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 September 30, 2017, the Company has raised aggregate net proceeds of approximately $291,100 from several rounds of equity
financing, including its initial public offering, or IPO, 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 convertible preferred stock and debt prior to the IPO. 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 September 30, 2017, the Company had unrestricted cash and cash equivalents and marketable securities of $102,982 and an accumulated
deficit of $206,164. 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 $43,948 and $35,308 and had net cash used in operating activities of $43,414 and $34,193 for the nine months ended September 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.
Use of Estimates
The
preparation of financial statements in conformity with GAAP requires the Company to make estimates and
5
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
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.
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
generally has not modified, and does not expect to frequently modify, the fair value, vesting conditions or classification of its share-based payment awards. As a result, for reporting periods following the adoption of ASU
2017-09,
the Company generally does not expect this guidance to have a material effect on its financial position, results of operations or cash flows. However, if and when modifications occur, their effect could be
material to the Companys financial position, results of operations or cash flows (see Note 12,
Stock-based Compensation
).
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 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 in the future to acquire or dispose of assets for which the fair value is divided among diverse identifiable assets.
6
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
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. Since all defined milestones will not have been achieved and the related revenue will not have been recognized under
current GAAP as of the date of 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 September 30, 2017 and December 31, 2016, the Companys
available-for-sale
marketable securities consisted of a money market fund and debt securities issued by U.S. government-sponsored entities and by investment grade
institutions. In addition, as of December 31, 2016, the Companys
available-for-sale
marketable securities included U.S. Treasury securities.
The following tables summarize the Companys
available-for-sale
marketable securities by major type of security as of September 30, 2017 and December 31, 2016:
As of September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Estimated
Fair Value
|
|
Type of Security
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Money market funds
|
|
$
|
42,826
|
|
|
$
|
49
|
|
|
$
|
|
|
|
$
|
42,875
|
|
U.S. government agency obligations
|
|
|
7,800
|
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
7,800
|
|
Corporate bonds
|
|
|
19,368
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
19,363
|
|
Commercial paper
|
|
|
21,156
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
21,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
marketable securities
|
|
$
|
91,150
|
|
|
$
|
50
|
|
|
$
|
(10
|
)
|
|
$
|
91,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2017, the Companys marketable debt securities mature at various dates through June 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 September 30, 2017
|
|
|
As of December 31, 2016
|
|
Contractual maturity
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
Less than one year
|
|
$
|
48,324
|
|
|
$
|
48,315
|
|
|
$
|
37,913
|
|
|
$
|
37,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 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 $5,730 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 $4.
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 September 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
|
|
$
|
3,498
|
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,498
|
|
|
$
|
(1
|
)
|
Corporate bonds
|
|
|
18,016
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
18,016
|
|
|
|
(5
|
)
|
Commercial paper
|
|
|
8,193
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
8,193
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,707
|
|
|
$
|
(10
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
29,707
|
|
|
$
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 30, 2017 and December 31, 2016, the Company held a total of 17 out of 28 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
September 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 nine months ended September 30, 2017 and September 30,
2016.
|
|
|
|
|
|
|
Total Accumulated
Other
Comprehensive
Income (Loss)
|
|
Balance, December 31, 2016
|
|
$
|
3
|
|
|
|
|
|
|
Other comprehensive income before reclassifications
|
|
|
41
|
|
Amount reclassified from accumulated other comprehensive income
|
|
|
(4
|
)
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
37
|
|
|
|
|
|
|
Balance, September 30, 2017
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
$
|
(35
|
)
|
|
|
|
|
|
Other comprehensive income before reclassifications
|
|
|
67
|
|
Amount reclassified from accumulated other comprehensive income
|
|
|
(12
|
)
|
|
|
|
|
|
Net current period other comprehensive income
|
|
|
55
|
|
|
|
|
|
|
Balance, September 30, 2016
|
|
$
|
20
|
|
|
|
|
|
|
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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
Affected Line Item in the
|
Component of AOCI
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Statements of Operations
|
Unrealized gains on
available-for-sale
marketable securities
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
4
|
|
|
$
|
12
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
12
|
|
|
$
|
4
|
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount reclassified out of AOCI into net loss was determined by specific identification.
