Cara Therapeutics(CARA) - 2020 Q1 - Quarterly Report

markdown [PART I – FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%93FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed financial statements for the quarter ended March 31, 2020, including balance sheets, comprehensive loss, stockholders' equity, and cash flows, with accompanying notes [Condensed Balance Sheets](index=4&type=section&id=Condensed%20Balance%20Sheets) The balance sheet shows a decrease in total assets from **$233.0 million** at the end of 2019 to **$196.2 million** as of March 31, 2020, primarily driven by a reduction in cash, cash equivalents, and marketable securities, with total stockholders' equity also decreasing from **$186.7 million** to **$160.5 million** over the same period, reflecting the net loss incurred during the quarter Condensed Balance Sheet Data (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total current assets** | $132,669 | $165,656 | | **Total assets** | $196,173 | $232,959 | | **Total current liabilities** | $18,362 | $22,917 | | **Total liabilities** | $35,699 | $46,246 | | **Total stockholders' equity** | $160,474 | $186,713 | | **Accumulated deficit** | ($429,649) | ($400,727) | [Condensed Statements of Comprehensive Loss](index=5&type=section&id=Condensed%20Statements%20of%20Comprehensive%20Loss) For the first quarter of 2020, the company reported a significant increase in revenue to **$8.1 million**, up from **$4.4 million** in the prior-year period, driven by license and milestone fees, with operating expenses also rising substantially, and R&D expenses increasing to **$33.5 million**, resulting in a higher net loss of **$28.9 million**, or **($0.62) per share**, compared to a net loss of **$22.0 million**, or **($0.56) per share**, in Q1 2019 Statement of Comprehensive Loss (in thousands, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | **Total revenue** | $8,093 | $4,382 | | License and milestone fees | $8,021 | $4,242 | | **Research and development** | $33,536 | $23,608 | | **General and administrative** | $4,558 | $3,908 | | **Operating loss** | ($30,001) | ($23,134) | | **Net loss** | ($28,922) | ($21,960) | | **Net loss per share (Basic and Diluted)** | ($0.62) | ($0.56) | [Condensed Statements of Cash Flows](index=7&type=section&id=Condensed%20Statements%20of%20Cash%20Flows) The company used **$38.3 million** in cash for operating activities during the first quarter of 2020, a significant increase from the **$27.5 million** used in the same period of 2019, primarily due to a higher net loss and changes in operating assets and liabilities, while investing activities provided **$37.0 million** in cash, mainly from maturities of marketable securities, and financing activities provided a minor cash inflow from stock option exercises Cash Flow Summary (in thousands) | Activity | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | **Net cash used in operating activities** | ($38,303) | ($27,526) | | **Net cash provided by investing activities** | $36,959 | $26,399 | | **Net cash provided by financing activities** | $75 | $234 | | **Net decrease in cash, cash equivalents and restricted cash** | ($1,269) | ($893) | [Notes to Condensed Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Financial%20Statements) The notes provide crucial context to the financial statements, detailing the company's business focus on developing pruritus treatments, its history of net losses and negative cash flows, and its reliance on equity financing and license agreements for funding, along with significant accounting policies, collaboration agreements, revenue recognition, stock-based compensation, and commitments - The company is a clinical-stage biopharmaceutical firm focused on developing and commercializing new chemical entities to alleviate pruritus by selectively targeting peripheral kappa opioid receptors[21](index=21&type=chunk) - As of March 31, 2020, the company had an accumulated deficit of **$429.6 million** and has incurred substantial net losses and negative cash flows from operations since inception, a trend expected to continue[23](index=23&type=chunk) - Revenue from the VFMCRP Agreement is recognized proportionately as R&D services are conducted, with **$8.021 million** recognized as license and milestone fees revenue for Q1 2020[110](index=110&type=chunk) - The company entered into a license agreement with Enteris Biopharma in August 2019 for its Peptelligence® technology to develop an oral formulation of its product candidate, paying an upfront fee of **$8.0 million**[168](index=168&type=chunk)[169](index=169&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=52&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes the company's financial condition, operational results, and future outlook, covering KORSUVA development, Q1 2020 performance, and liquidity, with funds expected to last into the second half of 2021 [Product Candidate Pipeline](index=57&type=section&id=Our%20Product%20Candidate%20Pipeline) The company's pipeline centers on KORSUVA (CR845/difelikefalin), a first-in-class KOR agonist, with the injectable form in late-stage development for CKD-aP in hemodialysis patients, an NDA submission expected in the second half of 2020, and the oral form being evaluated in Phase 2 trials for CKD-aP (non-dialysis), CLD-aP, and Atopic Dermatitis (AD) - The company expects to submit a New Drug Application (NDA) to the FDA for KORSUVA injection for CKD-aP in the second half of 2020, following positive top-line results from its pivotal KALM-2 Phase 3 trial[212](index=212&type=chunk)[213](index=213&type=chunk) - The Phase 2 trial of Oral KORSUVA for pruritus in stage III-V CKD patients met its primary endpoint for the **1.0 mg** dose, and the company plans an End-of-Phase 2 meeting with the FDA in the second half of 2020[223](index=223&type=chunk)[226](index=226&type=chunk) - A Phase 2 trial of Oral KORSUVA for pruritus in patients with Atopic Dermatitis (AD) was expanded to approximately **320 patients**, with an interim analysis expected in Q2 2020 and top-line results in 2020, subject to COVID-19 related delays[233](index=233&type=chunk) [Results