NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
1. Business
Cara Therapeutics, Inc. (the Company, we, our or us) 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 pain and pruritus by selectively targeting peripheral kappa opioid receptors. The Companys primary
activities to date have been organizing and staffing the company, developing its product candidates, including conducting preclinical studies and clinical trials of CR845-based product candidates and raising capital.
As of June 30, 2017, the Company has raised aggregate net proceeds of approximately $291,100 from several rounds of equity financing,
including its initial public offering, which closed in February 2014 and two follow-on public offerings of common stock, which closed in April 2017 and August 2015, respectively, and the issuance of debt. In addition, the Company received
approximately $33,500 under its license agreements for CR845, primarily with 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 (see Note 10,
Collaborations
).
On April 5, 2017, the Company completed its second follow-on public offering, raising
aggregate proceeds of approximately $86,224, net of underwriting discounts and commissions and offering expenses paid by the Company. The offering was conducted pursuant to a shelf registration statement on Form S-3, which was filed on
March 13, 2017 and declared effective by the Securities and Exchange Commission, or the SEC, on March 24, 2017 (see Note 9,
Stockholders Equity
).
As of June 30, 2017, the Company had unrestricted cash and cash equivalents and marketable securities of $112,436 and an accumulated
deficit of $193,720. 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 $31,504 and $23,766 and had net cash used in operating activities of $33,563 and $21,292 for the six months ended June 30, 2017 and 2016, 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 SEC.
Accordingly, they do not include all information and disclosures necessary for a presentation of the Companys 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 for the year
ended December 31, 2016 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 Companys Annual Report on Form 10-K for the year ended December 31, 2016.
5
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and liabilities, as of the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ
materially from the Companys 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 and the likelihood of realization of deferred tax assets.
During the three months ended June 30, 2017, the Company recognized a reduction of the estimate of accrued clinical trial costs, within
R&D expense, that had been recorded in the first quarter of 2017, by approximately $1,500.
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 Companys Annual Report on Form 10-K for the year ended December 31, 2016.
Accounting Pronouncements Recently Adopted
As of January 1, 2017, the Company adopted Accounting Standards Update, or ASU, No. 2016-09,
Improvements to Employee
Share-Based Payment Accounting
, or ASU 2016-09, which amends Accounting Standards Codification, or ASC,
Topic 718
,
Compensation Stock Compensation
. ASU 2016-09 simplifies several aspects of the accounting for
share-based payment transactions, including the accounting for forfeitures, income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Certain of the amendments were applied
using a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of January 1, 2017, while other amendments were applied retrospectively, prospectively or using either a prospective or a retrospective
transition method. Upon adoption, the Company began to account for forfeitures as they occur rather than estimate forfeiture rates for stock option awards. As a result, the Company recorded a cumulative-effect adjustment to stockholders equity
of $45 on the date of initial adoption for all stock option awards that were unvested as of that date. In periods subsequent to adoption, a higher expense will be recognized earlier during the respective vesting periods of stock-based awards that
are not forfeited. The Company expects that the income tax amendments within ASU 2016-09 will have no impact on its results of operations or cash flows because it is in a net operating loss position with a full valuation allowance against its
deferred tax assets.
Recent Accounting Pronouncements Not Yet Adopted
In May 2017, the Financial Accounting Standards Board, or FASB, issued ASU No. 2017-09,
Compensation Stock Compensation (Topic
718) - Scope of Modification Accounting
, or ASU 2017-09, which clarifies that a change to the terms or conditions of a share-based payment award should be accounted for as a modification only if the fair value, vesting conditions or
classification (as equity or liability) of the award changes as a result of the change in terms or conditions. Modification of a share-based payment award may result in the Company recognizing additional compensation expense. ASU 2017-09 is
effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company does not expect that the adoption of ASU 2017-09 will have a material effect on its financial position, results of
operations or cash flows since it has not had a history of modifying, and does not expect to modify, the fair value, vesting conditions or classification of its share-based payment awards.
