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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 JUNE 30, 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 August 5, 2021 was: 50,089,936.

CARA THERAPEUTICS, INC.

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

PART I –FINANCIAL INFORMATION

PAGE

NUMBER

Item 1.

Financial Statements (Unaudited):

Condensed Balance Sheets as of June 30, 2021 and December 31, 2020

1

Condensed Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2021 and 2020

2

Condensed Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2021 and 2020

3

Condensed Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020

4

Notes to Condensed Financial Statements

5

Item 2.

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

32

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

54

Item 4.

Controls and Procedures

55

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

56

Item 1A.

Risk Factors

56

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

56

Item 3.

Defaults Upon Senior Securities

56

Item 4.

Mine Safety Disclosures

56

Item 5.

Other Information

56

Item 6.

Exhibits

57

SIGNATURES

58

PART I

FINANCIAL INFORMATION

Item 1.Financial Statements.

CARA THERAPEUTICS, INC.

CONDENSED BALANCE SHEETS

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

(unaudited)

    

June 30, 2021

    

December 31, 2020

Assets

 

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

22,335

$

31,683

Marketable securities

 

132,841

 

149,242

Income tax receivable

 

697

 

1,507

Other receivables

 

305

 

557

Prepaid expenses

 

8,295

 

12,076

Total current assets

 

164,473

 

195,065

Operating lease right-of-use assets

3,641

4,279

Marketable securities, non-current

 

52,216

 

70,565

Property and equipment, net

 

716

 

840

Restricted cash

 

408

 

408

Total assets

$

221,454

$

271,157

Liabilities and stockholders’ equity

 

 

  

Current liabilities:

 

 

  

Accounts payable and accrued expenses

$

13,493

$

16,881

Operating lease liabilities, current

 

1,677

 

1,602

Total current liabilities

 

15,170

 

18,483

Operating lease liabilities, non-current

2,818

3,673

Commitments and contingencies (Note 15)

 

 

Stockholders’ equity:

 

 

  

Preferred stock; $0.001 par value; 5,000,000 shares authorized at June 30, 2021 and December 31, 2020, zero shares issued and outstanding at June 30, 2021 and December 31, 2020

 

 

Common stock; $0.001 par value; 100,000,000 shares authorized at June 30, 2021 and December 31, 2020, 50,088,161 shares and 49,872,213 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

 

50

 

50

Additional paid-in capital

 

649,784

 

641,195

Accumulated deficit

 

(446,363)

 

(392,317)

Accumulated other comprehensive (loss) income

 

(5)

 

73

Total stockholders’ equity

 

203,466

 

249,001

Total liabilities and stockholders’ equity

$

221,454

$

271,157

See Notes to Condensed Financial Statements.

1

CARA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF COMPREHENSIVE LOSS

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

(unaudited)

Three Months Ended

Six Months Ended

    

June 30, 2021

    

June 30, 2020

    

June 30, 2021

    

June 30, 2020

    

Revenue:

License and milestone fees

$

$

5,099

$

1,192

$

13,120

Collaborative revenue

 

 

 

706

 

Clinical compound revenue

 

 

535

 

37

 

607

Total revenue

 

 

5,634

 

1,935

 

13,727

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

25,225

 

26,108

 

44,356

 

59,644

General and administrative

 

5,651

 

5,410

 

12,016

 

9,968

Total operating expenses

 

30,876

 

31,518

 

56,372

 

69,612

Operating loss

 

(30,876)

 

(25,884)

 

(54,437)

 

(55,885)

Other income, net

 

131

 

634

 

391

 

1,591

Loss before benefit from income taxes

 

(30,745)

 

(25,250)

 

(54,046)

 

(54,294)

Benefit from income taxes

 

 

182

 

 

304

Net Loss

$

(30,745)

$

(25,068)

$

(54,046)

$

(53,990)

Net Loss per share:

 

 

  

 

  

 

  

Basic and Diluted

$

(0.61)

$

(0.54)

$

(1.08)

$

(1.15)

Weighted average shares:

 

 

 

  

 

Basic and Diluted

 

50,059,984

 

46,799,703

 

49,989,379

 

46,762,327

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

 

  

 

 

  

 

  

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

 

(17)

 

703

 

(78)

 

465

Total comprehensive loss

$

(30,762)

$

(24,365)

$

(54,124)

$

(53,525)

See Notes to Condensed Financial Statements.

