25,803

 

14

 

(1)

 

25,816

Corporate bonds

 

115,788

 

125

 

(23)

 

115,890

Commercial paper

 

38,547

 

27

 

(1)

 

38,573

Municipal bonds

3,500

3,500

Total available-for-sale marketable securities

$

199,690

$

197

$

(27)

$

199,860

There were no individual debt securities in an unrealized loss position as of September 30, 2020. The following table summarizes the fair value and gross unrealized losses of the Company’s available-for-sale marketable securities by investment category and disaggregated by the length of time that individual debt securities have been in a continuous unrealized loss position as of December 31, 2019.

9

Table of Contents

CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

As of December 31, 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

$

3,185

$

(2)

$

$

$

3,185

$

(2)

U.S. government agency obligations

 

2,400

 

(1)

 

 

 

2,400

 

(1)

Corporate bonds

 

28,895

 

(23)

 

 

 

28,895

 

(23)

Commercial paper

 

4,264

 

(1)

 

 

 

4,264

 

(1)

Total

$

38,744

$

(27)

$

$

$

38,744

$

(27)

As of September 30, 2020, no allowance for credit losses was recognized on the Company’s available-for-sale debt securities as there were no individual debt securities in an unrealized loss position. As of December 31, 2019, no allowance for credit losses was recognized on the Company’s available-for-sale debt securities as no portion of the unrealized losses associated with those securities were due to credit losses. The information that the Company considered in reaching the conclusion that an allowance for credit losses was not necessary is as follows:

As of September 30, 2020 and December 31, 2019, the Company held a total of 0 out of 27 positions and 16 out of 81 positions, respectively, that were in an unrealized loss position, none of which had been in an unrealized loss position for 12 months or greater. Unrealized losses individually and in aggregate were not considered to be material as of December 31, 2019. 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.

The Company classifies its marketable debt securities based on their contractual maturity dates. As of September 30, 2020, the Company’s marketable debt securities mature at various dates through December 2021. The amortized cost and fair values of marketable debt securities by contractual maturity were as follows.

As of September 30, 2020

As of December 31, 2019

Contractual maturity

    

Amortized Cost

    

Fair Value

    

Amortized Cost

    

Fair Value

Less than one year

$

45,331

$

45,588

$

136,565

$

136,701

One year to two years

 

10,400

 

10,506

 

63,125

 

63,159

Total

$

55,731

$

56,094

$

199,690

$

199,860

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. Other income, net includes interest and dividends, accretion/amortization of discounts/premiums, realized gains and losses on sales of securities and credit loss expense due to declines in the fair value of securities, if any. The cost of securities sold is based on the specific identification method.

During the three and nine months ended September 30, 2020, the Company sold certain shares of its available-for-sale debt securities with a total fair value of $12,471 and $23,148, respectively. The sales of shares of available-for-sale debt securities resulted in realized gains of $66 and $126 for the three and nine months ended September 30, 2020, respectively. There were no sales of available-for-sale marketable securities during the three and nine months ended September 30, 2019.

As of September 30, 2020 and December 31, 2019, accrued interest receivables on our available-for-sale debt securities were $365 and $971, respectively.

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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)

4. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in AOCI, net of tax, from unrealized gains (losses) on available-for-sale marketable securities, the Company’s only component of AOCI, for the nine months ended September 30, 2020 and September 30, 2019.

    

Total Accumulated

Other Comprehensive 

Income (Loss)

Balance, December 31, 2019

$

170

Other comprehensive income before reclassifications

 

319

Amount reclassified from accumulated other comprehensive income

 

(126)

Net current period other comprehensive income

 

193

Balance, September 30, 2020

$

363

Balance, December 31, 2018

$

(114)

Other comprehensive income before reclassifications

 

267

Amount reclassified from accumulated other comprehensive income

 

Net current period other comprehensive income

 

267

Balance, September 30, 2019

$

153

Amounts reclassified out of AOCI into net loss are determined by specific identification. The reclassifications out of AOCI and into net loss were as follows:

Three Months Ended

Nine Months Ended

Affected Line Item in the 

September 30, 

September 30, 

Statements of

Component of AOCI

    

2020

    

2019

    

2020

    

2019

    

Operations

Unrealized gains (losses) on available-for- sale marketable securities

 

  

 

  

 

  

 

  

 

  

Realized gains on sale of securities

$

66

$

$

126

$

Other income, net

 

 

 

 

Benefit from income taxes

$

66

$

$

126

$

5. Fair Value Measurements

As of September 30, 2020 and December 31, 2019, 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

11