In January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805), Clarifying the Definition of a Business,
or
ASU 2017-01
,
that clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 requires an entity to evaluate if
substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU
2017-01 also requires a business to include at least an input and one substantive process that together significantly contribute to the ability to create output and removes the evaluation of whether a market participant could replace missing
elements. ASU 2017-01 will be applied prospectively and is effective for annual periods beginning after December 15, 2017 and interim periods
6
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
within those annual periods. The Company does not expect that the adoption of ASU 2017-01 will have a material effect on its financial position, results of operations or cash flows since it has
not and does not expect to acquire or dispose of assets for which the fair value is divided among diverse identifiable assets.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842)
, or ASU 2016-02, which amends the current guidance for the accounting and disclosure of leases (ASC 840) for both lessees and lessors. ASU 2016-02 requires a lessee to
recognize in its balance sheet a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. The lease liability will be equal to the present value of lease payments and the
right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either
operating leases or capital leases. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while capital leases will result in a front-loaded expense
pattern (similar to current accounting by lessees for capital leases under ASC 840). Lessees and lessors will adopt ASU 2016-02 by using a modified retrospective transition approach. ASU 2016-02 also requires a lessee to disclose qualitative and
quantitative information about its leasing arrangements. ASU 2016-02 is effective for interim and annual periods beginning after December 31, 2018, and may be adopted earlier. The Company is continuing to evaluate the impact that ASU 2016-02
will have on its financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic
606)
, or ASU 2014-09, which changes the principle under which the Company will recognize revenue from contracts with customers from one which requires the Company to satisfy specific criteria before recognizing revenue to one which requires the
Company to recognize revenue in an amount that reflects the consideration to which it expects to be entitled in exchange for the transfer of promised goods or services to customers. Topic 606 defines a five-step process to achieve this core
principle: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the
contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company currently recognizes
revenue only from a license agreement with Maruishi, or the Maruishi Agreement, and a license agreement with CKDP, or the CKDP Agreement. Under each of these agreements, the Company has recognized revenue from upfront and milestone payments and may
earn additional future milestone payments upon the achievement of defined clinical and regulatory events. The Company has also recognized revenue from a sub-license fee under the Maruishi Agreement. The Company is continuing to monitor the timing of
achievement of the milestones under each agreement. To the extent that all defined milestones have not been achieved and the related revenue recognized under current GAAP prior to the adoption of ASU 2014-09, those contracts will be included within
the scope of ASU 2014-09.
The Company is currently accounting for the Maruishi Agreement and the CKDP Agreement under ASC 605-25,
Multiple-Element Arrangements
, or ASC 605-25, and ASC 605-28,
Milestone Method
, or ASC 605-28. The Company has analyzed the terms and conditions of each of these contracts in light of the guidance under ASC 606, including amendments
under ASU 2016-08, 2016-10, 2016-12 and 2016-20, and has concluded that, due to the similarity of the application of the guidance under ASC 605-25 and ASC 605-28 and under ASC 606, as amended, as it relates to revenue recognition for licenses of
intellectual property, or IP, as applied to each of these contracts, the distinct performance obligations, transaction prices, amount of the transaction price allocated to the performance obligations and timing and amount of revenue recognition
under ASC 606, as amended, will be the same as under ASC 605-25 and ASC 605-28.
In particular, the following aspects of ASC 606, as
amended, are the same as those under ASC 605-25 and ASC 605-28 in respect of the Maruishi Agreement and the CKDP Agreement. The Maruishi Agreement has two distinct performance obligations, granting of the license and the R&D services and the
CKDP Agreement has one distinct performance obligation, granting of the license. The methodology for determining the relative standalone selling price of the performance obligations and the allocation of the transaction price to the performance
obligations is the same under both standards. The licenses granted to the counterparties under these two contracts are deemed to be functional IP for which revenue is recognized at a point in time, which has been determined to be inception of the
respective license agreements, the same as under ASC 605. The R&D services under the Maruishi Agreement were performed from inception of the agreement in 2013 through the third quarter of 2015. Accordingly, under ASC 606, as amended, revenue
related to the R&D services under the Maruishi Agreement would be recognized proportionately as those services were performed, as it was under ASC 605-25.
7
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
Although the milestone method guidance under ASC 605-28 no longer applies under ASC 606, as
amended, the guidance under ASC 606, as amended, for milestones and sales-based royalties related to licenses of IP is effectively the same as pertains to milestones achieved by the Company and those achieved by the counterparty to each license
agreement. In addition, due to the probability, at inception of each of the two license agreements, that revenue recognized related to the achievement of milestones and sales-based royalty payments will be reversed in the future, the constraint on
including those potential payments in the transaction price at that time applies under ASC 606, as amended. Under ASC 606, as amended, recognition of revenue for achievement of any milestone and sales-based royalty payment will occur at the time
that it becomes probable that those events will be achieved. Application of the guidance under ASC 606, as amended, to the milestones achieved under the Maruishi Agreement and the CKDP Agreement prior to adoption of that standard will not change the
amount or timing of revenue recognized under ASC 605 for any reporting period presented at or after the date of adoption of ASC 606, as amended. As a result of the foregoing considerations, the Company has concluded that upon adoption of ASC 606, as
amended, there will be no impact on its results of operations, financial position or cash flows for any period presented.