2

CARA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(amounts in thousands except share and per share data)

(unaudited)

Accumulated

Additional

Other

Total

Common Stock

Paid-In

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Equity

Balance at December 31, 2019

46,720,225

$

47

$

587,223

$

(400,727)

$

170

$

186,713

Stock-based compensation expense

 

 

 

2,846

 

 

 

2,846

Shares issued upon exercise of stock options

 

7,500

 

 

75

 

 

 

75

Net loss

 

 

 

 

(28,922)

 

 

(28,922)

Other comprehensive loss

 

 

 

 

 

(238)

 

(238)

Balance at March 31, 2020

46,727,725

$

47

$

590,144

$

(429,649)

$

(68)

$

160,474

Stock-based compensation expense

 

 

2,993

 

 

 

2,993

Shares issued upon exercise of stock options

16,846

 

 

201

 

 

 

201

Shares issued upon vesting of restricted stock units

119,834

1,625

1,625

Net loss

 

 

 

(25,068)

 

 

(25,068)

Other comprehensive income

 

 

 

 

703

 

703

Balance at June 30, 2020

46,864,405

$

47

$

594,963

$

(454,717)

$

635

$

140,928

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

Stock-based compensation expense

 

 

3,376

 

 

 

3,376

Shares issued upon exercise of stock options

25,494

 

 

293

 

 

 

293

Shares issued upon vesting of restricted stock units

36,000

 

 

100

 

 

 

100

Net loss

 

 

 

(30,745)

 

 

(30,745)

Other comprehensive loss

 

 

 

 

(17)

 

(17)

Balance at June 30, 2021

50,088,161

$

50

$

649,784

$

(446,363)

$

(5)

$

203,466

See Notes to Condensed Financial Statements.

3

CARA THERAPEUTICS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

Six Months Ended

    

June 30, 2021

    

June 30, 2020

    

Operating activities

 

  

 

  

Net loss

$

(54,046)

$

(53,990)

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

 

  

 

Stock-based compensation expense

 

7,608

 

7,465

Depreciation and amortization

 

124

 

96

Amortization expense component of lease expense

 

638

 

325

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

384

(34)

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

 

(39)

 

(60)

Realized gain on sale of property and equipment

 

(70)

 

Deferred revenue

 

 

(12,494)

Changes in operating assets and liabilities:

 

 

Income tax receivable

 

810

 

(304)

Other receivables

 

252

 

485

Prepaid expenses

 

3,781

 

(1,261)

Accounts payable and accrued expenses

 

(3,388)

 

(5,713)

Operating lease liabilities

(780)

(470)

Net cash used in operating activities

 

(44,726)

 

(65,955)

Investing activities

 

  

 

  

Proceeds from maturities of available-for-sale marketable securities

 

80,470

 

97,645

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

8,600

17,035

Proceeds from sale of available-for-sale marketable securities

 

9,029

 

10,677

Purchases of available-for-sale marketable securities

 

(63,772)

 

(21,016)

Proceeds from sale of property and equipment

 

70

 

Net cash provided by investing activities

 

34,397

 

104,341

Financing activities

 

  

 

  

Proceeds from the exercise of stock options

 

981

 

276

Net cash provided by financing activities

 

981

 

276

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

 

(9,348)

 

38,662

Cash, cash equivalents and restricted cash at beginning of period

 

32,091

 

18,713

Cash, cash equivalents and restricted cash at end of period

$

22,743

$

57,375

See Notes to Condensed Financial Statements.

4

Table of Contents

CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

1. Business

Cara Therapeutics, Inc., or the Company, is a clinical-stage biopharmaceutical corporation formed on July 2, 2004. The Company is focused on developing and commercializing new chemical entities designed to alleviate pruritus by selectively targeting peripheral kappa opioid receptors. The Company’s primary activities to date have been organizing and staffing the Company, developing its product candidates and raising capital.

As of June 30, 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 June 30, 2021, the Company had unrestricted cash and cash equivalents and marketable securities of $207,392 and an accumulated deficit of $446,363. 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 $30,745 and $25,068 for the three months ended June 30, 2021 and 2020, respectively, and $54,046 and $53,990 for the six months ended June 30, 2021 and 2020, respectively, and had net cash used in operating activities of $44,726 and $65,955 for the six months ended June 30, 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

Table of Contents

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

Table of Contents

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 June 30, 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 June 30, 2021 and December 31, 2020:

As of June 30, 2021

Gross Unrealized

Estimated Fair

Type of Security

    

Amortized Cost

    

Gains

    

Losses

    

Value

U.S. Treasury securities

$

10,106

$

3

$

$

10,109

U.S. government agency obligations

 

14,572

 

5

 

(10)

 

14,567

Corporate bonds

 

44,850

 

15

 

(31)

 

44,834

Commercial paper

99,705

13

(1)

99,717

Municipal bonds

 

15,829

 

17

 

(16)

 

15,830

Total available-for-sale marketable securities

$

185,062

$

53

$

(58)

$

185,057

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 June 30, 2021 and December 31, 2020:

7

Table of Contents

CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

As of June 30, 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

$

6,990

$

(10)

