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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

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 the definitions 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 May 6, 2021 was: 50,052,011.

Table of Contents

CARA THERAPEUTICS, INC.

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

PART I –FINANCIAL INFORMATION

PAGE

NUMBER

Item 1.

Financial Statements (Unaudited):

Condensed Balance Sheets as of March 31, 2021 and December 31, 2020

1

Condensed Statements of Comprehensive Loss for the Three Months Ended March 31, 2021 and 2020

2

Condensed Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020

3

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020

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

51

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)

    

March 31, 2021

    

December 31, 2020

Assets

 

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

22,519

$

31,683

Marketable securities

 

149,063

 

149,242

Income tax receivable

 

1,507

 

1,507

Other receivables

 

2,244

 

557

Prepaid expenses

 

13,018

 

12,076

Total current assets

 

188,351

 

195,065

Operating lease right-of-use assets

3,963

4,279

Marketable securities, non-current

 

56,728

 

70,565

Property and equipment, net

 

778

 

840

Restricted cash

 

408

 

408

Total assets

$

250,228

$

271,157

Liabilities and stockholders’ equity

 

 

  

Current liabilities:

 

 

  

Accounts payable and accrued expenses

$

14,880

$

16,881

Operating lease liabilities, current

 

1,639

 

1,602

Total current liabilities

 

16,519

 

18,483

Operating lease liabilities, non-current

3,250

3,673

Commitments and contingencies (Note 15)

 

 

Stockholders’ equity:

 

 

  

Preferred stock; $0.001 par value; 5,000,000 shares authorized at March 31, 2021 and December 31, 2020, zero shares issued and outstanding at March 31, 2021 and December 31, 2020

 

 

Common stock; $0.001 par value; 100,000,000 shares authorized at March 31, 2021 and December 31, 2020, 50,026,667 shares and 49,872,213 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively

 

50

 

50

Additional paid-in capital

 

646,015

 

641,195

Accumulated deficit

 

(415,618)

 

(392,317)

Accumulated other comprehensive income

 

12

 

73

Total stockholders’ equity

 

230,459

 

249,001

Total liabilities and stockholders’ equity

$

250,228

$

271,157

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

    

March 31, 2021

    

March 31, 2020

    

Revenue:

License and milestone fees

$

1,192

$

8,021

Collaborative revenue

 

706

 

Clinical compound revenue

 

37

 

72

Total revenue

 

1,935

 

8,093

Operating expenses:

 

  

 

  

Research and development

 

19,131

 

33,536

General and administrative

 

6,365

 

4,558

Total operating expenses

 

25,496

 

38,094

Operating loss

 

(23,561)

 

(30,001)

Other income, net

 

260

 

957

Loss before benefit from income taxes

 

(23,301)

 

(29,044)

Benefit from income taxes

 

 

122

Net Loss

$

(23,301)

$

(28,922)

Net Loss per share:

 

  

 

  

Basic and Diluted

$

(0.47)

$

(0.62)

Weighted average shares:

 

  

 

Basic and Diluted

 

49,917,990

 

46,724,951

Other comprehensive loss, net of tax of $0:

 

  

 

  

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

 

(61)

 

(238)

Total comprehensive loss

$

(23,362)

$

(29,160)

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, 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

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Equity

Balance at December 31, 2020

49,872,213

$

50

$

641,195

$

(392,317)

$

73

$

249,001

Stock-based compensation expense

 

 

 

2,744

 

 

 

2,744

Shares issued upon exercise of stock options

 

45,035

 

 

688

 

 

 

688

Shares issued upon vesting of restricted stock units

109,419

1,388

1,388

Net loss

 

 

 

 

(23,301)

 

 

(23,301)

Other comprehensive loss

 

 

 

 

 

(61)

 

(61)

Balance at March 31, 2021

50,026,667

$

50

$

646,015

$

(415,618)

$

12

$

230,459

See Notes to Condensed Financial Statements.