ASU 2014-09, as
amended by ASU 2015-14, is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual reporting periods. ASU 2014-09 allows for two transition methods: (1) retrospectively to each
prior reporting period presented, or (2) using a modified retrospective approach, with the cumulative effect of initially applying ASU 2014-09 recognized as an adjustment to the opening balance of retained earnings at the date of initial
adoption. The Company will adopt ASU 2014-09 using the full retrospective method on January 1, 2018.
3. Available-for-Sale Marketable Securities
As of June 30, 2017 and December 31, 2016, the Companys available-for-sale marketable securities consisted of a money
market fund and debt securities issued by the U.S. government and government-sponsored entities and by investment grade institutions.
The
following tables summarize the Companys available-for-sale marketable securities by major type of security as of June 30, 2017 and December 31, 2016:
As of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Estimated
Fair Value
|
|
Type of Security
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Money market funds
|
|
$
|
42,976
|
|
|
$
|
7
|
|
|
$
|
|
|
|
$
|
42,983
|
|
U.S. government agency obligations
|
|
|
7,999
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
7,998
|
|
Corporate bonds
|
|
|
26,901
|
|
|
|
|
|
|
|
(12
|
)
|
|
|
26,889
|
|
Commercial paper
|
|
|
25,157
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
25,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale marketable securities
|
|
$
|
103,033
|
|
|
$
|
7
|
|
|
$
|
(20
|
)
|
|
$
|
103,020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Estimated
Fair Value
|
|
Type of Security
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Money market funds
|
|
$
|
8,268
|
|
|
$
|
8
|
|
|
$
|
|
|
|
$
|
8,276
|
|
U.S. Treasury securities
|
|
|
2,523
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
2,522
|
|
U.S. government agency obligations
|
|
|
3,501
|
|
|
|
1
|
|
|
|
|
|
|
|
3,502
|
|
Corporate bonds
|
|
|
16,683
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
16,677
|
|
Commercial paper
|
|
|
15,206
|
|
|
|
3
|
|
|
|
(2
|
)
|
|
|
15,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale marketable securities
|
|
$
|
46,181
|
|
|
$
|
12
|
|
|
$
|
(9
|
)
|
|
$
|
46,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All available-for-sale marketable securities are classified in the Companys Condensed Balance Sheets as
Marketable securities.
The Company classifies its marketable debt securities based on their contractual maturity dates. As of
June 30, 2017, the Companys marketable debt securities mature at various dates through April 2018. The amortized cost and fair values of marketable debt securities by contractual maturity were as follows. The table does not include money
market funds that are classified as available-for-sale marketable securities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
As of December 31, 2016
|
|
Contractual maturity
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Less than one year
|
|
$
|
60,057
|
|
|
$
|
60,037
|
|
|
$
|
37,913
|
|
|
$
|
37,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the six months ended June 30, 2017, the Company sold shares of two investments in commercial paper
before their respective maturity dates and shares in a money market fund with a total fair value of $5,430 that were all classified as available-for-sale marketable securities. The cost of the shares of commercial paper and the money market fund
that were sold was determined by specific identification. The sales of the investments in commercial paper as well as the sale of the shares of the money market fund each resulted in realized gains, totaling $3.
The following tables show the fair value of the Companys available-for-sale marketable securities that have unrealized losses and that
are deemed to be only temporarily impaired, aggregated by investment category and length of time that the individual investments have been in a continuous unrealized loss position.
As of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
U.S. government agency obligations
|
|
$
|
4,004
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,004
|
|
|
$
|
(1
|
)
|
Corporate bonds
|
|
|
24,888
|
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
24,888
|
|
|
|
(12
|
)
|
Commercial paper
|
|
|
22,152
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
22,152
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,044
|
|
|
$
|
(20
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
51,044
|
|
|
$
|
(20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
U.S. Treasury securities
|
|
$
|
2,522
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,522
|
|
|
$
|
(1
|
)
|
Corporate bonds
|
|
|
9,919
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
9,919
|
|
|
|
(6
|
)
|
Commercial paper
|
|
|
5,227
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
5,227
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,668
|
|
|
$
|
(9
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,668
|
|
|
$
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017 and December 31, 2016, the Company held a total of 28 out of 33 positions and 18
out of 34 positions, respectively, that were in an unrealized loss position, none of which had been in an unrealized loss position for 12 months or greater. Based on the Companys review of these securities, the Company believes that the cost
basis of its available-for-sale marketable securities is recoverable and that, therefore, it had no other-than-temporary impairments on these securities as of June 30, 2017 and December 31, 2016. The Company does not intend to sell these
debt securities and the Company believes it is not more likely than not that it will be required to sell these securities before the recovery of their amortized cost basis, which may be maturity.
4. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the changes in accumulated other comprehensive income (loss), or AOCI, net of tax, from unrealized gains
(losses) on available-for-sale marketable securities, the Companys only component of AOCI, for the six months ended June 30, 2017 and June 30, 2016.
|
|
|
|
|
|
|
Total Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance, December 31, 2016
|
|
$
|
3
|
|
|
|
|
|
|
Other comprehensive income before reclassifications
|
|
|
(13
|
)
|
Amount reclassified from accumulated other comprehensive income
|
|
|
(3
|
)
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
(16
|
)
|
|
|
|
|
|
Balance, June 30, 2017
|
|
$
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
$
|
(35
|
)
|
|
|
|
|
|
Other comprehensive income before reclassifications
|
|
|
76
|
|
Amount reclassified from accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
76
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
$
|
41
|
|
|
|
|
|
|
10
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
The reclassifications out of AOCI and into net loss were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
Affected Line Item in the
|
Component of AOCI
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Statements of Operations
|
Unrealized gains (losses) on available-for-sale marketable securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount reclassified out of AOCI into net loss was determined by specific identification.
5. Fair Value Measurements
As of
June 30, 2017 and December 31, 2016, the Companys financial instruments consist of cash and cash equivalents, available-for-sale marketable securities, restricted cash, accounts payable and accrued liabilities. The fair values of
cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate their carrying values due to the short-term nature of these financial instruments. Marketable securities are reported on the Companys Condensed
Balance Sheets 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 Companys 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.
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 money market funds with similar underlying investments, 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.
11
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
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 June 30, 2017 or December 31, 2016.
The following
tables summarize the Companys financial assets measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016.
Fair value measurement as of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
|
|
|
Quoted prices in
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
active markets for
|
|
|
observable
|
|
|
unobservable
|
|
|
|
|
|
|
identical assets
|
|
|
inputs
|
|
|
inputs
|
|
Type of Instrument
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund and checking accounts
|
|
$
|
9,416
|
|
|
$
|
9,416
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund
|
|
|
42,983
|
|
|
|
|
|
|
|
42,983
|
|
|
|
|
|
U.S. government agency obligations
|
|
|
7,998
|
|
|
|
|
|
|
|
7,998
|
|
|
|
|
|
Corporate bonds
|
|
|
26,889
|
|
|
|
|
|
|
|
26,889
|
|
|
|
|
|
Commercial paper
|
|
|
25,150
|
|
|
|
|
|
|
|
25,150
|
|
|
|
|
|
Restricted cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial money market account
|
|
|
1,469
|
|
|
|
1,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
113,905
|
|
|
$
|
10,885
|
|
|
$
|
103,020
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
|
|
|
Quoted prices in
|
|
|
Significant other
|
|
|
Significant
|
|
|
|
|
|
|
active markets for
|
|
|
observable
|
|
|
unobservable
|
|
|
|
|
|
|
identical assets
|
|
|
inputs
|
|
|
inputs
|
|
Type of Instrument
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund and checking accounts
|
|
$
|
12,092
|
|
|
$
|
12,092
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund
|
|
|
8,276
|
|
|
|
|
|
|
|
8,276
|
|
|
|
|
|
U.S. Treasury securities
|
|
|
2,522
|
|
|
|
|
|
|
|
2,522
|
|
|
|
|
|
U.S. government agency obligations
|
|
|
3,502
|
|
|
|
|
|
|
|
3,502
|
|
|
|
|
|
Corporate bonds
|
|
|
16,677
|
|
|
|
|
|
|
|
16,677
|
|
|
|
|
|
Commercial paper
|
|
|
15,207
|
|
|
|
|
|
|
|
15,207
|
|
|
|
|
|
Restricted cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial money market account
|
|
|
1,469
|
|
|
|
1,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
59,745
|
|
|
$
|
13,561
|
|
|
$
|
46,184
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
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 six months ended June 30, 2017 or 2016. There were no transfers of financial assets between Levels 1, 2, or 3 classifications during the six months ended
June 30, 2017 or 2016.
6. Restricted Cash
The Company is required to maintain stand-by letters of credit as security deposits under each of its leases, one for its former operating
facility in Shelton, Connecticut and the other for its office space in Stamford, Connecticut (refer to Note 14,
Commitments and Contingencies
). The fair value of each letter of credit approximates its contract value. In each case, the
Companys bank requires the Company to maintain restricted cash balances to serve as collateral for the letter of credit issued to the respective landlords by the bank. As of June 30, 2017, the restricted cash balances for the Shelton
lease and the Stamford lease were both invested in a commercial money market account.