$

$

$

6,990

$

(10)

Corporate bonds

 

30,166

 

(31)

 

 

 

30,166

 

(31)

Commercial paper

9,492

(1)

9,492

(1)

Municipal bonds

6,404

(16)

6,404

(16)

Total

$

53,052

$

(58)

$

$

$

53,052

$

(58)

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 June 30, 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 June 30, 2021 and December 31, 2020, the Company held a total of 24 out of 59 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 2 out of 4 positions for its U.S. government agency obligations that were in unrealized loss positions as of June 30, 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

Table of Contents

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 13 out of 18 positions for its corporate bonds, 3 out of 23 positions for its commercial paper, and 6 out of 11 positions for its municipal bonds, that were in unrealized loss positions as of June 30, 2021.

The Company classifies its marketable debt securities based on their contractual maturity dates. As of June 30, 2021, the Company’s marketable debt securities mature at various dates through May 2024. The amortized cost and fair values of marketable debt securities by contractual maturity were as follows.

As of June 30, 2021

As of December 31, 2020

Contractual maturity

    

Amortized Cost

    

Fair Value

    

Amortized Cost

    

Fair Value

Less than one year

$

132,817

$

132,841

$

149,164

$

149,242

One year to three years

 

52,245

 

52,216

 

70,570

 

70,565

Total

$

185,062

$

185,057

$

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 and six months ended June 30, 2021, the Company sold certain shares of its available-for-sale debt securities with a total fair value of $1,000 and $9,029, respectively, which resulted in no realized gains or losses for the three months ended June 30, 2021, and $39 of realized gains for the six months ended June 30, 2021, respectively. During the three and six months ended June 30, 2020, the Company sold certain shares of its available-for-sale debt securities with a total fair value of $10,677, which resulted in realized gains of $60 during the three and six months ended June 30, 2020.

As of June 30, 2021 and December 31, 2020, accrued interest receivables on our available-for-sale debt securities were $305 and $311, respectively.

9

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 six months ended June 30, 2021 and June 30, 2020.

    

Total Accumulated

Other Comprehensive 

Income (Loss)

Balance, December 31, 2020

$

73

Other comprehensive loss before reclassifications

 

(39)

Amount reclassified from accumulated other comprehensive income

 

(39)

Net current period other comprehensive loss

 

(78)

Balance, June 30, 2021

$

(5)

Balance, December 31, 2019

$

170

Other comprehensive income before reclassifications

 

525

Amount reclassified from accumulated other comprehensive income

 

(60)

Net current period other comprehensive income

 

465

Balance, June 30, 2020

$

635

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

Six Months Ended

Affected Line Item in the 

Component of Accumulated Other

June 30, 

June 30, 

Condensed Statements of

Comprehensive Income (Loss)

    

2021

    

2020

    

2021

    

2020

    

Comprehensive Income (Loss)

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

 

  

 

  

 

  

 

  

 

  

Realized gains on sales of securities

$

$

60

$

39

$

60

Other income, net

Income tax effect

 

 

 

 

Benefit from income taxes

Realized gains on sales of securities, net of

tax

$

$

60

$

39

$

60

5. Fair Value Measurements

As of June 30, 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.

10

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 June 30, 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 June 30, 2021 and December 31, 2020.

Fair value measurement as of June 30, 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

$

22,335

$

22,335

$

$

Available-for-sale marketable securities:

 

  

 

  

 

  

 

U.S. Treasury securities

 

10,109

 

 

10,109

 

U.S. government agency obligations

 

14,567

 

 

14,567

 

Corporate bonds

 

44,834

 

 

44,834

 

Commercial paper

 

99,717

 

 

99,717

 

Municipal bonds

 

15,830

 

 

15,830

 

Restricted cash:

 

 

  

 

 

Commercial money market account

 

408

 

408

 

 

Total financial assets

$

207,800

$

22,743

$

185,057

$

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 and six months ended June 30, 2021 and 2020, respectively. There were no transfers of financial assets into or out of Level 3 classification during the three and six months ended June 30, 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

12

Table of Contents

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 June 30, 2021, the restricted cash balance for the Stamford Lease was invested in a commercial money market account.

As of June 30, 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.

    

June 30, 2021

    

December 31, 2020

Cash and cash equivalents

$

22,335

$

31,683

Restricted cash, long-term assets

 

408

 

408

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

$

22,743

$

32,091

7. Prepaid expenses

As of June 30, 2021, prepaid expenses were $8,295, consisting of $6,287 of prepaid R&D clinical costs, $1,392 of prepaid insurance and $616 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:

    

June 30, 2021

    

December 31, 2020

Accounts payable

$

3,386

$

4,893

Accrued research projects

 

6,193

 

6,194

Accrued compensation and benefits

 

3,147

 

4,955

Accrued professional fees and other

 

767

 

839

Total

$

13,493

$

16,881

9. Stockholders’ Equity

In June 2021, as a result of the completion of the one-year vesting period, an aggregate of 36,000 restricted stock units of members of the Board of Directors vested and were settled in shares of the Company’s common stock (see Note 13, Stock-Based Compensation).