3

Table of Contents

CARA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

Three Months Ended

    

March 31, 2021

    

March 31, 2020

    

Operating activities

 

  

 

  

Net loss

$

(23,301)

$

(28,922)

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

 

  

 

Stock-based compensation expense

 

4,132

 

2,846

Depreciation and amortization

 

63

 

48

Amortization expense component of lease expense

 

316

 

160

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

194

(65)

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

 

(39)

 

Realized gain on sale of property and equipment

 

(70)

 

Deferred revenue

 

 

(8,021)

Changes in operating assets and liabilities:

 

 

Income tax receivable

 

 

(122)

Other receivables

 

(1,687)

 

124

Prepaid expenses

 

(942)

 

(1,825)

Accounts payable and accrued expenses

 

(2,001)

 

(2,294)

Operating lease liabilities

(386)

(232)

Net cash used in operating activities

 

(23,721)

 

(38,303)

Investing activities

 

  

 

  

Proceeds from maturities of available-for-sale marketable securities

 

27,655

 

55,475

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

2,100

2,500

Proceeds from sale of available-for-sale marketable securities

 

8,029

 

Purchases of available-for-sale marketable securities

 

(23,985)

 

(21,016)

Proceeds from sale of property and equipment

 

70

 

Net cash provided by investing activities

 

13,869

 

36,959

Financing activities

 

  

 

  

Proceeds from the exercise of stock options

 

688

 

75

Net cash provided by financing activities

 

688

 

75

Net decrease in cash, cash equivalents and restricted cash

 

(9,164)

 

(1,269)

Cash, cash equivalents and restricted cash at beginning of period

 

32,091

 

18,713

Cash, cash equivalents and restricted cash at end of period

$

22,927

$

17,444

See Notes to Condensed Financial Statements.

4

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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 March 31, 2021, 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 earned approximately $203,800 under its license agreements for CR845/difelikefalin, primarily with Vifor (International) Ltd., or Vifor, 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 October 2020, the Company received net proceeds of $38,449 from the issuance and sale of 2,939,552 shares of the Company’s common stock to Vifor in connection with the Company’s license agreement with Vifor. Furthermore, 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 in connection with the Company’s license agreement with VFMCRP (see Note 10, Collaboration and Licensing Agreements).

As of March 31, 2021, the Company had unrestricted cash and cash equivalents and marketable securities of $228,310 and an accumulated deficit of $415,618. 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 $23,301 and $28,922 for the three months ended March 31, 2021 and 2020, respectively, and had net cash used in operating activities of $23,721 and $38,303 for the three months ended March 31, 2021 and 2020, 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, 2020 were derived from audited financial statements, but do not include all disclosures required by GAAP. These unaudited interim

5

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

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, 2020.

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. The more significant estimates include the fair value of marketable securities that are classified as level 2 of the fair value hierarchy, 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, 2020, except for the recent adoption of new accounting pronouncements as disclosed below.

Accounting Pronouncements Recently Adopted

In December 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 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. 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 partially based on income should be applied on either a retrospective basis for all

6

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

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. The Company adopted ASU 2019-12 on January 1, 2021 and it did not have a material effect on its results of operations, financial position, and cash flows due to the full valuation allowance recorded.

3. Available-for-Sale Marketable Securities

As of March 31, 2021 and December 31, 2020, 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, 2021 and December 31, 2020:

As of March 31, 2021

Gross Unrealized

Estimated Fair

Type of Security

    

Amortized Cost

    

Gains

    

Losses

    

Value

U.S. Treasury securities

$

15,164

$

3

$

$

15,167

U.S. government agency obligations

 

22,099

 

4

 

(6)

 

22,097

Corporate bonds

 

41,674

 

26

 

(48)

 

41,652

Commercial paper

115,179

10

(2)

115,187

Municipal bonds

 

11,663

 

28

 

(3)

 

11,688

Total available-for-sale marketable securities

$

205,779

$

71

$

(59)

$

205,791

As of December 31, 2020

Gross Unrealized

Estimated Fair

Type of Security

    

Amortized Cost

    

Gains

    

Losses

    

Value

U.S. Treasury securities

$

20,710

$

41

$

(1)

$

20,750

U.S. government agency obligations

 

22,125

 

4

 

(1)

 

22,128

Corporate bonds

 

49,080

 

61

 

(23)

 

49,118

Commercial paper

 

116,139

 

5

 

(17)

 

116,127

Municipal bonds

11,680

12

(8)

11,684

Total available-for-sale marketable securities

$

219,734

$

123

$

(50)