The restricted cash balance for the Shelton lease
remains at $700 through the end of the lease term on October 13, 2017. For the Stamford lease, the letter of credit balance remains at $769 for the first three years following commencement of the Stamford lease and may, upon request from the
Company, thereafter be reduced to $408 through the end of the lease term in 2023. The reduction in the balance of the letter of credit for the Stamford lease is contingent upon the Company not being in default of any provisions of that lease prior
to request for the reduction. As of June 30, 2017 and December 31, 2016, the Company had $700 of restricted cash related to the Shelton lease in current assets and $769 of restricted cash related to the Stamford lease in long-term assets.
7. Prepaid expenses
As of
June 30, 2017, prepaid expenses were $1,934, consisting of $1,321 of prepaid R&D clinical costs, $465 of prepaid insurance and $148 of other prepaid costs. As of December 31, 2016, prepaid expenses were $1,530 consisting of $1,256 of
prepaid R&D clinical costs, $112 of prepaid insurance and $162 of other prepaid costs.
8. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
December 31, 2016
|
|
Accounts payable
|
|
$
|
1,865
|
|
|
$
|
4,738
|
|
Accrued research projects
|
|
|
3,531
|
|
|
|
4,352
|
|
Accrued professional fees
|
|
|
323
|
|
|
|
163
|
|
Accrued compensation and benefits
|
|
|
1,119
|
|
|
|
1,514
|
|
Accrued other
|
|
|
352
|
|
|
|
766
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,190
|
|
|
$
|
11,533
|
|
|
|
|
|
|
|
|
|
|
9. Stockholders Equity
On March 30, 2017, the Company entered into an underwriting agreement with Piper Jaffray & Co. and Stifel, Nicolaus &
Company, Incorporated, as representatives of the several underwriters named therein, relating to the issuance and sale by the Company of up to 5,117,500 shares of its common stock, including 667,500 shares of common stock the underwriters had the
option to purchase, at a public offering price of $18.00 per share (the Offering). The Offering was made pursuant to the Companys Registration Statement on Form S-3 (File No. 333-216657), filed with the SEC on March 13,
2017 and declared effective on March 24, 2017, and a related prospectus supplement dated March 30, 2017, which was filed with the SEC on March 31, 2017.
13
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
On April 5, 2017, the Company closed the Offering, including the full exercise of the
underwriters option to purchase 667,500 additional shares of common stock. The Company received net proceeds of approximately $86,224, after deducting the underwriting discounts and commissions and offering expenses paid by the Company of
$294.
10. Collaborations
Maruishi Pharmaceutical Co., Ltd.
In April 2013, the Company entered into the Maruishi Agreement under which the Company granted Maruishi an exclusive license to develop,
manufacture, and commercialize drug products containing CR845 for acute pain and uremic pruritus in Japan. Maruishi has the right to grant sub-licenses in Japan, which entitle the Company to receive sub-license fees, net of prior payments made by
Maruishi to the Company. Under the Maruishi Agreement, the Company and Maruishi are required to use commercially reasonable efforts, at their own expense, to develop, obtain regulatory approval for and commercialize CR845 in the United States and
Japan, respectively. In addition, the Company provided Maruishi specific clinical development services for CR845 in Maruishis field of use.
At inception of the Maruishi Agreement, the Company identified two deliverables under ASC 605-25: (1) the license; and (2) the
R&D services specific to the uremic pruritus field of use, both of which were determined to have standalone value and have been accounted for as separate units of accounting from the outset of the arrangement.
In March 2017, Maruishi entered into a sub-license agreement with Kissei Pharmaceutical Co. Ltd. for the development and sales/marketing of
CR845 (called MR13A9 by Maruishi) for the treatment of uremic pruritus in dialysis patients in Japan. Consequently, during the six months ended June 30, 2017, the Company recognized revenue of $843 related to the sub-license fee. The Company
allocated the amount of the sub-license fee to each of the two identified deliverables in the same proportion as the upfront license fee that the Company received at inception of the Maruishi Agreement. Accordingly, $530 was recognized as license
and milestone fees revenue and $313 was recognized as collaborative revenue.
The Company recognized clinical compound revenue of $0 and
$79, during the three months ended June 30, 2017 and 2016, respectively, and $68 and $86 during the six months ended June 30, 2017 and 2016, respectively, from the sale of clinical compound to Maruishi.
The Company incurred R&D expense related to the Maruishi Agreement of $0 and $72 during the three months ended June 30, 2017 and
2016, respectively, and $61 and $78 during the six months ended June 30, 2017 and 2016, respectively, consisting of cost of clinical compound.