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)

In June 2020, as a result of the completion of the one-year vesting period, an aggregate of 24,000 restricted stock units of members of the Board of Directors vested and were settled in shares of the Company’s common stock (see Note 13, Stock-Based Compensation).

In April and June 2020, as a result of the achievement of certain performance targets, an aggregate of 95,834 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).

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.

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

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 the delivery of the Licensed Product to Vifor for commercialization. Revenue from the sale of the Licensed Product to Vifor will be recognized in the Company’s Condensed Statements of Comprehensive Loss as sales of the Licensed Product occur. As of June 30, 2021, no supply agreement has been entered into between the Company and Vifor.

Vifor Fresenius Medical Care Renal Pharma Ltd.

In May 2018, the Company entered into a license agreement, or the VFMCRP Agreement, with VFMCRP under which the Company granted VFMCRP an exclusive, royalty-bearing license, or the VFMCRP License, to seek regulatory approval to commercialize, import, export, use, distribute, offer for sale, promote, sell and otherwise commercialize the Licensed Product for all therapeutic uses to prevent, inhibit or treat itch associated with pruritus in the Field worldwide (excluding the United States, Japan and South Korea), or the Territory.

Upon entry into the VFMCRP Agreement, VFMCRP made a non-refundable, non-creditable $50,000 upfront payment to the Company and Vifor purchased 1,174,827 shares of the Company’s common stock, or the Vifor Shares, for $20,000 at a price of $17.024 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. The excess of the stock purchase price over the cost of the Vifor Shares at the closing price of the Company’s common stock on the purchase date of $5,444 was added to the upfront payment for accounting purposes.

The Company is eligible to receive from VFMCRP regulatory and commercial milestone payments in the aggregate of up to $470,000, consisting of up to $30,000 in regulatory milestones and up to $440,000 in tiered commercial milestones, all of which are sales-related. The Company is also eligible to receive tiered double-digit royalty payments based on annual net sales, as defined in the VFMCRP Agreement, of CR845/difelikefalin injection in the Licensed Territories. The Company retains full commercialization rights for CR845/difelikefalin injection for the treatment of CKD-aP in the United States except in the dialysis clinics of Fresenius Medical Care North America, or FMCNA, where VFMCRP and the Company will promote CR845/difelikefalin injection under a profit-sharing arrangement (subject to the terms and conditions of the VFMCRP Agreement) based on net FMCNA clinic sales recorded by the Company.

The Company retains the rights to make and have made the Licensed Product in the Territory for commercial sale by VFMCRP in the Field in or outside the Territory and for supply of Licensed Product to VFMCRP under the terms of a supply agreement, or the VFMCRP Supply Agreement, which was executed in May 2020. The supply price is the Company’s cost of goods sold, as calculated under GAAP, plus an agreed upon margin. The VFMCRP Supply Agreement will co-terminate with the VFMCRP Agreement.

The VFMCRP Supply Agreement is accounted for as a customer option that is not a material right because the selling price of the Licensed Product under the VFMCRP 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 VFMCRP is not a performance obligation under the VFMCRP Agreement but rather the VFMCRP

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

Supply Agreement is a separate agreement from the VFMCRP Agreement. The only performance obligation under the VFMCRP Supply Agreement is the delivery of the Licensed Product to VFMCRP for commercialization. Revenue from the sale of the Licensed Product to VFMCRP will be recognized as clinical compound revenue in the Company’s Condensed Statements of Comprehensive Loss as sales of the Licensed Product occur. There were no sales of clinical compound to VFMCRP during the three and six months ended June 30, 2021. During the three and six months ended June 30, 2020, the Company recognized clinical compound revenue of $88 from the sale of clinical compound to VFMCRP and as a result, the Company incurred R&D expense of $79 during these respective periods.

Maruishi Pharmaceutical Co., Ltd.

In April 2013, the Company entered into a license agreement with Maruishi, or the Maruishi Agreement, under which the Company granted Maruishi an exclusive license to develop, manufacture, and commercialize drug products containing CR845/difelikefalin for acute pain and/or uremic pruritus in Japan. Maruishi has the right to grant sub-licenses in Japan, which entitles 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/difelikefalin in the United States and Japan, respectively. In addition, the Company provided Maruishi specific clinical development services for CR845/difelikefalin used in Maruishi’s field of use.