$

219,807

The following tables summarize 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 March 31, 2021 and December 31, 2020:

7

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

As of March 31, 2021

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. government agency obligations

$

9,494

$

(6)

$

$

$

9,494

$

(6)

Corporate bonds

 

30,751

 

(48)

 

 

 

30,751

 

(48)

Commercial paper

39,480

(2)

39,480

(2)

Municipal bonds

1,022

(3)

1,022

(3)

Total

$

80,747

$

(59)

$

$

$

80,747

$

(59)

As of December 31, 2020

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

$

12,682

$

(1)

$

$

$

12,682

$

(1)

U.S. government agency obligations

2,500

(1)

2,500

(1)

Corporate bonds

 

23,553

 

(23)

 

 

 

23,553

 

(23)

Commercial paper

 

68,897

 

(17)

 

 

 

68,897

 

(17)

Municipal bonds

 

6,259

 

(8)

 

 

 

6,259

 

(8)

Total

$

113,891

$

(50)

$

$

$

113,891

$

(50)

As of March 31, 2021 and December 31, 2020, no allowance for credit losses were 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 March 31, 2021 and December 31, 2020, the Company held a total of 27 out of 58 positions and 30 out of 59 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 for each respective period. 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.

U.S. government agency obligations. The unrealized losses on the Company’s investments in direct obligations of U.S. government agencies were due to changes in interest rates and non-credit related factors. The contractual terms of these investments do not permit the issuer to repay principal at a price less than the amortized cost bases of the investments, which is equivalent to the par value on the maturity date. The Company expects to recover the entire amortized cost bases of these securities on the maturity date. The Company does not intend to sell these investments, and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost bases. The Company held 3 out of 6 positions for its U.S. government agency obligations that were in unrealized loss positions as of March 31, 2021.

Corporate bonds, commercial paper, and municipal bonds. The unrealized losses on the Company’s investments in corporate bonds, commercial paper and municipal bonds were due to changes in interest rates and non-credit related factors. The credit ratings of these investments in the Company’s portfolio have not been downgraded below investment

8

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

grade status. The contractual terms of these investments do not permit the issuer to repay principal at a price less than the amortized cost bases of the investments, which is equivalent to the par value on the maturity date. The Company expects to recover the entire amortized cost bases of these securities on the maturity date. The Company does not intend to sell these investments, and it is not more likely than not that the Company will be required to sell these investments, before recovery of their amortized cost bases. The Company held 12 out of 16 positions for its corporate bonds, 11 out of 25 positions for its commercial paper, and 1 out of 7 positions for its municipal bonds, that were in unrealized loss positions as of March 31, 2021.

The Company classifies its marketable debt securities based on their contractual maturity dates. As of March 31, 2021, the Company’s marketable debt securities mature at various dates through January 2024. The amortized cost and fair values of marketable debt securities by contractual maturity were as follows.

As of March 31, 2021

As of December 31, 2020

Contractual maturity

    

Amortized Cost

    

Fair Value

    

Amortized Cost

    

Fair Value

Less than one year

$

149,031

$

149,063

$

149,164

$

149,242

One year to three years

 

56,748

 

56,728

 

70,570

 

70,565

Total

$

205,779

$

205,791

$

219,734

$

219,807

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 months ended March 31, 2021, the Company sold certain shares of its available-for-sale debt securities with a total fair value of $8,029, which resulted in realized gains of $39 for the three months ended March 31, 2021. There were no sales of available-for-sale marketable securities during the three months ended March 31, 2020.

As of March 31, 2021 and December 31, 2020, accrued interest receivables on our available-for-sale debt securities were $346 and $311, 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 accumulated other comprehensive income (loss), net of tax, from unrealized gains (losses) on available-for-sale marketable securities, the Company’s only component of accumulated other comprehensive income (loss), for the three months ended March 31, 2021 and March 31, 2020.