11. Net Loss Per Share
The Company
computes basic net income (loss) per share by dividing net income (loss) by the weighted-average number of shares of common stock outstanding. Diluted net income per share includes the potential dilutive effect of common stock equivalents as if such
securities were exercised during the period, when the effect is dilutive. Common stock equivalents may include outstanding stock options, which are included using the treasury stock method when dilutive. For the three and six months ended
June 30, 2017 and 2016, the Company excluded the effects of potentially dilutive shares that were outstanding during those respective periods from the denominator as their inclusion would be anti-dilutive due to the Companys net losses
during those periods. The denominators for the three and six months ended June 30, 2017 reflect the issuance of 5,117,500 common shares in the Offering on April 5, 2017, on a weighted-average basis (see Note 9,
Stockholders
Equity
, above).
14
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
The denominators used in the net loss per share computations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
32,239,877
|
|
|
|
27,282,863
|
|
|
|
29,783,424
|
|
|
|
27,271,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding -Basic
|
|
|
32,239,877
|
|
|
|
27,282,863
|
|
|
|
29,783,424
|
|
|
|
27,271,226
|
|
Common stock options*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net loss per share
|
|
|
32,239,877
|
|
|
|
27,282,863
|
|
|
|
29,783,424
|
|
|
|
27,271,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
No amounts were considered as their effects would be anti-dilutive.
|
Basic and diluted net loss per share are
computed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net loss
|
|
$
|
(9,300
|
)
|
|
$
|
(13,075
|
)
|
|
$
|
(31,504
|
)
|
|
$
|
(23,766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
32,239,877
|
|
|
|
27,282,863
|
|
|
|
29,783,424
|
|
|
|
27,271,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, Basic and Diluted
|
|
$
|
(0.29
|
)
|
|
$
|
(0.48
|
)
|
|
$
|
(1.06
|
)
|
|
$
|
(0.87
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017 and 2016, 3,118,786 and 2,256,700 stock options, respectively, were outstanding,
which could potentially dilute basic earnings per share in the future, but were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive.
12. Stock-Based Compensation
2014
Equity Incentive Plan
The Companys 2014 Equity Incentive Plan, or the 2014 Plan, is administered by the Companys Board of
Directors or a duly authorized committee thereof, referred to as the Plan administrator. The 2014 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock
appreciation rights, performance stock awards and other forms of equity compensation, collectively referred to as Stock Awards. Additionally, the 2014 Plan provides for the grant of performance cash awards. Incentive stock options may be granted
only to employees. All other awards may be granted to employees, including officers, non-employee directors, and consultants. No incentive stock options may be granted under the 2014 Plan after the tenth anniversary of the effective date of the 2014
Plan. Stock Awards granted under the 2014 Plan vest at the rate specified by the Plan administrator, which, for employees and non-
15
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
employee consultants, has generally been 25% on the first anniversary of the date of grant and the balance ratably over the next 36 months. As of January 1, 2016, subsequent grants of Stock
Awards made to employees and non-employee consultants vest monthly over a period of four years from the grant date. Stock options initially granted to members of the Companys Board of Directors vest on the date of the Annual Meeting of
Stockholders at which their initial term expires based on the class of Director. Subsequent grants to Directors that are made automatically at Annual Meetings of Stockholders vest fully on the first anniversary of the date of grant. The Plan
administrator determines the term of Stock Awards granted under the 2014 Plan up to a maximum of ten years.
The aggregate number of
shares of the Companys common stock reserved for issuance under the 2014 Plan will automatically increase on January 1 of each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by 3% of the
total number of shares of the Companys capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Companys Board of Directors. On January 1, 2017, the aggregate
number of shares of common stock that may be issued pursuant to stock awards under the 2014 Plan automatically increased from 3,101,707 to 3,920,613. The maximum number of shares that may be issued pursuant to the exercise of incentive stock options
under the 2014 Plan is 30,000,000 shares.
Under the 2014 Plan, the Company granted 90,000 and 838,500 stock options during the three and
six months ended June 30, 2017, respectively, and 112,000 and 722,000 stock options during the three and six months ended June 30, 2016, respectively. The fair values of stock options granted during the three and six months ended
June 30, 2017 and 2016 were estimated as of the dates of grant using the Black-Scholes option pricing model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Risk-free interest rate
|
|
1.85% - 1.88%
|
|
1.23% - 1.79%
|
|
1.85% - 2.57%
|
|
1.23% - 1.79%
|
Expected volatility
|
|
83.3%
|
|
69.3% - 72.6%
|
|
75.3% - 83.3%
|
|
67.8% - 72.6%
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
Expected life of employee options (in years)
|
|
6.25
|
|
6.25
|
|
6.25
|
|
6.25
|
Expected life of nonemployee options (in years)
|
|
10
|
|
10
|
|
10
|
|
10
|
The weighted-average grant date fair value of options granted to employees, non-employee members of the
Companys Board of Directors for their Board service and non-employee consultants during the three and six months ended June 30, 2017 was $13.53 and $12.41, respectively, and during the three and six months ended June 30, 2016 was
$3.55 and $3.80, respectively.