Under the terms of the Maruishi Agreement, the Company is eligible to receive milestone payments upon the achievement of defined clinical and regulatory events as well as tiered, low double-digit royalties with respect to any sales of the licensed product sold in Japan by Maruishi, if any, and share in any sub-license fees.

There were no sales of clinical compound to Maruishi during the three months ended June 30, 2021. During the three months ended June 30, 2020, the Company recognized clinical compound revenue of $447 from the sale of clinical compound to Maruishi, and as a result, the Company incurred R&D expense of $403 during this prior period. During the six months ended June 30, 2021 and 2020, the Company recognized clinical compound revenue of $37 and $519, respectively, from the sale of clinical compound to Maruishi, and as a result, the Company incurred R&D expense of $33 and $467, respectively, during these periods.

Chong Kun Dang Pharmaceutical Corporation

In April 2012, the Company entered into a license agreement, or the CKDP Agreement, with CKDP in South Korea, under which the Company granted CKDP an exclusive license to develop, manufacture and commercialize drug products containing CR845/difelikefalin in South Korea. The Company and CKDP are each required to use commercially reasonable efforts, at their respective expense, to develop, obtain regulatory approval for and commercialize CR845/difelikefalin in the United States and South Korea, respectively. The Company identified the granting of the license as its only performance obligation under the CKDP Agreement.

Under the terms of the CKDP Agreement, the Company is eligible to receive milestone payments upon the achievement of defined clinical and regulatory events as well as tiered royalties, with percentages ranging from the high single digits to the high teens, based on net sales of products containing CR845/difelikefalin in South Korea, if any, and share in any sub-license fees.

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

11. Revenue Recognition

The Company currently recognizes revenue in accordance with FASB Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, as amended, or ASC 606, for the Vifor, VFMCRP, Maruishi and CKDP agreements (see Note 10, Collaboration and Licensing Agreements). Under each of these agreements, the Company has recognized revenue from upfront payments and, under the Maruishi and CKDP agreements, from clinical development milestone payments. The Company has also recognized revenue from a sub-license payment earned under the Maruishi Agreement. Under the Maruishi and CKDP agreements, the Company may earn additional future milestone payments upon the achievement of defined clinical events, and under the Vifor, VFMCRP, Maruishi and CKDP agreements, upon the achievement of defined regulatory events, and under the Vifor, VFMCRP and Maruishi agreements, from sales milestones. The Company may also recognize revenue in the future from royalties on net sales under the VFMCRP, Maruishi and CKDP agreements. In addition, the Company has recognized revenue upon the delivery of clinical compound to VFMCRP and Maruishi in accordance with separate supply agreements.

Contract balances

As of June 30, 2021 and December 31, 2020, there were no material balances of receivables, and no other assets or deferred revenue related to the Vifor, VFMCRP, Maruishi and CKDP agreements.

Performance obligations

Under the Vifor Agreement, the Company’s only performance obligation is granting a license to allow Vifor to commercialize CR845/difelikefalin in the United States, which occurred at inception of the contract in October 2020 (see Note 10, Collaboration and Licensing Agreements).

Under the VFMCRP Agreement, the Company’s performance obligations of granting a license to allow VFMCRP to commercialize CR845/difelikefalin injection worldwide, except in the United States, Japan and South Korea, which occurred at inception of the contract in May 2018, and performing R&D services by the Company to obtain sufficient clinical data which will be shared with VFMCRP to allow them to receive regulatory approval to sell CR845/difelikefalin in the licensed territory, were not distinct, and were accounted for as a single performance obligation during the period that the R&D services were rendered (see Note 10, Collaboration and Licensing Agreements).

The Company’s distinct performance obligations under the Maruishi Agreement include transfer of the license to the Company’s IP, which allowed Maruishi to develop and commercialize CR845/difelikefalin, for acute pain and uremic pruritus indications in Japan, which occurred at inception of the contract in 2013, and performance of R&D services, which occurred from 2013 to 2015, as those services were rendered. The Company agreed to conduct limited work on an oral tablet formulation of CR845/difelikefalin and to conduct Phase 1 and proof-of-concept Phase 2 clinical trials of an intravenous formulation of CR845/difelikefalin to be used to treat patients with uremic pruritus. The Company agreed to transfer the data and information from such development to Maruishi for its efforts to obtain regulatory approval in Japan. These activities are referred to as R&D services (see Note 10, Collaboration and Licensing Agreements).

The Company’s only performance obligation under the supply agreement with Maruishi is to deliver clinical compound to Maruishi in accordance with the receipt of purchase orders. The Company’s only performance obligation under the VFMCRP Supply Agreement is to deliver CR845/difelikefalin injection to VFMCRP in accordance with the receipt of purchase orders.

