TVRD 8-K
Tvardi Therapeutics, Inc. (TVRD)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or |
(Commission |
(I.R.S. Employer Identification No.) | ||
|
|
||||
| (Address of principal executive Offices) | (Zip Code) | |||
| Registrant's telephone number, including area code: ( |
||||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2.):
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading
Symbol(s) |
Name
of each exchange on which registered | ||
| The |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ¨
| Item 5.07 | Submission of Matters to a Vote of Security Holders. |
On April 1, 2025, Cara Therapeutics, Inc. (the “Company”) held its Special Meeting of Stockholders (the “Special Meeting”). At the Special Meeting, the Company’s stockholders voted on the six proposals set forth below.
At the close of business on February 5, 2025, the record date for the Special Meeting, there were 4,571,229 shares of the Company’s common stock issued and outstanding. The holders of a total of 2,257,479 shares of the Company’s common stock were represented at the Special Meeting by proxy or by attendance at the virtual meeting, representing approximately 49.38% of the Company’s issued and outstanding common stock as of the record date, which total constituted a quorum for the Special Meeting in accordance with the Company’s bylaws.
The final voting results for each of the proposals voted upon at the Special Meeting is set forth below. For more information on the proposals voted upon at the meeting, please refer to the Company’s definitive proxy statement for the Special Meeting dated February 14, 2025.
Proposal No. 1 – Approval of the Issuance of Shares of the Company’s Common Stock Pursuant to the Merger (defined below)
The stockholders approved the issuance of shares of the Company’s common stock pursuant to the merger (the “Merger”) of CT Convergence Merger Sub, Inc., a wholly owned subsidiary of the Company, with and into Tvardi Therapeutics, Inc. (“Tvardi”), with Tvardi surviving the Merger as a wholly owned subsidiary of the Company, which (i) will represent more than 20% of the shares of the Company’s common stock outstanding immediately prior to the Merger and (ii) result in the change of control of the Company, pursuant to Rules 5635(a) and 5635(b) of Nasdaq, respectively (the “Stock Issuance Proposal”), by the following votes:
| Votes For | Votes Against | Abstentions | Broker Non-Votes | |||
| 2,088,293 | 166,062 | 3,124 | — |
Proposal No. 2 - Approval of Equity Plan
The stockholders approved the Tvardi Therapeutics, Inc. 2025 Equity Incentive Plan, by the following votes:
| Votes For | Votes Against | Abstentions | Broker Non-Votes | |||
| 1,614,099 | 639,688 | 3,692 | — |
Proposal No. 3 - Approval of Employee Stock Purchase Plan
The stockholders approved the Tvardi Therapeutics, Inc. 2025 Employee Stock Purchase Plan, by the following votes:
| Votes For | Votes Against | Abstentions | Broker Non-Votes | |||
| 1,811,877 | 440,010 | 5,592 | — |
Proposal No. 4 – Approval of an Amendment to the Company’s Amended and Restated Certificate of Incorporation Effecting the Reverse Stock Split at a Ratio in the Range From 1-for-2 to 1-for-4
The stockholders approved an amendment to the amended and restated certificate of incorporation of the Company to effect a reverse stock split of the Company’s common stock at a ratio within the range between 1-for-2 to 1-for-4 (with such ratio to be mutually agreed upon by the Company’s Board of Directors and the Tvardi Board of Directors prior to the effectiveness of the Merger or, if the Stock Issuance Proposal is not approved by the Company’s stockholders, determined solely by the Company’s Board of Directors), by the following votes:
| Votes For | Votes Against | Abstentions | Broker Non-Votes | |||
| 2,074,463 | 178,823 | 4,193 | — |
| 2 |
Proposal No. 5 – Approval of an Increase in Authorized Shares
The stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to increase the number of authorized shares of the Company’s common stock from 16,666,667 shares to 150,000,000 shares, by the following votes:
| Votes For | Votes Against | Abstentions | Broker Non-Votes | |||
| 2,063,711 | 190,834 | 2,934 | — |
Proposal No. 6 – Approval, on an Advisory, Non-Binding Basis, of Merger-Related Executive Compensation Arrangements
The stockholders approved, on an advisory, nonbinding basis, the compensation that will or may become payable by the Company to its named executive officers in connection with the Merger, by the following votes:
| Votes For | Votes Against | Abstentions | Broker Non-Votes | |||
| 2,059,752 | 191,692 | 6,035 | — |
| Item 8.01 | Other Events. |
The Company is filing this Current Report on Form 8-K to provide certain financial information with respect to the Merger. Specifically, this Current Report on Form 8-K provides: (i) audited financial statements of Tvardi as of and for the years ended December 31, 2024 and 2023, attached hereto as Exhibit 99.1 and incorporated herein by reference, (ii) Management’s Discussion and Analysis of Financial Condition and Results of Operations of Tvardi for the years ended December 31, 2024 and 2023, attached hereto as Exhibit 99.2 and incorporated herein by reference, and (iii) the unaudited pro forma condensed combined financial statements as of and for the year ended December 31, 2024, relating to the proposed Merger, attached hereto as Exhibit 99.3 and incorporated herein by reference. Such unaudited pro forma condensed combined financial statements have been prepared on the basis of certain assumptions and estimates and are subject to other uncertainties and do not purport to reflect what the actual results of operations or financial condition of the combined company would have been had the Merger been consummated on the dates assumed for purposes of such pro forma financial statements or to be indicative of the financial condition or results of operations of the combined company as of or for any future date or period. For further information, see Exhibit 99.3. The information in Exhibits 99.1 and 99.2 were provided by Tvardi.
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
| Exhibit No. |
Description | |
| 99.1 | Audited Financial Statements of Tvardi Therapeutics, Inc. for the years ended December 31, 2024 and 2023 | |
| 99.2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations of Tvardi for the years ended December 31, 2024 and 2023 | |
| 99.3 | Unaudited Pro Forma Condensed Combined Financial Information as of and for the year ended December 31, 2024 | |
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded within the inline XBRL document) |
| 3 |
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this Current Report on Form 8-K regarding matters that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of these forward-looking statements include statements regarding the anticipated completion and effects of the proposed Merger; the ability of the parties to consummate the Merger on the expected timeline or at all; the progress, scope or duration of the development of product candidates or programs, including the expected timing for Tvardi’s regulatory submissions; statements concerning current or proposed programs or product candidates of Tvardi; strategies, prospects, plans, expectations or objectives of management Tvardi for future its operations; and other statements regarding management’s intentions, plans, beliefs, expectations or forecasts for the future, and, therefore, you are cautioned not to place undue reliance on them. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. These forward-looking statements are subject to a number of risks, including those factors discussed in the section titled “Risk Factors” in the Registration Statement on Form S-4, as amended (File No. 333-283900) initially filed by Cara with the Securities and Exchange Commission (the “SEC”) on December 18, 2024 and declared effective by the SEC on February 14, 2025, the completion of the Merger, including the need for the satisfaction (or waiver) of closing conditions; and the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the Merger Agreement. Additional risks and uncertainties are identified and discussed in the “Risk Factors” section of Cara’s Annual Report on Form 10-K and other documents filed from time to time with the SEC. All forward-looking statements contained in this Current Report on Form 8-K speak only as of the date on which they were made. Cara undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.
No Offer or Solicitation
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities nor a solicitation of any vote or approval with respect to the Merger or otherwise. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act, and otherwise in accordance with applicable law.
| 4 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| CARA THERAPEUTICS, INC. | ||
| By: | /s/ Ryan Maynard | |
| Ryan Maynard | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
Date: April 1, 2025
| 5 |
Exhibit 99.1
Tvardi Therapeutics, Inc.
INDEX TO FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Tvardi Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Tvardi Therapeutics, Inc. (the "Company") as of December 31, 2024 and 2023, the related statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and does not have sufficient cash on hand or available liquidity to fund operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the board of directors and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Prepaid and Accrued Research and Development Expenses – Refer to Notes 2, 4 and 6 to the financial statements
Critical Audit Matter Description
The Company recognizes research and development expenses and records accruals for estimated costs of research and development activities conducted by third-party contract research organizations (CROs) service providers. The majority of the Company’s service providers invoice in arrears for services performed, on a pre-determined schedule, or when contractual milestones are met; however, some require advanced payments. The Company records advance payments to service providers as prepaid expenses and other current assets, which are expensed as the contracted services are performed. The Company accrues for these costs based on factors such as the time period over which services will be performed, the enrollment of patients, and the level of effort to be expended in each period in accordance with its agreements with its third-party service providers for such services.
Given the significant judgments made by the Company in estimating the progress or stage of completion of the services, auditing the Company's accrued and prepaid research and development expenses related to CROs was especially challenging. Specifically, because the amount of accrued and prepaid research and development expenses is dependent on the Company’s receipt of timely and accurate reporting from third-party service providers, the Company’s estimates of work completed as of the balance sheet date, and the Company’s estimates of the period over which this work will be performed, auditing prepaid and accrued research and development expenses related to CROs required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to testing the prepaid and accrued research and development expenses included the following, among others:
| · | We tested the design and implementation of relevant controls over the Company’s review of associated journal entries. | |
| · | We evaluated the Company’s accounting policy for prepaid and accrued research and development liabilities, including the estimation approach for the expenses, for reasonableness. | |
| · | We evaluated the Company’s judgments, including but not limited to, patient enrollment, using the evidence obtained to determine the prepaid and accrued research and development liabilities. | |
| · | We confirmed the monthly patient enrollment directly with the CROs. | |
| · | For a sample of agreements and contracts, we agreed inputs utilized in the estimate of prepaid and accrued research and development liabilities to the underlying contract, corresponding invoices incurred during the period and evidence of payment to test the Company's disbursements made to third-party service providers. | |
| · | We compared invoices received by the Company subsequent to December 31, 2024, to the accrued research and development expenses related to CROs recognized by the Company. |
/s/ Deloitte & Touche LLP
Houston, Texas
April 1, 2025
We have served as the Company’s auditor since 2022.
F-2
Balance Sheets
(Amounts in thousands, except share and per share amounts)
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 31,614 | $ | 22,919 | ||||
| Prepaid expenses and other current assets | 72 | 3,239 | ||||||
| Total current assets | 31,686 | 26,158 | ||||||
| Property and equipment, net | 84 | 116 | ||||||
| Intangible assets, net | 385 | 448 | ||||||
| Operating lease right-of-use assets | 216 | 262 | ||||||
| Deferred offering costs | 2,811 | - | ||||||
| Other non-current assets | 17 | 17 | ||||||
| Total assets | $ | 35,199 | $ | 27,001 | ||||
| Liabilities, Redeemable Convertible Preferred Stock, and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 2,186 | 1,611 | |||||
| Accrued expenses | 8,078 | 1,577 | ||||||
| Operating lease liabilities, current portion | 103 | 93 | ||||||
| Total current liabilities | 10,367 | 3,281 | ||||||
| Operating lease liabilities, net of current portion | 201 | 275 | ||||||
| Convertible Notes | 30,259 | - | ||||||
| Total liabilities | 40,827 | 3,556 | ||||||
| Commitments and contingencies (Note 14) | ||||||||
| Redeemable convertible preferred stock (Series A, B), $0.001 par value; 29,723,540 shares authorized as of December 31, 2024 and 2023; 29,555,538 shares issued and outstanding as of December 31, 2024 and 2023; aggregate liquidation preference of $85,902 as of December 31, 2024 and 2023 | 85,503 | 85,503 | ||||||
| Stockholders' Deficit: | ||||||||
| Common stock, $0.001 par value; 58,251,629 shares authorized as of December 31, 2024 and 2023; 19,197,914 and 19,134,164 shares issued and outstanding as of December 31, 2024 and 2023, respectively | 19 | 19 | ||||||
| Additional paid-in capital | 1,086 | 762 | ||||||
| Accumulated deficit | (92,236 | ) | (62,839 | ) | ||||
| Total stockholders' deficit | (91,131 | ) | (62,058 | ) | ||||
| Total liabilities, redeemable convertible preferred stock, and stockholders' deficit | $ | 35,199 | $ | 27,001 | ||||
The accompanying notes are an integral part of these financial statements.
F-3
Statements of Operations
(Amounts in thousands, except share and per share amounts)
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating expenses: | ||||||||
| Research and development | $ | 23,650 | $ | 15,866 | ||||
| General and administrative | 4,457 | 2,799 | ||||||
| Total operating expenses | 28,107 | 18,665 | ||||||
| Loss from operations | (28,107 | ) | (18,665 | ) | ||||
| Interest income | 747 | 1,318 | ||||||
| Other income (expense), net | (2,037 | ) | - | |||||
| Net loss | $ | (29,397 | ) | $ | (17,347 | ) | ||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (1.53 | ) | $ | (0.91 | ) | ||
| Weighted-average common shares outstanding, basic and diluted | 19,193,932 | 19,134,096 | ||||||
The accompanying notes are an integral part of these financial statements.