5. Fair Value Measurements
As of
September 30, 2017 and December 31, 2016, the Companys financial instruments consisted 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.
Available-for-sale
marketable securities are reported on the Companys Condensed Balance Sheets as Marketable securities at their fair
values, based upon pricing of securities with the same or similar investment characteristics as provided by third-party pricing services, as described below.
Current accounting guidance defines fair value, establishes a framework for measuring fair value in accordance with ASC section 820, and
requires certain disclosures about fair value measurements. The valuation techniques included in the guidance are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while
unobservable inputs reflect the 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 September 30, 2017 or December 31, 2016.
The
following tables summarize the Companys financial assets measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016.
Fair value measurement as of September 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
|
|
$
|
11,792
|
|
|
$
|
11,792
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale
marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market fund
|
|
|
42,875
|
|
|
|
|
|
|
|
42,875
|
|
|
|
|
|
U.S. government agency obligations
|
|
|
7,800
|
|
|
|
|
|
|
|
7,800
|
|
|
|
|
|
Corporate bonds
|
|
|
19,363
|
|
|
|
|
|
|
|
19,363
|
|
|
|
|
|
Commercial paper
|
|
|
21,152
|
|
|
|
|
|
|
|
21,152
|
|
|
|
|
|
Restricted cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial money market account
|
|
|
1,469
|
|
|
|
1,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
$
|
104,451
|
|
|
$
|
13,261
|
|
|
$
|
91,190
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 nine months ended September 30, 2017 or 2016. There were no transfers of
financial assets between Levels 1, 2, or 3 classifications during the nine months ended September 30, 2017 or 2016.
12
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
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 September 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. For the Stamford lease, the letter of credit balance remains at $769 through May 2019 and may, upon request from the Company, thereafter be reduced to
$408 through the end of the lease term in November 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 September 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
September 30, 2017, prepaid expenses were $1,492, consisting of $984 of prepaid R&D clinical costs, $346 of prepaid insurance and $162 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:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
|
December 31, 2016
|
|
Accounts payable
|
|
$
|
1,187
|
|
|
$
|
4,738
|
|
Accrued research projects
|
|
|
3,758
|
|
|
|
4,352
|
|
Accrued professional fees
|
|
|
473
|
|
|
|
163
|
|
Accrued compensation and benefits
|
|
|
1,496
|
|
|
|
1,514
|
|
Accrued other
|
|
|
358
|
|
|
|
766
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,272
|
|
|
$
|
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, or 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.
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.
13
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
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 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 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 nine months ended September 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 $68 and $86 of clinical compound revenue during the nine months ended September 30, 2017 and 2016, respectively,
from the sale of clinical compound to Maruishi but did not recognize any clinical compound revenue during the three months ended September 30, 2017 or 2016.
The Company incurred $61 and $78 of R&D expense during the nine months ended September 30, 2017 and 2016, respectively, consisting of
cost of clinical compound but did not recognize any R&D expense related to the Maruishi Agreement during the three months ended September 30, 2017 and 2016.