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

Under the CKDP Agreement, the Company’s only performance obligation is to transfer the license to the Company’s IP related to CR845/difelikefalin, which occurred at inception of the contract in 2012 (see Note 10, Collaboration and Licensing Agreements).

Upon execution of the Vifor, VFMCRP, Maruishi and CKDP agreements, the Company received a single fixed payment from each counterparty in exchange for granting the respective licenses and performing its other obligations. In addition, each of the counterparties made an equity investment in the Company’s common stock.

Transaction price allocated to the remaining performance obligations

At inception of the Vifor Agreement, the entire transaction price of $111,551 was allocated to the one performance obligation, as described above, and was recognized as license and milestone fees revenue for the year ended December 31, 2020 as the license was granted to Vifor in October 2020. As of June 30, 2021, there were no remaining performance obligations under the Vifor Agreement. The Company is eligible to receive milestone payments in the future.

At inception of the VFMCRP Agreement, the entire transaction price of $55,444 was allocated to the one combined performance obligation, as described above. As of June 30, 2021, there were no remaining performance obligations, and the entire transaction price has been recognized as license and milestone fees revenue through December 31, 2020 since R&D services have been completed during 2020. The Company is eligible to receive milestone payments and sales royalties in the future.

As of June 30, 2021, there were no remaining performance obligations under either the Maruishi or CKDP agreements, although the Company is eligible to receive milestone payments and sales royalties in the future.

Significant judgments

In applying ASC 606, as amended, to its four contracts, the Company made the following judgments that significantly affect the timing and amount of revenue recognition:

1.

Determination of the number of distinct performance obligations in a contract

The VFMCRP Agreement contains one combined performance obligation, which includes the Company’s two performance obligations to grant a license to VFMCRP and conduct R&D services. Both of those performance obligations are inputs to the promise, within the context of the contract, to transfer a combined output for which VFMCRP has contracted (the ability of VFMCRP to commercialize the Licensed Product) (see Note 10, Collaboration and Licensing Agreements, for further discussion).

The Maruishi Agreement contains two distinct performance obligations: the granting of the license and the promise to deliver defined R&D services. Under the Maruishi Agreement, the license and the R&D services represent distinct goods or services from each other because Maruishi is able to benefit from the license on its own or together with other resources that are readily available to it (i.e., capable of being distinct). Maruishi’s ability to benefit from the license without the R&D services is indicated by its ability to conduct clinical trials of CR845/difelikefalin on its own and by the provision in the Maruishi Agreement whereby if the Company suspends or discontinues its development activity, the Company will provide information regarding its development efforts up to that point so that Maruishi may continue development and commercialization of the product in Japan. Therefore, the R&D services do not significantly affect Maruishi’s ability to use and benefit from the license.

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

In addition, the Company’s promise in the Maruishi contract to transfer the license is separately identifiable from the promise to provide defined R&D services (i.e., distinct within the context of the contract) because the Company is not using the goods or services as inputs to produce or deliver the combined output or outputs specified by the customer. The combined output specified by Maruishi is its right to conduct development activities related to CR845/difelikefalin in Japan, which could result in regulatory approval in Japan. That right is derived from the Company’s grant of the license. Maruishi is conducting clinical trials on its own and does not require the R&D services provided by the Company. Furthermore, the R&D services do not significantly modify or customize the license and vice versa. Finally, the license and R&D services are not highly interdependent or highly interrelated because the Company is able to fulfill its promise to transfer the initial license independently from its promise to subsequently provide the R&D services, which Maruishi can obtain on its own.

The only performance obligation in the Vifor and CKDP agreements is the granting of the license.

2.

Determination of the transaction price, including whether any variable consideration is included at inception of the contract

The transaction price is the amount of consideration that the Company expects to be entitled to in exchange for transferring promised goods or services to the customer. The transaction price must be determined at inception of a contract and may include amounts of variable consideration. However, there is a constraint on inclusion of variable consideration, such as milestone payments or sales-based royalty payments, in the transaction price related to licenses of IP, if there is uncertainty at inception of the contract as to whether such consideration will be recognized in the future.

The decision as to whether or not it is probable that a significant reversal of revenue will occur in the future, depends on the likelihood and magnitude of the reversal and is highly susceptible to factors outside the entity’s influence (for example, the Company cannot determine the outcome of clinical trials; the Company cannot determine if or when they or the counterparty will initiate or complete clinical trials; and the Company’s ability to obtain regulatory approval is difficult). In addition, the uncertainty is not expected to be resolved for a long period of time (in the order of years) and finally, the Company has limited experience in the field.

Therefore, at inception of the Vifor, VFMCRP, Maruishi and CKDP agreements, milestones and sales-based royalty payments were not included in the transaction price based on the factors noted above.