F-4
Statements of Redeemable Convertible Preferred Stock and Stockholders’ Deficit
(Amounts in thousands, except share amounts)
| Redeemable
Convertible Preferred Stock | Common Stock | Additional Paid-In | Accumulated | Accumulated Other | Total Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Comprehensive Loss | Deficit | |||||||||||||||||||||||||
| Balances as of December 31, 2022 | 29,555,538 | $ | 85,503 | 19,127,914 | $ | 19 | $ | 446 | $ | (45,492 | ) | $ | (24 | ) | $ | (45,051 | ) | |||||||||||||||
| Exercise of stock options | - | - | 6,250 | - | 2 | - | - | 2 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | 314 | - | - | 314 | ||||||||||||||||||||||||||
| Maturities of short-term investments | - | - | - | - | - | - | 24 | 24 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (17,347 | ) | - | (17,347 | ) | ||||||||||||||||||||||
| Balances as of December 31, 2023 | 29,555,538 | $ | 85,503 | 19,134,164 | $ | 19 | $ | 762 | $ | (62,839 | ) | $ | - | $ | (62,058 | ) | ||||||||||||||||
| Exercise of stock options | - | - | 63,750 | - | 5 | - | - | 5 | ||||||||||||||||||||||||
| Stock-based compensation | - | - | - | - | 319 | - | - | 319 | ||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (29,397 | ) | - | (29,397 | ) | ||||||||||||||||||||||
| Balances as of December 31, 2024 | 29,555,538 | $ | 85,503 | 19,197,914 | $ | 19 | $ | 1,086 | $ | (92,236 | ) | $ | - | $ | (91,131 | ) | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-5
Statements of Cash Flows
(Amounts in thousands)
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (29,397 | ) | $ | (17,347 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | 95 | 95 | ||||||
| Stock-based compensation expense | 319 | 314 | ||||||
| Change in fair value of Convertible Notes | 1,807 | - | ||||||
| Non-cash lease expense | 76 | 51 | ||||||
| Accretion of discounts on short-term investments | - | (194 | ) | |||||
| Interest accrued on Convertible Notes | 154 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | 3,167 | (2,869 | ) | |||||
| Accounts payable and accrued expenses | 5,567 | (1,008 | ) | |||||
| Operating lease liabilities | (93 | ) | (82 | ) | ||||
| Net cash used in operating activities | (18,305 | ) | (21,040 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Maturities of short-term investments | - | 22,468 | ||||||
| Net cash provided by investing activities | - | 22,468 | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from exercise of stock options | 5 | 2 | ||||||
| Proceeds from Convertible Notes | 28,298 | - | ||||||
| Payments of deferred offering costs | (1,303 | ) | - | |||||
| Net cash provided by financing activities | 27,000 | 2 | ||||||
| Net increase in cash and cash equivalents | 8,695 | 1,430 | ||||||
| Cash and cash equivalents - beginning of year | 22,919 | 21,489 | ||||||
| Cash and cash equivalents - end of year | $ | 31,614 | $ | 22,919 | ||||
| Non-cash investing and financing activities | ||||||||
| Deferred offering costs included in accounts payable and accrued expenses | $ | 1,508 | $ | - | ||||
The accompanying notes are an integral part of these financial statements.
F-6
Notes to Financial Statements
| 1. | Nature of the Business and Basis of Presentation |
Tvardi Therapeutics, Inc., Tvardi or the Company, incorporated on December 20, 2017, is a Delaware Corporation headquartered in Houston, Texas. The Company is a clinical-stage, biopharmaceutical company focused on the development of novel, oral, small molecule therapies targeting STAT3 to treat fibrosis-driven diseases with significant unmet need. Based upon its founder’s seminal work and deep understanding of the transcription factor, STAT3, the Company has designed an innovative approach to directly inhibit STAT3, a highly validated, yet historically undruggable target. Leveraging this expertise, the Company is developing a pipeline of STAT3 inhibitors with a differentiated mechanism of action and convenient oral dosing. The Company’s lead product candidate, TTI-101, is currently in Phase 2 clinical development for the treatment of fibrosis-driven diseases, with an initial focus on idiopathic pulmonary fibrosis, IPF and hepatocellular carcinoma, HCC.
Risks and Uncertainties
The Company is subject to risks and uncertainties common to early-stage companies in the biopharmaceutical industry, including, but not limited to, successful development of TTI-101 and TTI-109, the development of new technological innovations by competitors, dependence on key personnel, the ability to attract and retain qualified employees, protection of proprietary technology, compliance with governmental regulations and the ability to secure additional capital to fund operations and commercial success of TTI-101 and TTI-109. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be maintained, that any therapeutic products developed will obtain required regulatory approval or that any approved or consumer products will be commercially viable. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will generate significant product sales.
Additionally, the Company is subject to risks and uncertainties as a result of global business, political and macroeconomic events and conditions, including increasing financial market volatility and uncertainty, inflation, interest rate fluctuations, uncertainty with respect to the federal budget and debt ceiling and potential government shutdowns related thereto, potential instability in the global banking system, cybersecurity events, the impact of war or military conflict, including regional conflicts around the world, and public health pandemics. The extent to which business, political and macroeconomic factors, including increasing financial market volatility and uncertainty, will impact the Company’s business will depend on future developments that are highly uncertain and cannot be predicted at this time.
Proposed Merger
On December 17, 2024 the Company entered into an agreement and plan of merger and reorganization (the Merger Agreement) with Cara Therapeutics, Inc. (Cara), and CT Convergence Merger Sub, Inc., a wholly-owned subsidiary of Cara (Merger Sub), pursuant to which Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned subsidiary of Cara (such transaction, the Merger).
Upon completion of the Merger, the business of the Company will continue as the business of the surviving corporation. After the completion of the Merger, Cara will change its corporate name to Tvardi Therapeutics, Inc.
Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the Effective Time):
| · | each outstanding share of common stock of Tvardi (including the shares of common stock issuable upon conversion of all shares of preferred stock of Tvardi prior to the Merger), $0.001 par value per share (Tvardi common stock), will be converted into the right to receive a number shares of common stock of Cara, $0.001 par value per share (Cara common stock) in the aggregate, based on a ratio calculated in accordance with the Merger Agreement (the Exchange Ratio); and |
F-7
| · | the outstanding Convertible Notes of Tvardi will be converted into shares of Cara common stock, pursuant to the terms of the Convertible Notes (as defined in Note 8, Convertible Notes). |
At the Effective Time, subject to the terms and conditions of the Merger Agreement, Cara will assume outstanding and unexercised options to purchase shares of Tvardi common stock, and in connection with the Merger, they will be converted into options to purchase shares of Cara common stock based on the Exchange Ratio. As of the Effective Time, Cara’s stockholders will continue to own and hold their then existing shares of Cara common stock, which are subject to adjustment for the reverse stock split proposed in connection with the Merger.
The completion of the Merger is subject to customary closing conditions, including, among other things (i) approval by the stockholders of each party of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, (ii) The Nasdaq Stock Market LLC’s approval of the listing of shares of Cara common stock to be issued in connection with the Merger, (iii) the effectiveness of a registration statement filed with the Securities and Exchange Commission (SEC) in connection with the Merger, and (iv) Cara net cash at the Effective Time of at least $18.0 million.
The Merger will be accounted for as an in-substance reverse recapitalization of Cara by Tvardi. The treatment as an in-substance reverse recapitalization is based on the assessment that as a result of, and following, Cara’s discontinuation of its research and development activities, sale of certain of its remaining assets and liabilities in connection to its asset purchase agreement, and settlement of its other remaining operating assets and liabilities, on the closing date of the Merger, Cara is expected to have nominal operations and nominal pre-combination assets. These nominal pre-combination assets are expected to primarily be cash, cash equivalents, and marketable securities. Under this method of accounting, Tvardi will be considered the accounting acquirer for financial reporting purposes.
Liquidity and Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
The Company has incurred net operating losses and negative cash flows from operations since its inception. During the year ended December 31, 2024, the Company incurred a net loss of $29.4 million and used $18.3 million of cash in operating activities. As of December 31, 2024, the Company had an accumulated deficit of $92.2 million.
To date, the Company has no products approved for marketing and sale and it has not yet recorded any revenue from product sales. The Company’s ability to achieve profitability is dependent on its ability to successfully develop its lead compound, conduct clinical trials, obtain regulatory approvals, and support commercialization activities for its product candidates. Any products developed will require approval of the U.S. Food and Drug Administration, or the FDA, or a foreign regulatory authority prior to commercial sale.
Since inception, the Company has relied primarily on sales of redeemable convertible preferred stock and issuance of convertible debt to fund its operations. The Company’s product candidates are still in the early stages of development, and substantial additional financing will be needed by the Company to fund its operations and ongoing research and development efforts prior to the commercialization of its product candidates.
The Company's cash and cash equivalents of $31.6 million as of December 31, 2024 is not sufficient to fund its planned operations for at least one year from the issuance date of these financial statements, which raises substantial doubt as to the Company's ability to continue as a going concern.
Significant additional funding is necessary to maintain current operations and to advance the Company’s research and development activities. The Company is seeking to complete a planned reverse merger with Cara, as discussed above, and plans to seek additional funding through subsequent public or private offerings of equity or debt securities and other funding sources. Alternatively, in the event the Company does not complete the reverse merger, the Company plans to seek additional funding through equity offerings or debt financings, credit or loan facilities, strategic alliances and licensing arrangements. The Company’s ability to access capital when and in the amount needed is not assured. As a result, the Company has concluded that management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern.
The accompanying financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.
F-8
Basis of Presentation
The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The accompanying financial statements represent the accounts of the Company. The Company does not maintain ownership in any subsidiaries and therefore does not consolidate any other entities within the presented financial statements.
| 2. | Summary of Significant Accounting Policies |
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and expenses as of and during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. The Company assesses estimates on an ongoing basis; however, actual results could materially differ from those estimates. Significant estimates and assumptions reflected within these financial statements include, but are not limited to, prepaid and accrued research and development expenses, including those related to contract research organizations, or CROs, contract development manufacturing organizations, or CDMOs, and other third-party vendors, and the valuation of the Company’s common stock, stock- based awards, and Convertible Notes. Changes in estimates are recorded in the period in which they become known.
Concentration of Credit Risk and of Significant Suppliers
The Company’s cash and cash equivalents represent potential concentrations of credit risk. The Company deposits its cash and cash equivalents in financial institutions in amounts that may exceed federally insured limits, has not experienced any losses on such accounts and does not believe it is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The following table presents information about the Company’s significant suppliers:
| For the Year Ended December 31, | As of December 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| % of operating expenses | % of accounts payable | |||||||||||||||
| Vendor A | 62 | % | 33 | % | 43 | % | 40 | % | ||||||||
| Vendor B | 1 | % | 14 | % | 2 | % | - | |||||||||
| Vendor C | 3 | % | 8 | % | 8 | % | 10 | % | ||||||||
| Vendor D | - | - | - | 19 | % | |||||||||||
| 66 | % | 55 | % | 53 | % | 69 | % | |||||||||
The Company’s preclinical studies and clinical trials and testing could be adversely affected by a significant interruption in the supply chain from its significant suppliers.
Cash and Cash Equivalents
The Company considers all highly liquid investments, with an original maturity of three months or less, to be cash equivalents. Cash equivalents include amounts held in money market funds in the amount of $31.3 million and $21.8 million as of December 31, 2024 and 2023, respectively.
The Company recorded interest income on its cash equivalents of $0.7 million for the year ended December 31, 2024 on its statements on operations. The Company recorded interest income of $1.3 million on its cash equivalents and previously outstanding short-term investments during the year ended December 31, 2023 on its statements of operations. The interest income recorded during the year ended December 31, 2023 is also inclusive of accretion of its discounts on its short-term investments, which fully matured during the year ended December 31, 2023.
F-9
Deferred Offering Costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in process equity financings as deferred offering costs until such financings are consummated. After consummation of the equity financing, these costs are recorded as a reduction of the proceeds from the offering, either as a reduction of the carrying value of the preferred stock or in stockholders’ deficit as a reduction of additional paid-in-capital generated as a result of the offering. Should the planned equity financing be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the statements of operations. The Company recorded deferred offering costs of $2.8 million and $0 as of December 31, 2024 and 2023, respectively.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The Company’s cash equivalents are carried at fair value in Level 1, determined according to the fair value hierarchy described above (refer to Note 3, Fair Value Measurements). The carrying values of the Company’s prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these instruments. The Company’s Convertible Notes (refer to Note 8, Convertible Notes) are carried at fair value, determined according to level 3 inputs in the fair value hierarchy described above. Refer to Note 3, Fair Value Measurements for further information around the fair value of the Convertible Notes.