of Operations](index=74&type=section&id=Results%20of%20Operations) Comparing Q1 2020 to Q1 2019, total revenue increased **85%** to **$8.1 million**, driven by license fee revenue from the VFMCRP Agreement, while R&D expenses rose **42%** to **$33.5 million** due to increased activity in the KORSUVA clinical programs, and G&A expenses increased to **$4.6 million** from **$3.9 million**, reflecting higher professional fees and stock-based compensation Comparison of Operating Results (in thousands) | Item | Q1 2020 | Q1 2019 | % Change | | :--- | :--- | :--- | :--- | | **Total Revenue** | $8,093 | $4,382 | 85% | | **R&D Expense** | $33,536 | $23,608 | 42% | | **G&A Expense** | $4,558 | $3,908 | 17% | - The increase in R&D expenses was primarily driven by costs for the KALM-2 Phase 3 trial, the Phase 3 safety trial of KORSUVA injection, and the Phase 2 trial for pruritus associated with Atopic Dermatitis (AD)[276](index=276&type=chunk) [Liquidity and Capital Resources](index=76&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2020, the company had **$179.8 million** in unrestricted cash, cash equivalents, and marketable securities, which management believes are sufficient to support operations into the second half of 2021, though the company has a history of losses and expects to continue incurring significant expenses, necessitating additional capital to fund its development and potential commercialization activities - The company believes its existing cash and marketable securities of **$179.8 million** as of March 31, 2020, will be sufficient to fund operations into the second half of 2021[286](index=286&type=chunk)[304](index=304&type=chunk) - The company has an effective Shelf Registration Statement allowing it to offer up to **$300.0 million** in securities, of which approximately **$145.5 million** has been sold to date, providing flexibility for future capital raises[285](index=285&type=chunk) - Future expenses are expected to increase with the continued development of KORSUVA, seeking regulatory approvals, and establishing a commercial infrastructure[295](index=295&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=84&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposure is primarily related to interest rate fluctuations affecting its portfolio of cash equivalents and available-for-sale marketable securities, which consists of high-grade debt instruments with relatively short durations, mitigating interest rate risk, and the company does not use derivative instruments to manage this exposure - The company's primary market risk is interest rate risk, where a hypothetical **1%** increase in interest rates would result in an immaterial decrease in the fair value of its portfolio due to the conservative nature and short duration of its investments[320](index=320&type=chunk)[321](index=321&type=chunk) - Credit quality risk is managed through an investment policy that specifies minimum credit quality, and limits exposure to any single issuer or investment type[322](index=322&type=chunk) [Controls and Procedures](index=86&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and Principal Financial Officer, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2020, with a change in internal control over financial reporting made to adopt a new accounting standard for credit losses, which did not have a material effect - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[323](index=323&type=chunk) - A change was made to internal controls to implement ASU 2016-13 (Credit Losses), which did not have a material impact on the company's financial statements[324](index=324&type=chunk) [PART II – OTHER INFORMATION](index=88&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) [Legal Proceedings](index=88&type=section&id=Item%201.%20Legal%20Proceedings) The company states that it is not currently involved in any legal proceedings that would have a material adverse effect on its business, operating results, or financial condition - As of the report date, the company is not a party to any material legal proceedings[329](index=329&type=chunk) [Risk Factors](index=88&type=section&id=Item%201A.%20Risk%20Factors) The company faces multiple risks related to its financial viability, product development and commercialization, regulatory approvals, third-party reliance, and the impact of the COVID-19 pandemic - The company has incurred significant losses since inception, with an accumulated deficit of **$429.6 million** as of March 31, 2020, and anticipates continued losses[332](index=332&type=chunk) - The business is substantially dependent on the success of KORSUVA (CR845/difelikefalin) injection, which may not successfully complete trials, receive regulatory approval, or be commercialized[346](index=346&type=chunk) - The COVID-19 pandemic poses a risk to business operations and clinical development, having already affected patient enrollment in a Phase 2 trial and reduced capacity at a third-party manufacturer[357](index=357&type=chunk) - The company relies on third parties for manufacturing and clinical trials, and any failure by these parties to perform satisfactorily could delay product development and commercialization[447](index=447&type=chunk)[454](index=454&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=170&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities during the reporting period - There were no unregistered sales of equity securities in the quarter ended March 31, 2020[596](index=596&type=chunk) [Other Information](index=170&type=section&id=Item%205.%20Other%20Information) The company reported no other information required to be disclosed under this item - There was no other information to report for the period[602](index=602&type=chunk) [Exhibits](index=172&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the company's amended and restated certificate of incorporation and bylaws, and certifications by the CEO and Principal Financial Officer as required by the Sarbanes-Oxley Act - The report includes a list of filed exhibits, such as corporate governance documents and required CEO/CFO certifications[606](index=606&type=chunk)