Under the Vifor Agreement, the one performance obligation was satisfied when the license was granted to Vifor in October 2020, and as a result, $111,551 (including the upfront payment of $100,000 and the premium on the common stock purchased by Vifor of $11,551) was recognized as license and milestone fees revenue during the year ended December 31, 2020. The remaining potential consideration was considered to be variable consideration and was constrained at inception of the contract, which includes regulatory and sales milestones (see Note 10, Collaboration and Licensing Agreements).

Under the VFMCRP Agreement, the single combined performance obligation was satisfied as the R&D services were rendered and the transaction price, including the upfront payment of $50,000 and the premium on the common stock purchased by VFMCRP of $5,444, was recognized as revenue as the R&D services were performed based on the costs incurred as a percentage of the estimated total costs to be incurred to complete the performance obligation. The remaining potential consideration was considered to be variable consideration and was constrained at inception of the contract, including regulatory and sales milestones and sales royalties (see Note 10, Collaboration and Licensing Agreements).

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

All performance obligations under the Maruishi and CKDP agreements were satisfied by the end of 2015. In the future, any milestone event will be recognized as milestone and license fee revenue and collaboration revenue based upon the relative standalone selling prices of the two performance obligations at inception of the Maruishi Agreement, and as milestone and license fee revenue under the CKDP Agreement. The remaining potential consideration was considered to be variable consideration and was constrained at inception of the contract, including clinical, regulatory and sales milestones, and sales royalties (see Note 10, Collaboration and Licensing Agreements).

3.

Determination of the estimate of the standalone selling price of performance obligations

In order to recognize revenue under ASC 606, as amended, for contracts for which more than one distinct performance obligation has been identified, the Company must allocate the transaction price to the performance obligations based upon their standalone selling prices. The best evidence of standalone selling price is an observable price of a good or service when sold separately by an entity in similar circumstances to similar customers. If such evidence is not available, standalone selling price should be estimated so that the amount that is allocated to each performance obligation equals the amount that the entity expects to receive for transferring goods or services. The Company has identified more than one performance obligation only in the Maruishi Agreement. Since evidence based on observable prices is not available for the performance obligations under the Maruishi Agreement, the Company considered market conditions and entity-specific factors, including those contemplated in negotiating the agreements, as well as certain internally developed estimates.

At inception of the Maruishi Agreement, the Company determined the estimate of standalone selling price for the license performance obligation by using the adjusted market assessment approach. Under this method, the Company forecasted and analyzed CR845/difelikefalin in the Japanese market, the phase of clinical development as well as considered recent similar license arrangements within the same phase of clinical development, therapeutic area, type of agreement, etc. To estimate the standalone selling price of the R&D services, the Company forecasted its expected costs of satisfying that performance obligation and added a margin for that service.

4.

Determination of the method of allocation of the transaction price to the distinct performance obligations

At inception of the Maruishi Agreement, the Company allocated the transaction price of $15,337 between the two performance obligations based on their relative standalone selling prices, determined as described above. The Company determined that the license and the R&D services had estimated standalone selling prices of $10,200 and $6,200, respectively. The resulting percentage allocations were applied to the $15,337 of total transaction price, which resulted in $9,637 being allocated to the license performance obligation, which was recognized immediately as license revenue, while $5,700 was allocated to the R&D services performance obligation. The amount allocated to the R&D services performance obligation was initially recorded as deferred revenue and was recognized as collaborative revenue as the R&D services were provided through July 2015.

Since the Vifor, VFMCRP and CKDP agreements each contain only one distinct performance obligation, at the inception of each of those agreements, the entire transaction price was allocated to the respective performance obligation.

5.

Determination of the timing of revenue recognition for contracts

Revenue should be recognized when, or as, an entity satisfies a performance obligation by transferring a promised good or service to a customer; i.e., when the customer obtains control of the good or service. The licenses granted to Vifor, Maruishi and CKDP were accounted for as distinct performance obligations. As discussed below, both licenses

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

relate to functional IP for which revenue is recognized at a point in time – in the case of these three license agreements, the point in time is at inception of the contract because the customer obtained control of the license at that point.

The licenses grant Vifor, Maruishi and CKDP the right to use the Company’s IP relating to CR845/difelikefalin as it existed at the point in time that the licenses were granted. That IP has significant standalone functionality as it provides the customer with the ability to perform a function or task, such as to manufacture CR845/difelikefalin and conduct clinical trials and is considered to be functional IP.

During the license periods, the Company is continuing to develop and advance CR845/difelikefalin by conducting clinical trials. Those development efforts are for its own benefit and do not substantively change the significant standalone functionality of the licensed IP granted to Vifor, Maruishi or CKDP. Therefore, the Company’s ongoing development efforts do not significantly affect the IP’s utility to which Vifor, Maruishi or CKDP have rights. Furthermore, if the Company abandons its development efforts, Vifor, Maruishi or CKDP may still continue to develop CR845/difelikefalin in their respective countries.