Property and Equipment
The Company records property and equipment at cost less accumulated depreciation and amortization. Depreciation and amortization expense is recognized using the straight-line method over the estimated useful life of each asset, as follows:
| Estimated Useful Life | ||
| Computer equipment | 3 years | |
| Office equipment | 5 years | |
| Leasehold improvements | Shorter of remaining lease term or estimated useful life |
Estimated useful lives are periodically assessed to determine if changes are appropriate. Leasehold improvements are amortized using the straight-line method over the lesser of the lease term or its estimated useful life. Lease terms are based upon the initial lease agreement and do not consider potential renewals or extensions until such time that the renewals or extensions are contracted. Expenditures for maintenance and repairs that do not improve or extend the life of the respective assets are expensed as incurred. When assets are retired or otherwise disposed of, the cost of these assets and related accumulated depreciation or amortization are eliminated from the balance sheets and any resulting gains or losses are included in the statements of operations in the period of disposal.
Depreciation and amortization expense related to property and equipment, net was less than $0.1 million for each of the years ended December 31, 2024 and 2023.
F-10
Intangible Assets
Intangible assets consist of licenses for exclusive use of patent rights owned by a third party, which are amortized using the straight-line method over the estimated periods of benefit, generally the remaining life of the underlying licensed patents.
The Company reviews intangible assets for impairment whenever conditions exist that indicate the carrying value may not be recoverable, such as an economic downturn in the market or a change in the assessment of future operations. No impairment was recorded for the years ended December 31, 2024 and 2023.
Refer to Note 15, Licensing Agreements, for further detail on the Company’s licenses.
Impairment of Long-lived Assets
The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value. For the years ended December 31, 2024 and 2023, the Company did not record any impairment losses on long-lived assets.
Operating Leases
The Company determines whether an arrangement is or contains a lease, as defined by Accounting Standards Update, or ASU, 2016-02, Leases (Topic 842), or ASC 842, at contract inception by evaluating whether the arrangement conveys the right to use an identified asset and whether the Company obtains substantially all of the economic benefits from and has the ability to direct the use of the asset. If an arrangement is determined to be or contain a lease, the lease is assessed for classification as either an operating or finance lease at the lease commencement date, defined as the date on which the leased asset is made available for use by the Company, based on the economic characteristics of the lease.
ASC 842 includes certain practical expedients that can be elected for new leases that are executed after the adoption of the new requirements. The Company elected the practical expedient to not separate lease and non-lease components. The Company also elected to apply the short-term lease recognition exemption which eliminates the requirement to present on the balance sheets leases with a term of 12 months or less. These two practical expedients were elected for all classes of underlying assets.
At the lease commencement date, the Company recognizes a lease liability and a right-of-use, or ROU, asset representing its right to use the underlying asset over the lease term. The initial measurement of the lease liability is calculated as the present value of the future lease payments in the contract and the ROU asset is measured as the lease liability plus initial direct costs and prepaid lease payments, less lease incentives granted by the lessor. The subsequent measurement of a lease is dependent on whether the lease is classified as an operating lease or a finance lease. Operating lease cost is recognized on a straight-line basis over the lease term in the statements of operations and comprehensive loss.
The Company’s lease requires other payments such as costs related to taxes, insurance, maintenance, and other expenses. These costs are generally variable in nature and based on the actual costs incurred and required by the lease. As the Company has elected to not separate lease and non-lease components for all classes of underlying asset, all variable costs associated with the lease are expensed in the period incurred and presented and disclosed as variable lease costs. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive financial covenants.
F-11
ASC 842 requires that a lessee use the rate implicit in the lease when measuring the lease liability and ROU asset. If the rate implicit in the lease is not readily determinable, the Company is permitted to use its incremental borrowing rate, which is defined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Since the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rate when measuring its leases. The incremental borrowing rate is calculated by considering the Company’s credit standing, the lease term and other quantitative and qualitative factors.
Most leases include options to renew and, or, terminate the lease, which can impact the lease term. The exercise of these options is at the Company’s discretion. Periods covered by an option to extend a lease are not included in the lease term as the Company is not reasonably certain it will exercise this option. Additionally, periods covered by an option to terminate the lease are included in the lease term as it is reasonably certain that the Company will not exercise this option.
Classification of Redeemable Convertible Preferred Stock
The holders of Series A and Series B redeemable convertible preferred stock, or the Preferred Stock, have certain liquidation rights in the event of a liquidation event or a deemed liquidation event that, in certain situations, are not solely within the control of the Company and would call for the redemption of the then outstanding Preferred Stock (see Note 9 Redeemable Convertible Preferred Stock, for further detail). Therefore, the Preferred Stock is classified as temporary equity on the accompanying balance sheets.
Convertible Notes
The Company performed an analysis of all of the terms and features of the Convertible Notes (as defined in Note 8, Convertible Notes) and has elected the fair value option to account for the Convertible Notes to simplify the accounting for the identified embedded derivatives, such as automatic conversion upon the closing of a qualified financing event, initial public offering (IPO), or reverse merger, which would require bifurcation and separate accounting. Among meeting other applicable criteria for electing the fair value option, the Company concluded that it was appropriate to apply the fair value option to the Convertible Notes because they are liabilities that are not classified as a component of stockholders’ deficit. As a result of applying the fair value option, debt issuance costs incurred related to the Convertible Notes were expensed as incurred and not deferred.
The Convertible Notes will be remeasured at fair value at each balance sheet date until repayment or conversion. Changes to the fair value of the Convertible Notes will be recorded in other income (expense), net in the Company’s statement of operations. The Company has also elected the option of combining interest expense and the change in fair value as a single line item within the Company’s statement of operations. Refer to Note 3, Fair Value Measurements, for further detail regarding the valuation of the Convertible Notes.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or CODM, in deciding how to allocate resources and in assessing performance. The Company’s CODM, its Chief Executive Officer and Chief Financial Officer, view the Company’s operations as a single operating segment, which is the business of discovering and developing novel orally bioavailable, small molecule therapies across a broad range of diseases driven by STAT3 with high unmet need.
All of the Company’s long-lived assets are held in the United States.
Refer to Note 17, Segment Reporting, for additional disclosures related to segment information.
Research and Development Expenses
Research and development expenses are expensed as incurred. Research and development expenses include wages, associated employee benefits, and stock-based compensation expense of employees engaged in research, amortization of licensed intangible assets, external costs of third-party vendors that conduct research and development and manufacturing activities on behalf of the Company, and other operational costs related to the Company’s research and development activities.
F-12
Prepaid and Accrued Research and Development Expenses
The Company recognizes research and development expense and records accruals for estimated costs of research and development activities conducted by third-party service providers, which include CROs that conduct research, preclinical studies and clinical trials on the Company’s behalf, including in connection with the Company’s research and development arrangement, and CDMOs that manufacture the Company’s product candidate for use in preclinical studies and clinical trials. The majority of the Company’s service providers invoice in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. The Company makes estimates of the accrued expenses and includes these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations based on facts and circumstances known to the Company at that time. These costs are a significant component of the Company’s research and development expenses.
The Company accrues for these costs based on factors such as estimates of the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and in accordance with agreements established with its third-party service providers for such services. The Company makes significant judgments and estimates in determining the accrued research and development liabilities balance at each reporting period. As actual costs become known, the Company adjusts its accrued estimates. To date, there have been no material adjustments to the Company’s estimates of accrued research and development expenses. The Company records advance payments to service providers as prepaid expenses and other current assets, which are expensed as the contracted services are performed. If the actual timing of the performance of services varies from the estimate, or the Company receives any change orders from its third-party providers, then the Company adjusts the amount of the accrued expense or the prepaid expense accordingly.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and benefits, including stock- based compensation expense, for employees in operating and finance functions and directors, as applicable; professional fees for legal, accounting, auditing, tax and consulting services; travel expenses; and facility-related expenses, which include expenses for rent and maintenance of facilities and other operating costs. The Company expenses all general and administrative expenses as incurred.
Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are expensed as incurred due to the uncertainty about the recoverability of the expenditure. Amounts incurred are classified as general and administrative expenses in the Company’s statements of operations.
Stock-based Compensation
The Company measures all stock-based awards granted to employees, officers, directors, consultants, and advisors based on the fair value on the date of the grant, and recognizes the resulting fair value over the requisite service period. The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options granted. The Company has elected to recognize stock- based compensation expense for service-based stock options with graded vesting on a straight-line basis over the requisite service period, which is generally the vesting period. The Company accounts for forfeitures as they occur. The Company classifies stock-based compensation expense in its statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified.
The Company measures stock-based compensation costs for employees and non-employees at the grant date based on the estimated fair value of the award, which is reviewed periodically, and recognizes compensation expense on a straight-line basis over the vesting period which approximates the requisite service period. Compensation expense is recognized with an offsetting credit to additional paid-in capital.
F-13
Net Loss Per Share
The Company calculated basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The Company’s redeemable convertible preferred stock is considered participating as the holders are entitled to receive dividends in preference and priority to the holders of common stock. The two-class method determines net loss per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period has been distributed. There is no allocation required under the two-class method during periods of loss since the participating securities do not have a contractual obligation to share in the losses of the Company.
Under the two class method, basic net loss per share attributable to common stockholders is computed by dividing net loss attributed to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by: (i) adjusting net loss attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities and (ii) dividing the diluted net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, including potential dilutive shares of common stock. For purposes of this calculation, the Convertible Notes, redeemable convertible preferred stock and stock options to purchase common stock are considered potential dilutive shares of common stock. The potentially dilutive shares of common stock outstanding during the period are calculated using the (i) if-converted method for the Convertible Notes and redeemable convertible preferred stock and (ii) treasury stock method for the options to purchase common stock, except where the effect of including these securities would be anti-dilutive.
The Company has generated a net loss in all periods presented, and therefore the basic and diluted net loss per share attributable to common stockholders are the same as the inclusion of the potentially dilutive securities would be anti-dilutive.
Income Taxes
The Company provides for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Realization of deferred tax assets is dependent upon future earnings, the timing and amount of which are uncertain. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company utilizes a two-step approach to recognize and measure uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained upon tax authority examination, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.
Recently Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, or ASU 2023-07. ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. All disclosure requirements under ASU 2023-07 are also required for public entities with a single reportable segment. The Company adopted the guidance in the fiscal year beginning January 1, 2024. There was no impact on the Company’s reportable segments identified and additional required disclosures have been included in Note 17, Segment Reporting.
F-14
Recently Issued Accounting Pronouncements Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, or ASU 2023-09. ASU 2023-09 requires public business entities to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate (the rate reconciliation) for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold (if the effect of those reconciling items is equal to or greater than 5% of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate). In addition to new disclosures associated with the rate reconciliation, ASU 2023-09 requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The amendments are effective for public business entities for annual periods beginning after December 15, 2024. For entities other than public business entities, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted. As of December 31, 2024, the Company has not yet adopted this new ASU however the Company expects no impact to its operations, cash flows, financial condition, or any related disclosures, upon adoption.
In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments in ASU 2024-03 address investor requests for more detailed expense information and require additional disaggregated disclosures in the notes to financial statements for certain categories of expenses that are included in the statement of operations. This guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the provisions of this guidance and the potential impact on its financial statements and disclosures.
| 3. | Fair Value Measurements |
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values (in thousands):
| Fair Value Measurements as of | ||||||||||||||||
| December 31, 2024 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial assets: | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market funds | $ | 31,303 | $ | - | $ | - | $ | 31,303 | ||||||||
| Total financial assets | $ | 31,303 | $ | - | $ | - | $ | 31,303 | ||||||||
| Financial liabilities: | ||||||||||||||||
| Convertible Notes | $ | - | $ | - | $ | 30,259 | $ | 30,259 | ||||||||
| Total financial liabilities | $ | - | $ | - | $ | 30,259 | $ | 30,259 | ||||||||
| Fair Value Measurements as of | ||||||||||||||||
| December 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Financial assets: | ||||||||||||||||
| Cash equivalents: | ||||||||||||||||
| Money market funds | $ | 21,762 | $ | - | $ | - | $ | 21,762 | ||||||||
| Total financial assets | $ | 21,762 | $ | - | $ | - | $ | 21,762 | ||||||||
The Company did not have any Level 3 assets or liabilities as of December 31, 2023. There were no transfers between Levels during the periods presented.
F-15
The following table presents the changes in the fair value of the Level 3 Convertible Notes (in thousands):
| Amounts | ||||
| Balance as of December 31, 2023 | $ | - | ||
| Convertible Notes issuance | 28,298 | |||
| Accrued interest as of December 31, 2024 | 154 | |||
| Change in fair value of the Convertible Notes | 1,807 | |||
| Balance as of December 31, 2024 | $ | 30,259 | ||
Valuation of Convertible Notes
In December 2024, the Company issued and sold Convertible Notes (as defined in Note 8, Convertible Notes) in an aggregate principal amount of $28.3 million. The fair value of the Convertible Notes at issuance and as of December 31, 2024 was estimated based on significant inputs not observable in the market, which represent Level 3 measurements within the fair value hierarchy. The Convertible Notes were valued using a scenario-based valuation analysis requiring a probability of inputs including the probability of occurrence of events that would trigger conversion of the Convertible Notes and the expected timing of such events.