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 nine months ended
September 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 nine months ended September 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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
32,591,550
|
|
|
|
27,282,863
|
|
|
|
30,729,752
|
|
|
|
27,275,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding -Basic
|
|
|
32,591,550
|
|
|
|
27,282,863
|
|
|
|
30,729,752
|
|
|
|
27,275,133
|
|
Common stock options*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted net loss per share
|
|
|
32,591,550
|
|
|
|
27,282,863
|
|
|
|
30,729,752
|
|
|
|
27,275,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
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 September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net loss
|
|
$
|
(12,444
|
)
|
|
$
|
(11,542
|
)
|
|
$
|
(43,948
|
)
|
|
$
|
(35,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
32,591,550
|
|
|
|
27,282,863
|
|
|
|
30,729,752
|
|
|
|
27,275,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share, Basic and Diluted
|
|
$
|
(0.38
|
)
|
|
$
|
(0.42
|
)
|
|
$
|
(1.43
|
)
|
|
$
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2017 and 2016, 3,492,786 and 2,299,117 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,
15
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
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. Initial grants of Stock Awards made to employees and
non-employee
consultants generally vest as to 25% on the first anniversary of the date of grant and the balance ratably over the next 36 months. However, 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 has automatically increased on January 1 of each year, beginning on January 1, 2015 and will continue to increase on January 1 of
each year 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 415,000 and 1,253,500 stock options during the three and nine months ended September 30, 2017, respectively, and 75,000 and 797,000 stock options during the three and nine months ended September 30, 2016,
respectively. The fair values of stock options granted during the three and nine months ended September 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 September 30,
|
|
Nine Months Ended September 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Risk-free interest rate
|
|
1.87% - 1.97%
|
|
1.19%
|
|
1.85% - 2.57%
|
|
1.19% - 1.79%
|
Expected volatility
|
|
81.4% - 81.7%
|
|
71.9%
|
|
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
|
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 nine months ended
September 30, 2017 was $10.00 and $11.61, respectively, and during the three and nine months ended September 30, 2016 was $3.92 and $3.81, respectively.
16
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
As of September 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 September 30,
|
|
|
2017
|
|
2016
|
Risk-free interest rate
|
|
1.28% -2.28%
|
|
1.35% - 1.56%
|
Expected volatility
|
|
75.2% - 84.0%
|
|
73.9% - 74.6%
|
Expected dividend yield
|
|
0%
|
|
0%
|
Expected life of
non-employee
options (in years)
|
|
0.88 - 9.44
|
|
7.33 - 9.60
|
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 $8.31 and $5.75 as of September 30, 2017 and 2016, respectively.
On January 1, 2017, the Company adopted ASU
2016-09,
Improvements to Employee Share-Based
Payment Accounting
(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 nine
months ended September 30, 2017 and 2016, the Company recognized compensation expense relating to stock options, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Research and development
|
|
$
|
619
|
|
|
$
|
375
|
|
|
$
|
1,784
|
|
|
$
|
867
|
|
General and administrative
|
|
|
1,475
|
|
|
|
402
|
|
|
|
2,736
|
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock option expense
|
|
$
|
2,094
|
|
|
$
|
777
|
|
|
$
|
4,520
|
|
|
$
|
1,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the retirement of the Companys former Chief Financial Officer, effective
August 15, 2017, or the Modification Date, the Company modified the terms of the former Chief Financial Officers outstanding Stock Awards to: (1) accelerate 50% of the 98,771 unvested shares underlying his outstanding Stock Awards
immediately as of the Modification Date, and specify that the remainder will vest monthly through the date of termination of his continuous service to the Company and (2) extend the period during which his outstanding Stock Awards for an
aggregate of 183,000 shares may be exercised through the
six-month
anniversary of the date of termination of his continuous service to the Company. As of the Modification Date, Company entered into a
consulting agreement with the former Chief Financial Officer under which he will provide continuous service to the Company by assisting with the transition of his role to the Companys Chief Financial Officer. Pursuant to the terms of the 2014
Plan and his outstanding Stock Awards, such Stock Awards will continue to vest under their original vesting conditions as long as he provides continuous service to the Company (including as a consultant). The initial term of his consulting agreement
will end on February 15, 2018, with
month-to-month
renewals thereafter at the Companys option.
The Company determined that the acceleration of vesting for Stock Awards that would have vested based on their original vesting terms through
the term of the consulting services was a Type 1 modification pursuant to ASC 718,
Compensation-Stock Compensation
because those Stock Awards would have vested whether or not the vesting of those Stock Awards had been accelerated. However,
acceleration of vesting for the remaining Stock Awards was a Type 3 modification pursuant to ASC 718 because absent the modification terms, those Stock Awards would have been forfeited as of the last day that the former Chief Financial Officer
provides continuous service as a consultant.
17
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
On the Modification Date, the Company recognized $474 of compensation expense, which is
included in General and administrative expense in the table above, for the three and nine months ended September 30, 2017, with respect to these modifications. In addition, the Company expects to recognize compensation expense totaling $92 on a
straight-line basis during the term of his continuous service to the Company and will mark to market the fair value of those Stock Awards in accordance with
ASC 505-50
and will recognize compensation
expense accordingly during that period.