The R&D services performance obligation under the Maruishi Agreement represents a separate performance obligation. The R&D services were provided to Maruishi by the Company from inception of the agreement in 2013 through the third quarter of 2015, at which time the Company had fulfilled its promise related to the R&D services. Revenue related to the R&D services performance obligation was recognized as services were performed based on the costs incurred as a percentage of the estimated total costs to be incurred to complete the performance obligation.

Similarly, under the VFMCRP Agreement, revenue related to the single distinct performance obligation, which includes both granting of the license and performance of the R&D services, was recognized as the R&D services were performed, based on the costs incurred as a percentage of the estimated total costs to be incurred to complete the performance obligation. As of June 30, 2021, there is no remaining amount of the transaction price to be recognized as license and milestone fees revenue as all R&D services were completed in 2020.

6.

Determination of consideration as variable consideration, including factors related to inclusion in the transaction price at inception of the contract and timing of recognition as revenue.

The Vifor, VFMCRP, Maruishi and CKDP agreements contain potential payments related to achievement of defined milestone events and royalties (excluding Vifor) upon net sales of future products, which are considered to be variable consideration because of the uncertainty of occurrence of any of those events specified in those agreements at inception of the agreements. Therefore, those potential payments were not included in the transaction price at the inception of the agreements.

Revenue related to achievement of milestone events is recognized when the Company has determined that it is probable that a milestone event will be achieved and there will not be a significant reversal of revenue in future periods. Upon probability of achievement of a milestone event, the most likely amount of variable consideration is included in the transaction price. Subsequent changes to the transaction price, after contract initiation, are allocated to the performance obligations in the contract on the same basis as at contract inception. Revenue for variable consideration is recognized in the same manner (point in time or over time) as for the performance obligations to which the payment amounts were allocated.

The Maruishi Agreement and the CKDP Agreement specify that certain development milestones will be achieved at pre-specified defined phases of a clinical trial (such as initiation or completion or other pre-specified time during a clinical trial as specified in the agreements).

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CARA THERAPEUTICS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

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

(unaudited)

In January 2021, the criteria for revenue recognition for a milestone event set forth in the Maruishi Agreement was achieved, and the Company recorded $1,192 as license and milestone fees revenue and $706 as collaboration revenue based on the relative standalone selling prices described above at contract inception for the six months ended June 30, 2021. In May 2021, the Company received the $1,898 payment (after contractual foreign currency exchange adjustments) from Maruishi for the milestone event achieved.

There were no milestone events related to the Maruishi Agreement that were probable of occurrence or achieved during the three months ended June 30, 2021, or during the three and six months ended June 30, 2020.

Sublicense payments

Vifor’s, VFMCRP’s, Maruishi’s and CKDP’s right to grant sub-licenses is explicitly stated in their respective license agreements. The amount of any potential sub-license fees to be received by the Company, which is based on a formula, is considered to be variable consideration and is constrained from inclusion in the transaction price at inception of the contract since at that time it was probable that there would be a reversal of such revenue in the future because the Company did not know if a sublicense would be granted in the future.

Sales-based Royalty Payments

The VFMCRP, Maruishi and CKDP agreements each allow the Company to earn sales-based royalty payments in exchange for a license of intellectual property. In that case, the Company will recognize revenue for a sales-based royalty only when (or as) the later of the following events occurs:

a. The subsequent sale or usage occurs.
b. The performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied (or partially satisfied).

Since the sale (item a, above) occurs after the license was delivered (item b, above), the sales-based royalty exception, to exclude such royalty payments from the transaction price, applies to the overall revenue stream. Therefore, sales-based royalty payments are recognized as revenue when the customer’s sales occur. To date, no royalties have been earned or were otherwise due to the Company.

12. 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 or restricted stock units, which are included using the treasury stock method when dilutive. For the three and six months ended June 30, 2021 and 2020, 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 Company’s net losses during those periods.

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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

Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020

    

Basic:

 

  

 

  

 

  

 

  

 

Weighted average common shares outstanding

 

50,059,984

 

46,799,703

 

49,989,379

 

46,762,327

 

Diluted:

 

 

  

 

  

 

  

 

Weighted average common shares outstanding - Basic

 

50,059,984

 

46,799,703

 

49,989,379

 

46,762,327

 

Common stock equivalents*

 

 

 

 

 

Denominator for diluted net loss per share

 

50,059,984

 

46,799,703

 

49,989,379

 

46,762,327

 

*

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

Six Months Ended

June 30, 

June 30, 

    

2021

    

2020

    

2021

    

2020