The following table presents the assumptions, estimates, and contractual features incorporated into the valuation of the Convertible Notes as of December 31, 2024:
| Inputs | ||||
| Time to Qualified/non-Qualified financing (in years) | 0.25 | |||
| Time to IPO (in years) | 0.25 | |||
| Time to reverse merger (in years) | 0.33 | |||
| Time to dissolution (in years) | n/a | |||
| Interest rate (risk-free) | 4.37 | % | ||
| Conversion discount rate | 20.00 | % | ||
In addition to the inputs in the table, the Company’s assumptions and estimates incorporated into the valuation included probabilities assigned to each of the scenarios above, including a Qualified/non-Qualified financing (as defined in Note 8, Convertible Notes), IPO, reverse merger, and dissolution. Refer to Note 8, Convertible Notes, for further details surrounding the Qualified/non-Qualified Financing, IPO, reverse merger, and other settlement scenarios.
| 4. | Prepaid Expenses and Other Current Assets |
Prepaid expenses and other current assets consisted of the following as of December 31, 2024 and 2023 (in thousands):
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Prepaid research and development expenses | $ | 18 | $ | 3,203 | ||||
| Other prepaid expenses | 54 | 36 | ||||||
| Total prepaid expenses and other current assets | $ | 72 | $ | 3,239 | ||||
| 5. | Intangible Assets |
Intangible assets consisted of the following as of December 31, 2024 and 2023 (in thousands):
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Licensed patent rights | $ | 826 | $ | 826 | ||||
| Less: accumulated amortization | (441 | ) | (378 | ) | ||||
| Total intangible assets, net | $ | 385 | $ | 448 | ||||
F-16
As of December 31, 2024, the expected remaining amortization expense is as follows (in thousands):
| Year Ended December 31, | Amount | ||||
| 2025 | 63 | ||||
| 2026 | 63 | ||||
| 2027 | 63 | ||||
| 2028 | 63 | ||||
| 2029 | 63 | ||||
| Thereafter | 70 | ||||
| Total | $ | 385 | |||
The Company recognized less than $0.1 million for amortization expense for each of the years ended December 31, 2024 and 2023. Amortization expense is included in research and development expense in the statements of operations.
| 6. | Accrued Expenses |
Accrued expenses consisted of the following as of December 31, 2024 and 2023 (in thousands):
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Accrued research and development expenses | $ | 5,172 | $ | 518 | ||||
| Accrued employee compensation and benefits | 1,142 | 942 | ||||||
| Accrued professional fees | 1,756 | 108 | ||||||
| Other accrued expenses | 8 | 9 | ||||||
| Total accrued expenses | $ | 8,078 | $ | 1,577 | ||||
| 7. | Leases |
The Company has one operating lease pertaining to 5,969 square feet of corporate office space in Sugar Land, Texas pursuant to a lease agreement that commenced April 1, 2022. As of December 31, 2024 the remaining term of lease was 2.58 years. The lease requires monthly lease payments that are subject to annual increases throughout the lease term.
The components of lease costs, which are included within general and administrative expenses in the Company’s statements of operations were as follows (in thousands):
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Lease costs: | ||||||||
| Operating lease cost | $ | 96 | $ | 90 | ||||
| Variable lease cost | 80 | 83 | ||||||
| Total lease costs | $ | 176 | 173 | |||||
Supplemental disclosure of cash flow information related to the lease were as follows (in thousands):
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Operating cash flows from operating leases | $ | 197 | $ | 194 | ||||
F-17
The weighted-average discount rate and remaining lease term were as follows:
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Weighted-average discount rate | 9.50 | % | 9.50 | % | ||||
| Weighted-average remaining lease term | 2.58 | 3.67 | ||||||
As of December 31, 2024, the maturities of the Company’s operating lease liabilities were as follows (in thousands):
| Year Ended December 31, | Amount | |||
| 2025 | $ | 126 | ||
| 2026 | 129 | |||
| 2027 | 88 | |||
| Total lease payments | 343 | |||
| Less: imputed interest | (39 | ) | ||
| Present value of lease liabilities | 304 | |||
| Less: operating lease liabilities, current portion | $ | 103 | ||
| Operating lease liabilities, net of current portion | $ | 201 | ||
| 8. | Convertible Notes |
In December 2024, Tvardi entered into a note purchase agreement to issue and sell convertible notes (the Convertible Notes) in an aggregate principal amount of $28.3 million. The Convertible Notes accrue interest at 8% per annum and mature on December 31, 2026 (the Maturity Date). As of December 31, 2024, the Company has recorded $0.2 million in accrued interest.
Pursuant to the terms of the note purchase agreement, the Convertible Notes may be converted into shares of common stock or other equity securities upon (i) a Qualified Financing or non-Qualified Financing (both as defined below), (ii) an IPO, or (iii) a reverse merger, as further discussed below.
Conversion upon a Qualified Financing
In the event that the Company issues and sells shares of its equity securities to investors while the Convertible Notes remain outstanding in an equity financing with total proceeds of at least $15.0 million (a Qualified Financing), then the outstanding principal amount of the Convertible Notes and any unpaid accrued interest shall automatically convert into equity securities sold in the Qualified Financing at a conversion price equal to the lesser of (i) the price paid per share of the equity securities by the investors in the Qualified Financing multiplied by 0.8 and (ii) the quotient resulting from dividing $252.0 million by the number of outstanding shares of common stock of the Company immediately prior to the Qualified Financing.
Optional conversion upon a non-Qualified Financing
In the event that the Company consummates, while the Convertible Notes remain outstanding, an equity financing pursuant to which it sells shares of the Company’s preferred stock in a transaction that does not constitute a Qualified Financing, the noteholders holding a majority of the outstanding principal amount of the Convertible Notes shall have the option to treat such equity financing as a Qualified Financing and thereby cause the Convertible Notes to convert into equity securities pursuant to the terms of the Qualified Financing.
Conversion upon on IPO
In the event that the Company consummates, while the Convertible Notes remain outstanding, an underwritten IPO, then the outstanding principal amount of the Convertible Notes and any unpaid accrued interest shall automatically convert into shares of the Company’s common stock at a conversion price equal to the lesser of (i) 80% of the initial public offering price per share in the IPO and (ii) the price obtained by dividing $300.0 million by the number of outstanding shares of the Company’s common stock immediately prior to the IPO.
F-18
Conversion upon on a reverse merger
In the event that the Company consummates, while the Convertible Notes remain outstanding, a reverse merger transaction with a public traded company, the primary purposes of which transaction or series of related transactions is the public listing of the Company and pursuant to which the stockholders of the Company prior to such transactions shall beneficially own greater than 50% of the surviving entity or the parent entity, then the outstanding principal amount of the Convertible Notes and any unpaid accrued interest shall automatically convert into common stock of such publicly traded company upon the closing of such reverse merger at a conversion price equal to the lesser of (i) the price obtained by dividing $300.0 million by the number of outstanding shares of common stock of the Company immediately prior to the consummation of the reverse merger or (ii) 80% of the implied valuation of the combined company common stock in the Merger.
Payout upon a change of control
In the event that the Company consummates a change of control (as defined within the note purchase agreement to be events other than a reverse merger) while the Convertible Notes remain outstanding, the Company shall repay the note holders in cash an amount equal to (i) the outstanding principal amount of the Convertible Notes plus any unpaid accrued interest on the original principal, plus (ii) a repayment premium equal to 100% of the outstanding principal amount of the Convertible Notes.
Maturity date conversion
In the event the Convertible Notes remain outstanding on or following the Maturity Date, the noteholders shall have the option to elect to have the outstanding principal balance of the Convertible Notes and any unpaid accrued interest thereon convert into shares of the Company’s Series B Preferred Stock at a conversion price per share equal to $3.8095.
The Convertible Notes were recorded at fair value of $28.3 million upon issuance and were remeasured to the fair value of $30.1 million as of December 31, 2024. The change in the fair value of the Convertible Notes of $1.8 million was recorded within other income (expense), net on the Company’s statement of operations for the year ended December 31, 2024. There was approximately $0.1 million of debt issuance costs incurred in connection with the Convertible Notes. This amount was recognized within other income (expense), net in the Company’s statement of operations during the year ended December 31, 2024.
The future minimum principal payments under the Convertible Notes, if not otherwise converted pursuant to the terms above, as of December 31, 2024 are as follows:
| Years ended December 31, | Principal Payments | ||||
| 2025 | $ | - | |||
| 2026 | 28,298 | ||||
| Thereafter | - | ||||
| Total | $ | 28,298 | |||
9. Redeemable Convertible Preferred Stock
The Company has issued Series A preferred stock and Series B preferred stock, which are collectively referred to as the Preferred Stock. As of December 31, 2024 and 2023, the Company authorized the issuance of 29,723,540 shares of Preferred Stock, par value of $0.001 per share, of which 9,499,999 have been designated Series A preferred stock and 20,223,541 have been designated Series B preferred stock.
Series A Preferred Stock
During 2018, the Company entered into the Series A preferred stock purchase agreements for 8,550,340 shares of Series A preferred stock with par value of $0.001 each at a price $1.00 per share, or the Series A Original Issue Price, with a group of investors for net proceeds of $8.4 million, or the Series A Financing. In addition, in connection with the closing of the Series A Financing, then outstanding convertible promissory notes of $0.4 million were converted into 449,659 shares of Series A preferred stock at the Series A Original Issue Price paid by the Series A Financing investors.
F-19
Series B Preferred Stock
In June 2021, the Company entered into the Series B preferred stock purchase agreements for 17,452,411 shares of Series B preferred stock with par value of $0.001 each at a price $3.8095 per share, or the Series B Original Issue Price, with a group of investors for net proceeds of $66.3 million, or the Series B Financing. In addition, in connection with the closing of the Series B Financing, (i) then outstanding convertible promissory notes of $7.9 million were converted into 2,603,128 shares of Series B preferred stock at 80% of the Series B Original Issue Price paid by the Series B Financing investors and (ii) a then outstanding translational research grant of $0.5 million was converted into 500,000 shares of Series A Preferred Stock at a conversion price of $1.00 per share pursuant to the terms of grant agreement, dated as of March 2018.
The following tables summarize the Company’s redeemable convertible preferred stock as of December 31, 2024 and 2023 (in thousands except share and per share amounts):
| Par Value | Preferred Stock Authorized | Preferred Stock Issued and Outstanding | Carrying Value | Liquidation Preference | Common Stock Issuable Upon Conversion | |||||||||||||||||||
| Series A preferred stock | $ | 0.001 | 9,499,999 | 9,499,999 | $ | 9,327 | $ | 9,500 | 9,499,999 | |||||||||||||||
| Series B preferred stock | 0.001 | 20,223,541 | 20,055,539 | 76,176 | 76,402 | 20,055,539 | ||||||||||||||||||
| 29,723,540 | 29,555,538 | $ | 85,503 | $ | 85,902 | 29,555,538 | ||||||||||||||||||
The key terms of Preferred Stock are as follows:
Dividends
The Company shall not declare, pay or set aside any dividends on shares or any other class or series of capital stock (other than dividends on shares of the Company’s common stock payable in shares of common stock) unless first the holders of Series B preferred stock shall first receive, or simultaneously receive, a dividend on each outstanding preferred stock, and second, the holders of the Series A preferred stock shall next receive, or simultaneously receive a dividend on each outstanding preferred stock. If the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of Preferred Stock shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest dividend. There have been no dividends declared by the Company’s board of directors, or the Board, as of December 31, 2024 and 2023.
Voting Rights
The holder of each share of Series A and Series B preferred stock shall have the right to one vote for each share of common stock into which such Series A and Series B preferred stock could then be converted.
Right to Elect Directors
Holders of Series A preferred stock are entitled to elect two directors of the Company. The holders of Series B preferred stock are entitled to elect one director of the Company. The holders of the Company’s common stock are entitled to elect one director of the Company. The holders of Preferred Stock and Common Stock (voting together as a single class and not as separate series and on as- converted basis) shall be entitled to elect any remaining director of the Company.
Conversion
Each share of Preferred Stock is convertible at the option of the holder, at any time, and without the payment of additional consideration by the holder. In addition, each share of Preferred Stock will be automatically converted into shares of common stock at the applicable conversion ratio then in effect upon either (i) the closing of a firm-commitment underwritten public offering of the Company’s common stock at a price of at least $5.7143 per share resulting in at least $50.0 million of gross proceeds to the Company, or (ii) the vote or written consent of the holders of a majority of the outstanding shares of Preferred Stock, voting as a single class.
The conversion ratio of Series A and Series B Preferred Stock is determined by dividing the respective original issue price by the applicable conversion price in effect at the time of conversion. The conversion price is $1.00 and $3.8095 per share for Series A and Series B preferred stock, respectively. As of December 31, 2024, each outstanding share of Preferred Stock was convertible into the Company’s common stock on a one-for-one basis.
F-20
Liquidation
In the event of liquidation, dissolution, or winding up of the Company or upon the occurrence of a Deemed Liquidation Event (as defined below), the holders of Series B preferred stock then outstanding are entitled to distribution of the Company’s assets or funds, before the holders of Series A preferred stock and common stock, in an amount per share equal to the greater of (i) the Series B Original Issue Price ($3.8095 per share), plus any dividends declared but unpaid, or (ii) the amount per share that would have been payable had all shares of Series B preferred stock been converted to common stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event. If the assets of the Company are insufficient to pay holders of the Series B Preferred Stock the full amount to which they are entitled, they shall be paid ratably in proportion to the respective amounts they would have received had they been paid in full.