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 nine months ended September 30, 2017 is presented
below:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding, December 31, 2016
|
|
|
2,548,408
|
|
|
$
|
8.75
|
|
Granted
|
|
|
1,253,500
|
|
|
|
16.40
|
|
Exercised
|
|
|
(194,122
|
)
|
|
|
7.81
|
|
Forfeited
|
|
|
(115,000
|
)
|
|
|
7.74
|
|
|
|
|
|
|
|
|
|
|
Outstanding, September 30, 2017
|
|
|
3,492,786
|
|
|
|
11.58
|
|
|
|
|
|
|
|
|
|
|
Options exercisable, September 30, 2017
|
|
|
1,366,118
|
|
|
$
|
9.86
|
|
|
|
|
|
|
|
|
|
|
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 nine months ended September 30, 2017 and 2016.
13. Income Taxes
For the three months ended September 30, 2017 and 2016,
pre-tax
losses were $12,589 and $11,597,
respectively, and for the nine months ended September 30, 2017 and 2016,
pre-tax
losses were $44,126 and $35,587, respectively. The Company recognized a full tax valuation allowance against its deferred
tax assets as of September 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.
The benefit from income taxes of $145 and $55 for the three months ended
September 30, 2017 and 2016, respectively, and $178 and $279 for the nine months ended September 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.
18
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
14. Commitments and Contingencies
Contractual obligations and commitments as of September 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
|
|
$
|
294
|
|
|
$
|
1,093
|
|
|
$
|
1,217
|
|
|
$
|
1,241
|
|
|
$
|
1,266
|
|
|
$
|
2,348
|
|
|
$
|
7,459
|
|
Shelton operating lease
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
423
|
|
|
$
|
1,093
|
|
|
$
|
1,217
|
|
|
$
|
1,241
|
|
|
$
|
1,266
|
|
|
$
|
2,348
|
|
|
$
|
7,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 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 $823 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 September 30, 2017 and December 31, 2016, the balance of Deferred lease obligation
related to tenant improvements was $878 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 has a termination date of October 13, 2017, with
month-to-month
rental payments due thereafter, if necessary (see below).
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 September 30, 2017, the carrying amount of the liability of $129, which includes the minimum rental payments in the table above, including additional rent for the period from October 14, 2017 to November 13, 2017, while
the leased space is being restored to be returned to the landlord, was included in Accounts payable and accrued expenses on the Companys Balance Sheet.
19
CARA THERAPEUTICS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
(unaudited)
A reconciliation of the balances of the accrued Shelton Lease
cease-use
liability for the three and nine months ended September 30, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
2017
|
|
|
|
|
2016
|
|
Balance July 1, 2017
|
|
$
|
276
|
|
|
|
|
Balance, July 1, 2016
|
|
$
|
1,232
|
|
Charges
|
|
|
90
|
|
|
|
|
Charges
|
|
|
|
|
Rental payments
|
|
|
(247
|
)
|
|
|
|
Rental payments
|
|
|
(234
|
)
|
Interest accretion
|
|
|
10
|
|
|
|
|
Interest accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2017
|
|
$
|
129
|
|
|
|
|
Balance September 30, 2016
|
|
$
|
998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2017
|
|
|
|
|
2016
|
|
Balance, January 1, 2017
|
|
$
|
756
|
|
|
|
|
Balance January 1, 2016
|
|
$
|
|
|
Charges
|
|
|
90
|
|
|
|
|
Charges
|
|
|
1,312
|
|
Rental payments
|
|
|
(741
|
)
|
|
|
|
Rental payments
|
|
|
(314
|
)
|
Interest accretion
|
|
|
24
|
|
|
|
|
Interest accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance September 30, 2017
|
|
$
|
129
|
|
|
|
|
Balance September 30, 2016
|
|
$
|
998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the signing of the Shelton Lease, the Company entered into a standby letter of credit
agreement, which expires 60 days after lease termination, as a security deposit for the premises. As of September 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 $899 (additional net loss per share of $0.03) for
the nine months ended September 30, 2016.
20