As of June 30, 2017 and 2016, the Company used the Black-Scholes option valuation model with the
following assumptions to re-measure the fair value of all outstanding options that had been granted to non-employee consultants during the vesting period of each tranche in accordance with ASC 505-50:
|
|
|
|
|
|
|
As of June 30,
|
|
|
2017
|
|
2016
|
Risk-free interest rate
|
|
2.02% - 2.28%
|
|
1.49%
|
Expected volatility
|
|
76.4% - 81.3%
|
|
70.80%
|
Expected dividend yield
|
|
0%
|
|
0%
|
Expected life of non-employee options (in years)
|
|
6.58 - 9.69
|
|
7.59
|
The weighted-average fair value of outstanding options that had been granted to nonemployee consultants, as
re-measured during the vesting period of each tranche in accordance with ASC 505-50, was $12.18 and $2.82 as of June 30, 2017 and 2016, respectively.
16
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
On January 1, 2017, the Company adopted ASU 2016-09 (see Note 2,
Basis of
Presentation
Recently Adopted Accounting Pronouncements
). On the date of adoption of ASU 2016-09, the Company began to account for forfeitures of unvested stock options as they occur rather than estimate forfeiture rates that were
applied to unvested stock option awards, as under the previous accounting guidance. Accordingly, on the date of adoption, the Company recorded a cumulative-effect adjustment to stockholders equity of $45 for all stock option awards that were
unvested as of that date.
During the three and six months ended June 30, 2017 and 2016, the Company recognized compensation expense
relating to stock options, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
603
|
|
|
$
|
303
|
|
|
$
|
1,166
|
|
|
$
|
492
|
|
General and administrative
|
|
|
715
|
|
|
|
394
|
|
|
|
1,260
|
|
|
|
702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock option expense
|
|
$
|
1,318
|
|
|
$
|
697
|
|
|
$
|
2,426
|
|
|
$
|
1,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of stock option award activity related to employees, non-employee members of the Companys
Board of Directors and non-employee consultants as of and for the six months ended June 30, 2017 is presented below:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, December 31, 2016
|
|
|
2,548,408
|
|
|
$
|
8.75
|
|
Granted
|
|
|
838,500
|
|
|
|
17.55
|
|
Exercised
|
|
|
(153,122
|
)
|
|
|
8.91
|
|
Forfeited
|
|
|
(115,000
|
)
|
|
|
7.74
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2017
|
|
|
3,118,786
|
|
|
|
11.14
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, June 30, 2017
|
|
|
1,186,153
|
|
|
$
|
9.43
|
|
|
|
|
|
|
|
|
|
|
The Company does not expect to realize any tax benefits from its stock option activity or the recognition of
stock-based compensation expense because the Company currently has net operating losses and has a full valuation allowance against its deferred tax assets. Accordingly, no amounts related to excess tax benefits have been reported in cash flows from
operations for the six months ended June 30, 2017 and 2016.
13. Income Taxes
For the three months ended June 30, 2017 and 2016, pre-tax losses were $9,302 and $13,154, respectively, and for the six months ended
June 30, 2017 and 2016, pre-tax losses were $31,537 and $23,990, respectively. The Company recognized a full tax valuation allowance against its deferred tax assets as of June 30, 2017 and December 31, 2016. Upon adoption of ASU
2016-09 on January 1, 2017, the tax benefit related to the exercise of stock options is recognized as a deferred tax asset that is offset by a corresponding valuation allowance.
17
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
The benefit from income taxes of $2 and $79 for the three months ended June 30, 2017 and
2016, respectively, and $33 and $224 for the six months ended June 30, 2017 and 2016, respectively, relates to state R&D tax credits exchanged for cash pursuant to the Connecticut R&D Tax Credit Exchange Program, which permits qualified
small businesses engaged in R&D activities within Connecticut to exchange their unused R&D tax credits for a cash amount equal to 65% of the value of the exchanged credits.