In the event of liquidation, dissolution, or winding up, after the Series B preferred stock holders have been paid in full, the holders of Series A preferred stock are entitled to distribution of the Company’s assets or funds, before the common stock, in amount per share equal to the greater of (i) the Series A Original Issue Price ($1.00 per share), plus any dividends declared but unpaid, or (ii) the amount per share that would have been payable had all shares of Series A preferred stock been converted to common stock immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event. If the assets or funds of the Company are insufficient to pay holders of the Series A preferred stock the full amount to which they are entitled, they shall be paid ratably in proportion to the respective amounts they would have received had they been paid in full. After payment of all preferential amounts to Series A preferred stock holders, the remaining assets available for distribution shall be distributed to the holders of common stock pro rata based on the number of shares held.
Unless the holders of a majority in voting power of the then outstanding shares of Series B preferred stock elect otherwise, a Deemed Liquidation Event shall include a merger or consolidation (other than one in which stockholders of the Company own a majority by voting power of the outstanding shares of the surviving or acquiring corporation) or sale, lease, transfer, exclusive license or other disposition of all or substantially all of the Company’s assets.
Redemption
The holders of the Company’s Preferred Stock have no voluntary rights to redeem shares. Upon the occurrence of a Deemed Liquidation Event that are outside of the Company’s control, the holders of the Preferred Stock may cause redemption of the Preferred Stock. Accordingly, the Preferred Stock are considered contingently redeemable and are classified as temporary equity on the accompanying balance sheets.
10. Common Stock
As of December 31, 2024 and 2023, the Company’s amended and restated certificate of incorporation authorized the issuance of 58,251,629 shares of $0.001 par value common stock. The voting, dividend and liquidation rights of the holders of the Company’s common stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth above. As of December 31, 2024 and 2023, there were 19,197,914 shares and 19,134,164 shares of common stock issued and outstanding, respectively.
Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common stockholders are entitled to receive dividends, as may be declared by the Board, if any, subject to the preferential dividend rights of the Preferred Stock. When dividends are declared on shares of common stock, the Company must declare at the same time a dividend payable to the holders of Preferred Stock equivalent to the dividend amount they would receive if each share of Preferred Stock were converted into common stock. The Company may not pay dividends to common stockholders until all dividends accrued or declared but unpaid on the Preferred Stock have been paid in full. As of December 31, 2024 and 2023, no dividends were declared.
As of December 31, 2024 and 2023, the Company had reserved 36,014,953 and 36,078,703 shares of common stock, respectively, for the conversion of outstanding shares of Preferred Stock (see Note 9, Redeemable Convertible Preferred Stock), the exercise of outstanding stock options, and the issuance of stock options remaining available for grant under the Company’s 2018 Stock Incentive Plan (see Note 11, Stock-based compensation).
F-21
11. Stock-based Compensation
Stock Incentive Plan
In March 2018, the Company established the 2018 Stock Incentive Plan, or the 2018 Plan, under which the Company may grant incentive stock options, non-statutory options, stock appreciation rights, awards of restricted stock, restricted stock units and other stock-based awards, collectively referred to as the Awards. Employees, officers, directors, consultants and advisors are eligible to receive awards under the 2018 Plan; however incentive stock options may only be granted to employees.
As of December 31, 2024 and 2023, the total number of shares of common stock reserved for issuance under the 2018 Plan was 6,657,329 shares. Shares of unused common stock underlying any Awards that are forfeited, canceled or reacquired by the Company prior to vesting will again be available for the grant of Awards under the 2018 Plan. Shares underlying any Awards that are forfeited, canceled, or reacquired by the Company prior to vesting, satisfied without the issuance of stock or otherwise terminated and shares that are withheld upon exercise of an option of settlement of an award to cover the exercise price or tax withholding shall be added back to the shares available for issuance under the 2018 Plan. As of December 31, 2024 and 2023, the Company had 1,023,786 shares and 1,013,786 shares, respectively, remaining available for grant under the 2018 Plan.
The 2018 Plan is administered by the Board. The Board determines the exercise prices for stock options, which may not be less than 100% of the fair market value of the Company’s common stock on the date of grant, vesting terms, and other restrictions. The Board also determines the fair value the Company’s common stock, taking into consideration its most recently available valuation of common stock performed by third parties as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant. Stock options granted under the 2018 Plan expire ten years after the grant date, unless the Board sets a shorter term, and typically vest over four years.
Fair Value Inputs
The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected option term is calculated based on the simplified method for awards with service-based conditions, which uses the midpoint between the vesting date and the contractual term, as the Company does not have sufficient historical data to develop an estimate based on participant behavior. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The following table presents, on a weighted-average basis, the assumptions used in the Black- Scholes option-pricing model to determine the fair value of stock options granted:
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Per share fair value of common stock | $ | 0.62 | $ | 0.52 | ||||
| Expected volatility | 73.8 | % | 67.4 | % | ||||
| Expected dividends | 0 | % | 0 | % | ||||
| Expected term (in years) | 5.9 | 6.1 | ||||||
| Risk-free rate | 3.93 | % | 3.56 | % | ||||
F-22
Stock Options
The following table summarizes option activity during the year ended December 31, 2024:
| Number of Options | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Term (In Years) | Intrinsic Value (In Thousands) | |||||||||||||
| Outstanding as of January 1, 2024 | 5,509,379 | $ | 0.43 | 7.04 | $ | 2,699 | ||||||||||
| Granted | 25,000 | 0.92 | ||||||||||||||
| Exercised | (63,750 | ) | 0.08 | |||||||||||||
| Forfeited/expired | (35,000 | ) | 0.82 | |||||||||||||
| Outstanding as of December 31, 2024 | 5,435,629 | $ | 0.43 | 6.06 | $ | 2,914 | ||||||||||
| Options exercisable as of December 31, 2024 | 4,582,807 | $ | 0.38 | 5.78 | $ | 2,700 | ||||||||||
| Vested and expected to vest as of December 31, 2024 | 5,435,629 | $ | 0.43 | 6.06 | $ | 2,914 | ||||||||||
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during each of the years ended December 31, 2024 and 2023 was less than $0.1 million.
The weighted-average grant-date fair value of options granted during the years ended December 31, 2024 and 2023 was $0.62 and $0.52, respectively.
As of December 31, 2024, there was $0.3 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.38 years.
The following table illustrates the classification of stock-based compensation in the statements of operations (in thousands):
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Research and development | $ | 169 | $ | 111 | ||||
| General and administrative | 150 | 203 | ||||||
| Total stock-based compensation | $ | 319 | $ | 314 | ||||
12. Income Taxes
During the years ended December 31, 2024 and 2023, the Company did not record a provision for income taxes because it has incurred net operating losses since inception and maintains a full valuation allowance against its deferred tax assets. The Company’s entire pre-tax loss for the years ended December 31, 2024 and 2023 were from U.S. operations and resulted in no tax expense or benefit.
A reconciliation of the Company’s total tax using the statutory income tax rate to the Company’s total tax using their effective income tax rate is as follows (in thousands):
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Income tax at U.S. federal statutory rate | $ | (6,173 | ) | $ | (3,643 | ) | ||
| State taxes, net of federal benefit | - | - | ||||||
| Valuation allowance | 5,735 | 3,604 | ||||||
| Other | 438 | 39 | ||||||
| Total income tax | $ | - | $ | - | ||||
F-23
The Company’s significant components of deferred tax assets are as follows (in thousands):
| As of December 31, | ||||||||
| 2024 | 2023 | |||||||
| Federal net operating loss carryforwards | $ | 9,903 | $ | 7,235 | ||||
| Capitalized research and development expense | 8,652 | 5,665 | ||||||
| Tax credits | 417 | 417 | ||||||
| Other | 180 | 100 | ||||||
| Net deferred tax assets before valuation allowance | 19,152 | 13,417 | ||||||
| Valuation allowance | (19,152 | ) | (13,417 | ) | ||||
| Net deferred tax assets after valuation allowance | $ | - | $ | - | ||||
As of December 31, 2024 and 2023, the Company had a federal net operating loss, or NOL, carryforward of $47.2 million and $34.5 million, respectively. Of the federal net operating loss carryforwards, $0.4 million expires in 2037 and $46.8 million may be carried forward indefinitely.
As of December 31, 2024, the Company also has federal tax credits of $0.4 million, which begin to expire in 2039.
The future realization of tax benefits from existing temporary differences and tax attributes ultimately depends on the existence of sufficient future taxable income within the carryforward period. In assessing the realization of its deferred tax assets, the Company considered whether it is more likely than not that some portion or all of its deferred tax assets will not be realized. The Company considered projected future taxable income, scheduled reversal of deferred tax liabilities, and tax planning strategies in making this assessment. As of December 31, 2024, after consideration of all available evidence, both positive and negative, the Company maintained a full valuation allowance against its net deferred tax assets because it is more likely than not they will not be realized in the future. The change in the valuation allowance between the years ended December 31, 2024 and 2023 was an increase of $5.7 million.
The future realization of the Company’s net operating loss carryforwards and other tax attributes may also be limited by the change in ownership rules under the U.S. Internal Revenue Code Section 382. Under Section 382, if a corporation undergoes an ownership change (as defined), the corporation’s ability to utilize its net operating loss carryforwards and other tax attributes to offset income may be limited. The Company has not completed a study to assess whether an ownership changed has occurred or whether there have been multiple ownership changes.
The Company files income tax returns in the US federal and Texas. Therefore, the Company is subject to tax examination by various US taxing authorities. The Company is not currently under examination, and is not aware of any issues under review that could result in significant payments, accruals or material deviation from its tax positions. As of December 31, 2024, tax years from 2021 to present remain open to examination by the Company’s relevant taxing jurisdictions. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service and state tax authorities to the extent utilized in a future period.
The calculation and assessment of the Company’s income tax exposures generally involve the uncertainties in the application of complex tax laws and regulations for US federal and state jurisdictions. A tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation, on the basis of the technical merits. As of December 31, 2024, the Company has not recorded any liabilities or interest and penalties related to uncertain tax positions in its financial statements. The Company recognizes accrued interest and penalties, if any, related to uncertain tax positions in tax expense in its financial statements.
F-24
13. Net Loss Per Share
Basis and diluted net loss per share attributable to common stockholders was calculated as follows (dollar amounts in thousands):
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Numerator: | ||||||||
| Net loss attributable to common stockholders | $ | (29,397 | ) | $ | (17,347 | ) | ||
| Denominator: | ||||||||
| Weighted-average common shares outstanding, basic and diluted | 19,193,932 | 19,134,096 | ||||||
| Net loss per share attributable to common stockholders, basic and diluted | $ | (1.53 | ) | $ | (0.91 | ) | ||
The Company’s potentially dilutive securities, which include stock options to purchase common stock and Preferred Stock, have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.
The following potentially dilutive securities have been excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Preferred stock (as converted to common stock) | 29,555,538 | 29,555,538 | ||||||
| Stock options to purchase common stock | 5,435,629 | 5,509,379 | ||||||
The Company’s Convertible Notes are also potentially dilutive securities, with the amount of shares issued upon conversion to be determined based on the matter in which they are settled. Refer to Note 8, Convertible Notes, for further detail.
14. Commitment and Contingencies
Legal Matters
The Company is subject to contingent liabilities, such as legal proceedings and claims, that arise in the ordinary course of business activities. The Company accrues for loss contingencies when losses become probable and are reasonably estimable. If the reasonable estimate of the loss is a range and no amount within the range is a better estimate, the minimum amount of the range is recorded as a liability on the balance sheets. The Company does not accrue for contingent losses that, in its judgment, are considered to be reasonably possible, but not probable; however, it discloses the range of reasonably possible losses. As of December 31, 2024 and 2023, the Company was not a party to any material legal proceedings or claims and no liabilities were recorded for loss contingencies.
Contracts
The Company enters into contracts in the normal course of business with various third parties for preclinical research studies, clinical trials, testing, manufacturing, and other services. These contracts generally provide for termination upon notice and are cancellable without significant penalty or payment, and do not contain any minimum purchase commitments.
Guarantees and Indemnifications
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with all members of the Board that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements that could have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its financial statements as of December 31, 2024 and 2023.
F-25
Other Commitments
In addition to our obligation to make potential royalty payments under the BCM First Agreement and BCM Second Agreement (both as discussed and defined in Note 15, License agreements), the Company is also obligated to pay royalties to each of its founders in an amount equal to 1% each on the worldwide net sales of TTI-101 and any derivative formulations, or any Royalty Bearing Products. These royalty obligations last, on a country-by-country basis, for the later of (i) the date on which the sale of any Royalty Bearing Products are no longer covered by a Covered Patent (as defined below) in such country, or (ii) 15 years after the first commercial sale of royalty bearing product in such country. The timing of when these royalty payments will actually be made is uncertain as the payments are contingent upon future activities, including the successful development, regulatory approval and commercialization of any Royalty Bearing Products. A Covered Patent means, subject to certain customary exceptions, an issued patent that is owned by the Company or an affiliate, or for which all rights to develop and commercialize pharmaceutical products for the treatment of any human disorder, are exclusively licensed to us or an affiliate by the owner of such patent, with the Company’s right or its affiliate’s right to grant sublicenses.