    

Total Accumulated

Other Comprehensive 

Income (Loss)

Balance, December 31, 2020

$

73

Other comprehensive loss before reclassifications

 

(22)

Amount reclassified from accumulated other comprehensive income

 

(39)

Net current period other comprehensive loss

 

(61)

Balance, March 31, 2021

$

12

Balance, December 31, 2019

$

170

Other comprehensive loss before reclassifications

 

(238)

Amount reclassified from accumulated other comprehensive income

 

Net current period other comprehensive loss

 

(238)

Balance, March 31, 2020

$

(68)

Amounts reclassified out of accumulated other comprehensive income (loss) into net loss are determined by specific identification. The reclassifications out of accumulated other comprehensive income (loss) and into net loss were as follows:

Three Months Ended

Affected Line Item in the 

Component of Accumulated Other

March 31, 

Condensed Statements of

Comprehensive Income (Loss)

    

2021

    

2020

    

Comprehensive Income (Loss)

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

 

  

 

  

 

  

Realized gains on sales of securities

$

39

$

Other income, net

Income tax effect

 

 

Benefit from income taxes

Realized gains on sales of securities, net of tax

$

39

$

5. Fair Value Measurements

As of March 31, 2021 and December 31, 2020, 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 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.

The valuation techniques used by the Company 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.

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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 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, 2021 or December 31, 2020.

11

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 financial assets measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020.

Fair value measurement as of March 31, 2021:

Quoted prices in

Significant other

Significant

Financial assets

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

$

22,519

$

22,519

$

$

Available-for-sale marketable securities:

 

  

 

  

 

  

 

  

U.S. Treasury securities

 

15,167

 

 

15,167

 

U.S. government agency obligations

 

22,097

 

 

22,097

 

Corporate bonds

 

41,652

 

 

41,652

 

Commercial paper

 

115,187

 

 

115,187

 

Municipal bonds

 

11,688

 

 

11,688

 

Restricted cash:

 

 

  

 

  

 

  

Commercial money market account

 

408

 

408

 

 

Total financial assets

$

228,718

$

22,927

$

205,791

$

Fair value measurement as of December 31, 2020:

Quoted prices in

Significant other

Significant

Financial assets

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

$

31,683

$

31,683

$

$

Available-for-sale marketable securities:

 

  

 

  

 

  

 

  

U.S. Treasury securities

20,750

20,750

U.S. government agency obligations

 

22,128

 

 

22,128

 

Corporate bonds

 

49,118

 

 

49,118

 

Commercial paper

 

116,127

 

 

116,127

 

Municipal bonds

11,684

11,684

Restricted cash:

 

  

 

  

 

  

 

  

Commercial money market account

 

408

 

408

 

 

Total financial assets

$

251,898

$

32,091

$

219,807

$

There were no purchases, sales or maturities of Level 3 financial assets and no unrealized gains or losses related to Level 3 available-for-sale marketable securities during the three months ended March 31, 2021 and 2020, respectively. There were no transfers of financial assets into or out of Level 3 classification during the three months ended March 31, 2021 and 2020, respectively.

6. Restricted Cash

The Company is required to maintain a stand-by letter of credit as a security deposit under its leases for its office space in Stamford, Connecticut (refer to Note 15, Commitments and Contingencies: Leases). The fair value of the letter of credit approximates its contract value. The Company’s bank requires the Company to maintain a restricted cash

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

balance to serve as collateral for the letter of credit issued to the landlord by the bank. As of March 31, 2021, the restricted cash balance for the Stamford Lease was invested in a commercial money market account.

As of March 31, 2021 and December 31, 2020, the Company had $408 of restricted cash related to the Stamford Lease in long-term assets.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Condensed Balance Sheets that sum to the total of the same such amounts shown in the Condensed Statements of Cash Flows.

    

March 31, 2021

    

December 31, 2020

Cash and cash equivalents

$

22,519

$

31,683

Restricted cash, long-term assets

 

408

 

408

Total cash, cash equivalents, and restricted cash shown in the Condensed Statements of Cash Flows

$

22,927

$

32,091

7. Prepaid expenses

As of March 31, 2021, prepaid expenses were $13,018, consisting of $10,557 of prepaid R&D clinical costs, $2,007 of prepaid insurance and $454 of other prepaid costs. As of December 31, 2020, prepaid expenses were $12,076, consisting of $11,286 of prepaid R&D clinical costs, $223 of prepaid insurance, and $567 of other prepaid costs.

8. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:

    

March 31, 2021

    

December 31, 2020

Accounts payable

$

4,765

$

4,893

Accrued research projects

 

7,190

 

6,194

Accrued compensation and benefits

 

2,336

 

4,955

Accrued professional fees and other

 

589

 

839

Total

$

14,880

$

16,881

9. Stockholders’ Equity

In February and March 2021, as a result of the achievement of certain performance targets, an aggregate of 76,750 performance-based restricted stock units of various executive officers vested and were settled in shares of the Company’s common stock (see Note 13, Stock-Based Compensation).

In February 2021, as a result of the completion of the first year of the three-year vesting period, an aggregate of 32,669 time-based restricted stock units of various executive officers vested and were settled in shares of the Company’s common stock (see Note 13, Stock-Based Compensation).

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

10. Collaboration and Licensing Agreements

Vifor (International) Ltd.

In October 2020, the Company entered into a license agreement with Vifor, or the Vifor Agreement, under which the Company granted Vifor an exclusive license solely in the United States to use, distribute, offer for sale, promote, sell and otherwise commercialize CR845/difelikefalin injection for all therapeutic uses relating to the inhibition, prevention or treatment of itch associated with pruritus in hemodialysis and peritoneal dialysis patients in the United States. Under the Vifor Agreement, the Company retains all rights with respect to the clinical development of, and activities to gain regulatory approvals of, CR845/difelikefalin injection in the United States.

The Vifor Agreement provides full commercialization rights in dialysis clinics to Vifor in the United States under a profit-sharing arrangement. Pursuant to the profit-sharing arrangement, the Company will generally be entitled to 60% of the net profits (as defined in the Vifor Agreement) from sales of CR845/difelikefalin injection in the United States (excluding sales to Fresenius Medical Center dialysis clinics, compensation for which is governed by the VFMCRP Agreement) and Vifor is entitled to 40% of such net profits, subject to potential temporary adjustment in future years based on certain conditions. Under the Vifor Agreement, in consideration of Vifor’s conduct of the marketing, promotion, selling and distribution of CR845/difelikefalin injection in the United States, the Company will pay a marketing and distribution fee to Vifor based on the level of annual net sales. This fee will be deducted from product sales in calculating the net profits that are subject to the profit-sharing arrangement under the Vifor Agreement.

Under the terms of the Vifor Agreement, the Company received from Vifor 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 at a price of $17.0094 per share, which represents a premium over a pre-determined average closing price of the Company’s common stock. The purchase of the Company’s common stock was governed by a separate stock purchase agreement.

Upon U.S. regulatory approval of CR845/difelikefalin, the Company will also be eligible to receive an additional $50,000 common stock investment at a 20% premium to the 30-day trailing average price of the Company’s common stock as of such date. In addition, pursuant to the Vifor Agreement, the Company is eligible to receive payments of up to $240,000 upon the achievement of certain sales-based milestones.

The Company retains the rights to make and have made CR845/difelikefalin injection, or the Licensed Product, on a non-exclusive basis, in the United States for commercial sale of the Licensed Product for use in all therapeutic uses to prevent, inhibit or treat itch associated with pruritus in hemodialysis and peritoneal-dialysis patients, or the Field, anywhere in the world and for supply of Licensed Product to Vifor under the terms of a supply agreement, or the Vifor Supply Agreement. The supply price will be the Company’s cost of goods sold, as calculated under GAAP, plus an agreed upon margin. The Vifor Supply Agreement will co-terminate with the Vifor Agreement. Regarding the supply agreement, the Vifor Agreement only includes a requirement for the Company to negotiate in good faith with Vifor. After the execution of the Vifor Agreement, a separate agreement to supply them with the Licensed Product would be entered into, although the Company has no obligation to execute a supply agreement.

The Vifor Supply Agreement will be accounted for as a customer option that is not a material right because the selling price of the Licensed Product under the Vifor Supply Agreement is the Company’s cost of goods sold plus an agreed upon margin, which is commensurate with the “cost of goods sold plus” model that the Company would charge other parties under similar agreements (the standalone selling price) and not at a discount. Therefore, the sale of clinical compound to Vifor is not a performance obligation under the Vifor Agreement but rather the Vifor Supply Agreement is a separate agreement from the Vifor Agreement. The only performance obligation under the Vifor Supply Agreement is

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

the delivery of the Licensed Product to Vifor for commercialization. Re