14. Commitments and Contingencies
Contractual obligations and commitments as of June 30, 2017, consisting of future minimum lease payments under the Companys Stamford
and Shelton leases, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due for the Year Ending December 31,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2018
|
|
|
2019
|
|
|
2020
|
|
|
2021
|
|
|
Thereafter
|
|
|
Total
|
|
Stamford operating lease
|
|
$
|
392
|
|
|
$
|
1,093
|
|
|
$
|
1,217
|
|
|
$
|
1,241
|
|
|
$
|
1,266
|
|
|
$
|
2,348
|
|
|
$
|
7,557
|
|
Shelton operating lease
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
664
|
|
|
$
|
1,093
|
|
|
$
|
1,217
|
|
|
$
|
1,241
|
|
|
$
|
1,266
|
|
|
$
|
2,348
|
|
|
$
|
7,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stamford Operating Lease
In December 2015, the Company entered into a lease agreement, or the Stamford Lease, with Four Stamford Plaza Owner LLC, or the Landlord, for
office space in Stamford, Connecticut, or the Premises, for the purpose of relocating its headquarters. The initial term of the Stamford Lease commenced in May 2016, or the Commencement Date, and ends in November 2023. The Stamford Lease requires
monthly lease payments, including rent escalations and rent holidays, during the initial lease term. The Company began to make rental payments from the Commencement Date. The Company records monthly rent expense on a straight-line basis from March
2016, upon taking possession of the Premises, through October 2023. As of June 30, 2017 and December 31, 2016, the balance of deferred lease obligation, representing the difference between cash rent paid and straight-line rent expense, was
$648 and $583, respectively. The Stamford Lease is renewable for one five-year term.
As of the Commencement Date, the Stamford landlord
had made tenant improvements of approximately $1,094 to the leased premises. Such amount was included in Property and equipment, net and in Deferred lease obligation on the Companys Balance Sheet on that date. The portion of Deferred lease
obligation that is related to tenant improvements is being amortized as a reduction to rent expense over the same term as rent expense. As of June 30, 2017 and December 31, 2016, the balance of Deferred lease obligation related to tenant
improvements was $915 and $987, respectively.
In connection with the signing of the Stamford Lease, the Company entered into a standby
letter of credit agreement, which serves as a security deposit for the Premises. The standby letter of credit is automatically renewed annually through November 2023. This standby letter of credit is secured with restricted cash in a money market
account (refer to Note 6,
Restricted Cash
).
Shelton Operating Lease
In May 2016, the Company relocated its headquarters to Stamford, Connecticut and vacated its former operating facility in Shelton, Connecticut,
although the Company continues to lease its former Shelton operating facility under an operating lease, or the Shelton Lease, which commenced in 2007 and terminates on October 13, 2017.
18
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
The Shelton Lease, requires monthly lease payments through its term. The Company recorded
monthly rent expense associated with the Shelton Lease on a straight-line basis from inception of the Shelton Lease through May 2016. In accordance with the accounting guidance in ASC 420-10-25-13 regarding exit or disposal cost obligations, as of
May 2016, the Company recorded rent expense, within R&D expense and General and administrative expense, and accrued a liability of $1,312, which represents the fair value of costs that will continue to be incurred during the remaining term of
the Shelton Lease without economic benefit to the Company. As of June 30, 2017, the carrying amount of the liability of $276, which includes the $272 of minimum rental payments in the table above, together with common area maintenance charges,
was included in Accounts payable and accrued expenses on the Companys Balance Sheet.
A reconciliation of the balances of the
accrued Shelton Lease cease-use liability for the three and six months ended June 30, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
2017
|
|
|
|
|
2016
|
|
Balance April 1, 2017
|
|
$
|
515
|
|
|
|
|
Balance, April 1, 2016
|
|
$
|
|
|
Charges
|
|
|
|
|
|
|
|
Charges
|
|
|
1,312
|
|
Rental payments
|
|
|
(247
|
)
|
|
|
|
Rental payments
|
|
|
(80
|
)
|
Interest accretion
|
|
|
8
|
|
|
|
|
Interest accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2017
|
|
$
|
276
|
|
|
|
|
Balance June 30, 2016
|
|
$
|
1,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2017
|
|
|
|
|
2016
|
|
Balance, January 1, 2017
|
|
$
|
756
|
|
|
|
|
Balance January 1, 2016
|
|
$
|
|
|
Charges
|
|
|
|
|
|
|
|
Charges
|
|
|
1,312
|
|
Rental payments
|
|
|
(494
|
)
|
|
|
|
Rental payments
|
|
|
(80
|
)
|
Interest accretion
|
|
|
14
|
|
|
|
|
Interest accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2017
|
|
$
|
276
|
|
|
|
|
Balance June 30, 2016
|
|
$
|
1,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the signing of the Shelton Lease, the Company entered into a standby letter of credit
agreement, which expires on October 13, 2017, as a security deposit for the premises. As of June 30, 2017 and December 31, 2016, the balance of the letter of credit was $700, which is secured with restricted cash (refer to
Note 6,
Restricted Cash
).
The Company accelerated the amortization of the Shelton leasehold improvements from the date of
signing of the Stamford Lease in December 2015 through the date that the Company vacated the Shelton facility in May 2016. Additional amortization expense as a result of such acceleration amounted to $359 and $899 (additional net loss per share of
$0.01 and $0.03) for the three and six months ended June 30, 2016, respectively.
19