15. License Agreements
In July 2012, Stem Med Limited Partnership, or StemMed, entered into a license agreement, or the BCM First Agreement, with Baylor College of Medicine, or BCM, for the exclusive, worldwide, sublicensable license to certain patents and patent applications related to STAT3 inhibitors in oncology and certain non-oncology indications, or the BCM Patent Rights, which are referred to together with certain cell lines, biological materials, compounds, know-how and technologies as the BCM Technology, in all fields of use. Under the license for the BCM First Agreement, the Company is permitted to make, have made, use, market, sell offer to sell, lease and import products, processes or services that incorporate, utilize, or are made with the use of the BCM Patent Rights or BCM Technology, which is referred to together as the BCM1 Licensed Products, in all fields of use.
In June 2015, StemMed entered into a second license agreement with BCM, or the BCM Second Agreement, which is referred to together with the BCM First Agreement as the BCM License Agreements, for the exclusive, worldwide, sublicensable license to certain patents and patent applications co-owned by BCM and the National Institutes of Health, or NIH, related to methods and compositions for the use of STAT3 inhibitors in certain conditions like anaphylaxis, or the Licensed Patent Rights. Under the license for the Second BCM Agreement, the Company is permitted to make, have made, use, market, sell, offer to sell, lease and import products, processes or services that incorporate, utilize or are made with the use of the Licensed Patent Rights, or the BCM2 Licensed Products, in all fields of use.
StemMed assigned the BCM First Agreement and the BCM Second Agreement to the Company in connection with the transfer of all or substantially all of the assets and businesses to which the BCM License Agreements relate to in January and February 2018.
In accordance with BCM License Agreements, and in consideration for the rights and licenses granted to the Company, the Company agreed to pay BCM the following:
| a. | Annual maintenance fees, ranging from $30,000 to $50,000 per year, per license. |
| b. | Milestone payments, up to a low-seven digit figure in the aggregate. |
| c. | Royalty fees, set at low-single-digit of net sales of any BSM1 Licensed Products or BSM2 Licensed Products. |
Milestones include new drug filings, clinical trial stages, and New Drug Application approval by the FDA.
The Company recorded $50,000 of annual maintenance fees during each of the years ended December 31, 2024 and 2023. The Company also incurred $125,000 in milestone payments in each of the years ended December 31, 2024 and 2023 in relation to the initiation of two Phase 2 clinical trials. To date, no royalty fees have been incurred. All related license costs are expensed as incurred within research and development on the statements of operations.
F-26
16. Retirement Savings Plan
The Company maintains a 401(k) Plan which is available to all employees. Under the terms of the 401(k) Plan, participants may elect to contribute up to 80% of their compensation or the statutory prescribed limits. The Company does not make any matching contributions to deferrals made by participants.
17. Segment Reporting
The Company has one reportable segment relating to the discovery and development of novel orally bioavailable, small molecule therapies across a broad range of diseases driven by STAT3 with high unmet need.
The Company’s CODM, its Chief Executive Officer and Chief Financial Officer, manages the Company’s operations on company-wide level for the purposes of allocating resources. The key measure of segment profit or loss that the CODM uses to allocate resources and assess financial performance is the Company’s net loss, which is utilized to evaluate the progress of its research and development programs and other expense categories. The CODM makes decisions using this information on a company-wide basis.
The table below shows a reconciliation of the Company’s net loss, including the significant expense categories regularly provided to and reviewed by the CODM, as computed under GAAP, to the Company’s net loss in the statements of operations (in thousands):
| For the Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Direct research and development expenses by program: | ||||||||
| TTI-101: | ||||||||
| HCC | $ | 8,583 | $ | 2,127 | ||||
| IPF | 6,703 | 3,210 | ||||||
| mBC | 2,182 | 646 | ||||||
| Pre-clinical, CMC, and other (unallocated) (1) | 969 | 4,373 | ||||||
| TTI-109 | 1,193 | 1,466 | ||||||
| Unallocated research and development expense: | ||||||||
| Personnel costs | 2,988 | 2,900 | ||||||
| Consultant fees and other costs (2) | 1,032 | 1,144 | ||||||
| General and administrative expense: | ||||||||
| Personnel costs | 2,085 | 1,882 | ||||||
| Other general and administrative expenses (3) | 2,372 | 917 | ||||||
| Interest income | (747 | ) | (1,318 | ) | ||||
| Other (income) expense, net | 2,037 | - | ||||||
| Net loss | $ | (29,397 | ) | $ | (17,347 | ) | ||
| (1) | Pre-clinical, CMC, and other (unallocated) costs includes pre-clinical testing, CMC, and other direct research and development expenses that are not allocated to a specific program. |
| (2) | Consultant fees and other costs includes expenses incurred for research and development consultants as well as payroll costs for employees within the research and development function. |
| (3) | Other general and administrative expenses include professional fees, accounting services, rent, and other overhead and administrative expenses. |
Assets provided to the CODM are consistent with those reported on the balance sheets.
18. Related-party Transactions
During the years ended December 31, 2024 and 2023, the Company did not have any transactions with related parties. The Company evaluates transactions with counterparties who may be considered related parties, including owners, members of management or affiliates and then discloses the nature and amounts of those transaction in the notes to its financial statements.
F-27
19. Subsequent Events
Management has evaluated all subsequent events through April 1, 2025, which was the date the financial statements were available to be issued. The Company has determined that there are no subsequent events to be reported other than those listed below.
On February 14, 2025, Cara’s Form S-4/A as filed regarding its proposed merger with Tvardi, was deemed effective by the SEC. Refer to Note 1, Nature of the Business and Basis of Presentation, for further detail on the proposed merger.
On April 1, 2025, Cara held its Special Meeting of Stockholders, at which Cara stockholders approved all six proposals related to its proposed merger with Tvardi.
F-28
Exhibit 99.2
TVARDI MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of Tvardi’s financial condition and results of operations in conjunction with Tvardi’s financial statements and the related notes filed as Exhibit 99.1 to this Current Report on Form 8-K (this Report). In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Tvardi’s actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in the Registration Statement on Form S-4 (File No. 333-283900) which was declared effective by the Securities and Exchange Commission on February 14, 2025 (the proxy statement/prospectus), particularly in the sections titled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.”
Overview
Tvardi is a clinical-stage biopharmaceutical company focused on the development of novel, oral, small molecule therapies targeting STAT3 to treat fibrosis-driven diseases with significant unmet need. Based upon Tvardi’s founder’s seminal work and deep understanding of the transcription factor, STAT3, Tvardi designed an innovative approach to directly inhibit STAT3, a highly validated, yet historically undruggable target. Leveraging this expertise, Tvardi is developing a pipeline of STAT3 inhibitors with a differentiated mechanism of action and convenient oral dosing. Tvardi’s lead product candidate, TTI-101, is currently in Phase 2 clinical development for the treatment of fibrosis-driven diseases, with an initial focus on idiopathic pulmonary fibrosis (IPF) and hepatocellular carcinoma (HCC). Tvardi expects to report unblinded data from its Phase 2 IPF clinical trial in the second half of 2025 and anticipate preliminary topline data from its HCC Phase 1b/2 HCC clinical trial in the second half of 2025. Tvardi’s second product candidate, TTI-109, is also an oral, small molecule STAT3 inhibitor that is structurally related to, yet chemically distinct from, TTI-101 and is designed to enhance Tvardi’s ability to target STAT3. Tvardi expects to submit an IND application for TTI-109 in the first half of 2025.
Since commencing operations in 2017, Tvardi has devoted substantially all of its efforts and financial resources to developing its product candidates, organizing and staffing its company, business planning, raising capital, establishing its intellectual property portfolio and performing research and development of its product candidates, signaling and biology, medicinal chemistry and clinical insights to discover and develop novel therapies for the treatment of fibrosis-driven diseases. Through the date of this filing, Tvardi has historically financed its operations principally through the issuance and sale of its preferred stock and convertible debt. As of December 31, 2024, it has received $28.3 million from the sale and issuance of its Convertible Notes (as defined below) in December 2024 and $83.4 million from the issuance and sale of its Preferred Stock and historical convertible debt, which was converted into Preferred Stock, in 2018 and 2021. As of December 31, 2024, Tvardi had $31.6 million in cash and cash equivalents. Management has determined that, without addition financing from its recently announced reverse merger transaction with Cara Therapeutics, Inc. (Cara) or another financing transaction, Tvardi’s cash and cash equivalents as of December 31, 2024 will not be sufficient to fund its planned operations for the twelve months from the date its financial statements, filed as Exhibit 99.1 to this Report, are issued, which raises substantial doubt as to Tvardi’s ability to continue as a going concern. Tvardi has based this estimate on assumptions that may prove to be wrong, and it could exhaust its capital resources sooner than it expects. See the subsection titled “— Liquidity and Capital Resources” below for further discussion. Even if this Merger (as defined below) is successful, Tvardi will require additional funding in order to finance operations and complete its ongoing and planned clinical trials. Access to such funding on acceptable terms cannot be assured.
Tvardi has incurred net losses since inception. As of December 31, 2024 and 2023, its accumulated deficit was $92.2 million and $62.8 million, respectively. For the years ended December 31, 2024 and 2023, Tvardi reported net losses of $29.4 million and $17.3 million, respectively. Tvardi’s net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of its clinical development activities and other research and development activities. Tvardi expects that its expense and capital requirements will increase substantially in connection with its ongoing activities and for the foreseeable future, particularly if Tvardi, among other things:
| · | advances TTI-101, TTI-109 and its other product candidates through clinical development and, if successful, later-stage clinical trials; |
1
| · | discovers and develops additional product candidates; |
| · | advances its preclinical development programs into clinical development; |
| · | experiences delays or interruptions to preclinical studies, clinical trials, receipt of services from its third-party service providers on whom it relies, or its supply chain; |
| · | seeks and maintains regulatory approvals for any product candidates that successfully complete clinical trials; |
| · | commercializes TTI-101, TTI-109, its other product candidates and any future product candidates, if approved; |
| · | hires additional clinical development, quality control, scientific and management personnel; |
| · | expands its operational, financial and management systems and increase personnel, including personnel to support its clinical development and manufacturing efforts and operations as a public company; |
| · | establishes a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which Tvardi may obtain marketing approval and intend to commercialize on its own or jointly with third parties; |
| · | maintains, expands and protects its intellectual property portfolio; |
| · | invests in or in-licenses other technologies or product candidates; |
| · | continues to build out its organization to engage in such activities; and |
| · | incurs additional legal, accounting, investor relations and other general and administrative expenses associated with operating as a public company. |
Given Tvardi’s stage of development, to date it has not had any products approved for sale and has not generated any revenue. Tvardi does not expect to generate any revenues from product sales unless and until it successfully completes development and obtains regulatory approval for one or more of its product candidates, which may not be for several years, if ever. If Tvardi obtains regulatory approval for any of its product candidates, it expects to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As a result, until such time, if ever, that Tvardi can generate substantial product revenue, it expects to finance its cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, Tvardi may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all. If Tvardi does raise additional capital through public or private equity offerings, the ownership interest of its existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect its stockholders’ rights. If Tvardi raises additional capital through debt financing, it may be subject to covenants or other restrictions limiting its ability to engage in specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on its financial condition and on its ability to pursue its business plans and strategies, including its research and development activities. If Tvardi is unable to raise capital, Tvardi will need to delay, reduce or terminate planned activities, including its ongoing and planned clinical trials, to reduce costs.
Additionally, Tvardi is subject to risks and uncertainties as of result of global business, political and macroeconomic events and conditions, including increasing financial market volatility and uncertainty, inflation, interest rate fluctuations, uncertainty with respect to the federal budget and debt ceiling and potential government shutdowns related thereto, potential instability in the global banking system, cybersecurity events, the impact of war or military conflict, including regional conflicts around the world, and public health pandemics. Tvardi’s business, financial condition and results of operations could be materially and adversely affected by further negative impact on the global economy and capital markets resulting from these global economic conditions, particularly if such conditions are prolonged or worsen.
2
Although, to date, Tvardi’s business has not been materially impacted by these global economic and geopolitical conditions, it is impossible to predict the extent to which its operations will be impacted in the short and long term, or the ways in which such instability could impact its business and results of operations. The extent and duration of these market disruptions, other geopolitical tensions, record inflation or otherwise, are impossible to predict, but could be substantial. Any such disruptions may also magnify the impact of other risks described in the proxy statement/prospectus.
Recent Developments
Proposed Reverse Merger
On December 17, 2024, Tvardi entered into an agreement and plan of merger and reorganization (the Merger Agreement) with Cara, and CT Convergence Merger Sub, Inc., a wholly-owned subsidiary of Cara (Merger Sub), pursuant to which Merger Sub will merge with and into Tvardi, with Tvardi surviving as a wholly-owned subsidiary of Cara (such transaction, the Merger).
Upon completion of the Merger, Tvardi’s business will continue as the business of the surviving corporation. After the completion of the Merger, Cara will change its corporate name to Tvardi Therapeutics, Inc. Subject to the terms and conditions of the Merger Agreement, at the effective time of the Merger (the Effective Time):
| · | each outstanding share of Tvardi’s common stock (including the shares of common stock issuable upon conversion of all shares of Tvardi’s preferred stock prior to the Merger), $0.001 par value per share (Tvardi common stock), will be converted into the right to receive a number shares of common stock of Cara, $0.001 par value per share (Cara common stock) in the aggregate, based on a ratio calculated in accordance with the Merger Agreement (the Exchange Ratio); and |
| · | Tvardi’s outstanding Convertible Notes will be converted into shares of Cara common stock, pursuant to the terms of the Convertible Notes (as defined below). |
At the Effective Time, subject to the terms and conditions of the Merger Agreement, Cara will assume outstanding and unexercised options to purchase shares of Tvardi’s common stock, and in connection with the Merger, they will be converted into options to purchase shares of Cara common stock based on the Exchange Ratio. As of the Effective Time, Cara’s stockholders will continue to own and hold their then existing shares of Cara common stock, which are subject to adjustment for the reverse stock split proposed in connection with the Merger.
The completion of the Merger is subject to customary closing conditions, including, among other things (i) approval by the stockholders of each party of the adoption and approval of the Merger Agreement and the transactions contemplated thereby, (ii) The Nasdaq Stock Market LLC’s approval of the listing of shares of Cara common stock to be issued in connection with the Merger, (iii) the effectiveness of a registration statement filed with the SEC in connection with the Merger, and (iv) Cara net cash at the Effective Time of at least $18.0 million.
Convertible Notes
In December 2024, Tvardi entered into a note purchase agreement, pursuant to which it issued and sold convertible promissory notes (the Convertible Notes) in an aggregate principal amount of approximately $28.3 million. The Convertible Notes accrue interest at 8% per annum and mature on December 31, 2026 (the Maturity Date). As of December 31, 2024, Tvardi has recorded $0.2 million in accrued interest under the Convertible Notes.
3
Pursuant to the terms of the note purchase agreement, the Convertible Notes will be converted into equity securities of Tvardi or shares of common stock of a public traded company, as applicable, upon (i) the closing of an equity financing by Tvardi with total proceeds of at least $15.0 million (a Qualified Financing), (ii) the closing of an equity financing by Tvardi that is not a Qualified Financing (a non-Qualified Financing), if the holders of a majority of the outstanding principal amount of the Convertible Notes elect to treat such non-Qualified Financing as a Qualified Financing, (iii) the consummation of an underwritten initial public offering of Tvardi’s common stock (IPO), and (iv) consummation of a “reverse merger” transaction with a publicly traded company, the primary purposes of which transaction or series of related transactions is the public listing of Tvardi and pursuant to which the stockholders of Tvardi prior to such transaction shall beneficially own greater than 50% of the surviving entity or the parent entity, in each case, calculated in accordance with the terms of the Convertible Notes. In addition, Tvardi is obligated to pay the noteholders cash equal to the outstanding principal amount thereunder plus any unpaid accrued interest thereon, plus a repayment premium upon the consummation of certain change of control transactions. If the Convertible Notes remain outstanding on or following the Maturity Date, the noteholders shall have the option to elect to have the outstanding principal balance of the Convertible Notes and any unpaid accrued interest thereon convert into shares of Tvardi’s Series B Preferred Stock at a conversion price per share equal to $3.8095.
Upon the closing of the Merger, the outstanding principal balance of the Convertible Notes and all unpaid accrued interest will be automatically converted into shares of Cara common stock, at a conversion price equal to 80% of the implied valuation of the combined company in the Merger (such shares, the Conversion Shares). The Conversion Shares shall be calculated by multiplying the Post-Closing Cara Shares (as defined below) by (a) the quotient obtained by dividing (i) the Implied Note Valuation (as defined below) by (ii) the Aggregate Post-Bridge Valuation (as defined below). The Post-Closing Cara Shares means the quotient obtained by dividing the Cara Outstanding Shares (as defined below) by the Cara Allocation Percentage (as defined below). The Implied Note Valuation means the quotient obtained by dividing (a) the principal amount of the Convertible Notes plus all accrued and unpaid interest by (b) 80%. The Aggregate Post-Bridge Valuation means the sum of (i) the Tvardi Valuation (as defined in the Merger Agreement), plus (ii) the Cara Valuation (as defined in the Merger Agreement) plus (iii) the Implied Note Valuation. The Conversion Shares issued with respect to the 20% discount under the terms of the Convertible Notes shall dilute the pre-Merger equityholders of Tvardi as part of calculating the Exchange Ratio. The remaining Conversion Shares shall dilute the pre-Merger Cara equityholders and the pre-Merger Tvardi equityholders on a pro rata basis.
License Agreements
In July 2012 and June 2015, Stem Med Limited Partnership (StemMed) entered into license agreements with Baylor College of Medicine (BCM) referred to herein as the BCM First Agreement and BCM Second Agreement, respectively. StemMed assigned the BCM First Agreement and BCM Second Agreement to Tvardi in connection with the transfer of all or substantially all of the assets and businesses to which BCM First Agreement and BCM Second Agreement relate in January 2018 and February 2018, respectively. Under both the BCM First Agreement and BCM Second Agreement, Tvardi obtained exclusive, worldwide, sublicense licenses under certain of BCM’s patents and patent applications and additionally in the case of the BCM First Agreement, certain BCM technology. Under these licenses, Tvardi is permitted to make, have made, use, market, sell, offer to sell, lease and import products, processes or services that incorporate, utilize or are made with the use such patents and patent applications or technologies (respectively, the BCM1 Licensed Products and BCM2 Licensed Products) in all fields of use. The licenses, patents and patent applications and technologies applicable to the BCM First Agreement and BCM Second Agreement are further discussed below.
First License Agreement with Baylor College of Medicine
Under the BCM First Agreement, Tvardi obtained an exclusive, worldwide, sublicensable license under BCM’s rights to certain patents and patent applications related to STAT3 inhibitors in oncology and certain non-oncology indications, which Tvardi refers to as the BCM Patent Rights, together with certain cell lines, biological materials, compounds, know-how and technologies, which Tvardi collectively refers to as the BCM Technology, to make, have made, use, market, sell, offer to sell, lease and import BCM1 Licensed Products, in all fields of use.
4
Pursuant to the terms of the BCM First Agreement, StemMed owed an initial license fee of $75,000 as consideration for the license rights. Upon the assignment of the agreement to Tvardi, Tvardi became responsible for the payment of annual maintenance fees on the anniversary of the agreement, which range from $30,000 to $50,000. Tvardi is also required to pay BCM royalties in the amount of a low-single-digit percent of net sales of BCM1 Licensed Products during the term, which expires, on a country-by-country basis, on the later of (i) the date of expiration of the last-to-expire of the BCM Patent Rights, or, (ii) if no BCM Patent Rights issued in such country, the tenth anniversary of the first commercial sale of the BCM1 Licensed Product in such country. Tvardi currently expects the BCM Patent Rights to expire April 18, 2039. Upon the initiation of the Phase 2 clinical trials for two BCM1 Licensed Products, Tvardi paid BCM development milestone payments of $250,000 in the aggregate. Upon the achievement of additional specified development and regulatory milestones, Tvardi is required to pay BCM one-time milestone payments of up to $2,200,000 in the aggregate for the first BCM1 Licensed Product in an oncology indication and for the first BCM1 Licensed Product in a non-oncology indication to achieve such milestones. Further, in connection with the initiation of the Phase 3 clinical trial, Tvardi would expect to incur approximately $400,000 of oncology-related costs and approximately $300,000 of non-oncology-related costs. Tvardi is additionally required to pay BCM a tiered low-double-digit percentage of sublicensing revenue obtained in connection with any sublicense granted by Tvardi under the BCM Patent Rights or BCM Technology.
Tvardi may terminate the BCM First Agreement at its convenience following a specified notice period upon advance written notice to BCM. The BCM First Agreement may also be terminated by BCM for Tvardi’s default or failure to perform any of terms of the BCM First Agreement, following a specified notice and cure period. Additionally, BCM may terminate the BCM First Agreement if Tvardi undergoes specified bankruptcy or insolvency events, following the expiration of a specified period. Upon expiration of the term of the BCM First Agreement in a given country, the license grant from BCM to Tvardi will be fully-paid and perpetual in such country.
The BCM First Agreement was amended in April 2015 to update the schedule of BCM Patent Rights and description of description of BCM Technology covered by the license for immaterial consideration. The BCM First Agreement was further amended in August 2019 to amend Tvardi’s diligence and insurance obligations as well as to further update the schedule of BCM Patent Rights.
Under the BCM First Agreement, Tvardi recorded $50,000 of annual maintenance fees during each of the years ended December 31, 2024 and 2023. Tvardi incurred $125,000 for milestones in connection with the initiation of a Phase 2 clinical trial during each of the years ended December 31, 2024 and 2023. No royalty fees have been incurred to date.
Second License Agreement with Baylor College of Medicine
Under the BCM Second Agreement, Tvardi obtained an exclusive, worldwide, sublicensable license under certain patents and patent applications co-owned by BCM and the National Institutes of Health (NIH), related to methods and compositions for the use of STAT3 inhibitors in certain conditions like anaphylaxis, which rights Tvardi refers to as the Licensed Patent Rights, to make, have made, use, market, sell, offer to sell, lease and import the BCM2 Licensed Products, in all fields of use.
Pursuant to the terms of the BCM Second Agreement, StemMed owed an initial license fee of $5,000 in consideration for the license rights. Upon the assignment of the agreement to Tvardi, it became responsible for the payment of maintenance fees on the anniversary of the agreement, which range from $30,000 to $50,000. Tvardi is also required to pay BCM royalties in the amount of a low-single-digit percent of net sales of BCM2 Licensed Products during the term, which expires, on a country-by-country basis, on the later (i) of the date of expiration of the last to expire of the Licensed Patent Rights, or, (ii) if no Licensed Patent Rights issued in such country, the tenth anniversary of the first commercial sale of the BCM2 Licensed Product in such country. Tvardi currently expects the Licensed Patent Rights to expire July 18, 2034. Upon the achievement of additional specified development and regulatory milestones, Tvardi is required to pay BCM one-time milestone payments of up to $1,225,000 in the aggregate for the first BCM2 Licensed Product to achieve such milestones. Further, in connection with the initiation of the Phase 3 clinical trial, Tvardi would expect to incur approximately $300,000 in costs. Tvardi is additionally required to pay BCM a tiered low-double-digit percentage of sublicensing revenue obtained in connection with any sublicense granted by Tvardi under the Licensed Patent Rights.
5
Tvardi may terminate the BCM Second Agreement at its convenience following a specified notice period upon advance written notice to BCM. The BCM Second Agreement may also be terminated by BCM for Tvardi’s default or failure to perform any of terms of the BCM Second Agreement, following a specified notice and cure period. Additionally, BCM may terminate the BCM Second Agreement if Tvardi undergoes specified bankruptcy or insolvency events, following the expiration of a specified period. The NIH may terminate its license to BCM if Tvardi fails to fulfill certain obligations. Upon expiration of the term of the BCM Second Agreement in a given country, the license grant from BCM to Tvardi will be fully-paid and perpetual in such country.
The BCM Second Agreement was amended in June 2019 to amend Tvardi’s diligence and insurance obligations. Tvardi entered into a second amendment April 2023 to further amend its diligence obligations and to terminate the obligation to pay annual maintenance fees until the first anniversary of the achievement of certain patent milestones and annually thereafter.
Under the BCM Second Agreement, no payments were made or incurred during the years ended December 31, 2024 and 2023. No royalty fees have been incurred to date.
Components of Operating Results
Revenue
Tvardi has not generated any revenue since its inception and does not expect to generate any revenue from the sale of products in the near future, if at all. If Tvardi’s development efforts for TTI-101, TTI-109 or additional product candidates that it may develop in the future are successful and result in marketing approval, or if Tvardi enters into collaboration or license agreements with third parties, it may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements.
Operating Expenses
Tvardi’s operating expenses since inception have consisted primarily of research and development expenses and general and administrative costs.
Research and Development Expenses
Tvardi’s research and development expenses consist primarily of direct and indirect costs incurred in performing clinical and preclinical development activities.
Direct costs include:
| · | expenses incurred under agreements with consultants and third-party contract research organizations (CROs) that conduct research and development activities on Tvardi’s behalf; |
| · | costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers; and |
| · | costs associated with license agreements. |
Indirect costs include:
| · | personnel costs, which includes salaries, benefits, stock-based compensation expense and travel expenses, for personnel engaged in research and development functions; |
| · | facilities, amortization and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and |
| · | costs related to compliance with quality and regulatory requirements. |
6
Pursuant to U.S. GAAP and Tvardi’s internal policies, including its clinical trial accrual policy, Tvardi expenses all research and development costs in the periods in which they are incurred, including the costs of treatment center start-up activities, patient enrollment, and study reporting.. Costs for certain other research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to Tvardi by its vendors and third-party service providers. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in Tvardi’s financial statements as prepaid or accrued research and development expenses.
The majority of Tvardi’s clinical spending in the years ended December 31, 2024 and 2023 was on TTI-101, for which certain direct research and development costs are tracked by clinical trial. Spending for the development of TTI-109 primarily began in 2023.
Tvardi expects its research and development expenses to increase substantially for the foreseeable future as it continues to invest in the development of TTI-101 and TTI-109, support its ongoing preclinical programs and discover any new product candidates, as well as increase its headcount. In particular, clinical development, as opposed to preclinical development, generally has higher development costs, primarily due to the increased size and duration of later-stage clinical trials. Moreover, the costs associated with Tvardi’s clinical activities, which are managed by its CROs, and Contract Development and Manufacturing Organizations (CDMOs), to manufacture materials for Tvardi’s product candidates and future commercial products, are much more costly as compared to early-stage preclinical development. Tvardi cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of its current and future candidates due to the inherently unpredictable nature of preclinical and clinical development. Preclinical and clinical development timelines, the probability of success and development costs can differ materially from expectations. Tvardi anticipates that it will make determinations as to which therapeutic candidates to pursue and how much funding to direct to each therapeutic candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and Tvardi’s ongoing assessments as to each therapeutic candidate’s commercial potential. Tvardi will need substantial additional capital in the future to support these efforts. In addition, Tvardi cannot forecast which therapeutic candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect its development plans and capital requirements.
At this time, Tvardi cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of any of its product candidates. Tvardi is also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of its product candidates. This is due to the numerous risks and uncertainties associated with drug development, including:
| · | negative or inconclusive results from Tvardi’s preclinical studies or clinical trials or the clinical trials of others for product candidates similar to Tvardi’s, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program; |
| · | undesirable product-related side effects experienced by subjects in Tvardi’s clinical trials or by individuals using drugs or therapeutics similar to its product candidates; |
| · | poor efficacy of Tvardi’s product candidates during clinical trials; |
| · | delays in submitting investigational new drug (IND) applications or comparable foreign applications or delays or failure in obtaining the necessary approvals from U.S. Food and Drug Administration (FDA) or other comparable foreign regulatory authorities to commence a clinical trial, or a suspension or termination of a clinical trial once commenced; |
| · | conditions imposed by the FDA or comparable foreign regulatory authorities regarding the scope or design of Tvardi’s clinical trials; |
| · | delays in enrolling subjects in clinical trials, including due to operational challenges or competition with other clinical trials; |
7
| · | high drop-out rates or screening failures of subjects from clinical trials; |
| · | inadequate supply or quality of product candidates or other materials necessary for the conduct of Tvardi’s clinical trials; |
| · | greater than anticipated clinical trial costs; |
| · | inability to compete with other therapies; |
| · | failure to secure or maintain orphan designation in some jurisdictions; |
| · | unfavorable FDA or other regulatory agency inspection and review of a clinical trial site; |
| · | failure of Tvardi’s third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all; |
| · | delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to Tvardi’s technology in particular; or |
| · | varying interpretations of data by the FDA and other comparable foreign regulatory authorities. |
A change in the outcome of any of these variables with respect to the development of any of Tvardi’s product candidates or potential future product candidates could mean a significant change in the costs and timing associated with the development of that product candidate or potential future product candidate. For example, if the FDA or another regulatory authority were to require Tvardi to conduct clinical trials beyond those that it anticipates would be required for the completion of clinical development of a product candidate or potential future product candidate, or if Tvardi experiences significant delays in its clinical trials due to slower than expected patient enrollment or other reasons, it would be required to expend significant additional financial resources and time on the completion of clinical development. Tvardi may never obtain regulatory approval for any of its product candidates, and, even if Tvardi does, drug commercialization takes several years and millions of dollars in development costs.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, including salaries, benefits and stock-based compensation, for personnel in Tvardi’s executive, finance, corporate and business development and administrative functions. General and administrative expenses also include outside professional services, such as legal, audit and accounting services, insurance costs and facility-related expenses, which includes direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
Tvardi expects its general and administrative expenses to increase over the next several years as it continues its research and development activities, prepares for potential commercialization of its current and future product candidates, as well as expands its operations and begins operating as a public company following the Merger. These increases will likely include increases related to the hiring of additional personnel and legal, regulatory and other fees and services associated with maintaining compliance with listing rules and SEC requirements, director and officer insurance premiums and investor relations costs associated with being a public company.
Interest Income
Interest income for the year ended December 31, 2024 consisted of interest earned on Tvardi’s cash equivalents and interest income for the year ended December 31, 2023 consisted of interest earned on its cash equivalents, previously outstanding short-term investments, as well as accretion of the discount on its short-term investments.
8
Other Income (Expense), Net
Other income (expense), net consists of the change in fair value of Tvardi’s Convertible Notes, for which it has elected the fair value option as well as interest accrued on the Convertible Notes and debt issuance costs incurred. See “—Recent Developments—Convertible Notes” for further discussion of Tvardi’s Convertible Notes.
Income Taxes
Tvardi recorded a full valuation allowance of its deferred tax asset position as of December 31, 2024 and 2023 as it believes it was more likely than not that Tvardi would not be able to utilize its deferred tax assets.
As of December 31, 2024, Tvardi had a federal net operating loss (NOL) carryforward of $47.2 million. Of the federal NOL carryforwards, $0.4 million expires in 2037 and $46.8 million may be carried forward indefinitely. As of December 31, 2024, Tvardi had federal research and development credits of $0.4 million, which will begin to expire in 2039.
Results of Operations
Comparison of the Years Ended December 31, 2024 and 2023
The following table sets forth Tvardi’s results of operations for the years ended December 31, 2024 and 2023 (in thousands, except percentages):
| Year Ended December 31, | Change | |||||||||||||||
| 2024 | 2023 | Amount | Percent | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | $ | 23,650 | $ | 15,866 | $ | 7,784 | 49.1 | % | ||||||||
| General and administrative | 4,457 | 2,799 | 1,658 | 59.2 | % | |||||||||||
| Total operating expenses | 28,107 | 18,665 | 9,442 | 50.6 | % | |||||||||||
| Loss from operations | (28,107 | ) | (18,665 | ) | (9,442 | ) | 50.6 | % | ||||||||
| Interest income | 747 | 1,318 | (571 | ) | (43.3 | )% | ||||||||||
| Other income (expense), net | (2,037 | ) | - | (2,037 | ) | n/a | ||||||||||
| Net loss | $ | (29,397 | ) | $ | (17,347 | ) | $ | (12,050 | ) | 69.5 | % | |||||
9
Research and Development Expenses
Research and development expenses for the years ended December 31, 2024 and 2023 were comprised of the following (in thousands, except percentages):
| Year Ended December 31, | Change | |||||||||||||||
| 2024 | 2023 | Amount | Percent | |||||||||||||
| Direct research and development expenses by program: | ||||||||||||||||
| TTI-101: | ||||||||||||||||
| HCC | $ | 8,583 | $ | 2,127 | $ | 6,456 | 303.5 | % | ||||||||
| IPF | 6,703 | 3,210 | 3,493 | 108.8 | % | |||||||||||
| mBC | 2,182 | 646 | 1,536 | 237.8 | % | |||||||||||
| Pre-clinical, CMC, and other (unallocated) | 969 | 4,373 | (3,404 | ) | (77.8 | )% | ||||||||||
| TTI-109 | 1,193 | 1,466 | (273 | ) | (18.6 | )% | ||||||||||
| Unallocated research and development expense: | ||||||||||||||||
| Personnel costs (including stock-based compensation) | 2,988 | 2,900 | 88 | 3.0 | % | |||||||||||
| Consultant fees and other costs | 1,032 | 1,144 | (112 | ) | (9.8 | )% | ||||||||||
| Total research and development expenses | $ | 23,650 | $ | 15,866 | $ | 7,784 | 49.1 | % | ||||||||
Research and development expenses were $23.7 million for the year ended December 31, 2024, compared to $15.9 million for the year ended December 31, 2023. The increase of $7.8 million was primarily driven by costs associated with Tvardi’s product candidate TTI-101, including increases of $6.5 million and $3.5 million related to Tvardi’s HCC trial and IPF trial, respectively, both attributable to changes in patient enrollments and overall changes in trial costs due to estimated clinical trial change orders. Also contributing to the increase in research and development expense for TTI-101 were winddown costs to closeout Tvardi’s metastatic breast cancer (mBC) trial, which Tvardi decided to discontinue in January 2024. These increases in costs are partially offset by a $3.4 million decrease in pre-clinical, chemistry, manufacturing and control (CMC) costs as the production of clinical trial supplies were completed in 2023.
The decrease of $0.3 million related to Tvardi’s product candidate TTI-109 was primarily related to the timing of pre-clinical studies.
The increase of personnel costs of $0.1 million was primarily related to increases in compensation across the research and development functions. The $0.1 million decrease in consultant fees and other costs was primarily related to reduced usage of consultants due to the usage of internal resources.
General and Administrative Expenses
General and administrative expenses were $4.5 million for the year ended December 31, 2024, compared to $2.8 million for the year ended December 31, 2023. The increase of $1.7 million was primarily driven by increases in professional fees of $1.5 million, attributable to accounting and audit fees, and personnel costs of $0.2 million, related to increases in compensation across the general and administrative functions.
Interest Income
Interest income was $0.7 million for the year ended December 31, 2024, compared to $1.3 million for the year ended December 31, 2023. The $0.7 million of interest income for the year ended December 31, 2024 was driven by interest income earned on Tvardi’s cash equivalents. The $1.3 million of interest income for the year ended December 31, 2023 includes interest earned on Tvardi’s cash, cash equivalents, previously outstanding short-term investments, as well as the accretion of the discount on its short-term investments, which fully matured during the year ended December 31, 2023.
10
Other Income (Expense), Net
Other income (expense), net of $2.0 million for the year ended December 31, 2024 was primarily attributable to a $1.8 million remeasurement of Tvardi’s Convertible Notes, for which Tvardi has elected the fair value option, as well as $0.2 million in interest accrued on the Convertible Notes and $0.1 million of debt issuance costs incurred. There were no financial instruments requiring valuation or interest expense for the year ended December 31, 2023.
Liquidity and Capital Resources
Sources of Liquidity
Since inception, Tvardi has not generated any revenue from product sales or any other sources and has incurred significant operating losses. Tvardi has not yet commercialized any products and does not expect to generate revenue from sales of any product candidates for several years, if ever. To date, Tvardi has financed its operations primarily through the (i) issuance and sale of its Convertible Notes in December 2024 for gross proceeds of $28.3 million and (ii) the issuance and sale of preferred stock and historical convertible debt for total gross proceeds of $83.4 million. Any previously outstanding convertible debt was converted into preferred stock in 2018 and 2021. To date Tvardi has devoted substantially all of its efforts and financial resources to developing its product candidates, organizing and staffing its company, business planning, raising capital, establishing its intellectual property portfolio and performing research and development of its product candidates, signaling and biology, medicinal chemistry and clinical insights to discover and develop novel therapies for the treatment of fibrosis-driven diseases.. As of December 31, 2024, Tvardi had $31.6 million in cash and cash equivalents.
See “—Recent Developments—Convertible Notes” above for further discussion of Tvardi’s Convertible Notes.
Funding Requirements
Tvardi’s primary uses of cash are to fund its operations, which consist primarily of research and development costs related to the development of its product candidates, and, to a lesser extent, general and administrative costs. Tvardi has incurred significant operating losses since its inception, and as of December 31, 2024, had an accumulated deficit of $92.2 million. Management has determined that its present capital resources will not be sufficient to fund its planned operations for at least one year from the issuance date of the financial statements filed as Exhibit [●] to this Report, which raises substantial doubt as to Tvardi’s ability to continue as a going concern. Tvardi is seeking to complete a Merger with Cara, as discussed above, and plans to seek additional funding through subsequent public or private offerings of equity or debt securities and other funding sources. In the event Tvardi does not complete the reverse merger, the Company plans to seek additional funding through equity offerings or debt financings, credit or loan facilities, strategic alliances and licensing arrangements. However, there can be no assurance that such funding will be available to Tvardi, will be obtained on terms favorable to Tvardi, or will provide Tvardi with sufficient funds to meet its objectives.
Tvardi anticipates that it will continue to incur significant and increasing expenses for the foreseeable future as it continues to advance its product candidates, expand its corporate infrastructure, including the costs associated with being a public company following the Merger, further Tvardi’s research and development initiatives for its product candidates and incur costs associated with the potential commercialization of its product candidates, if approved. Tvardi is subject to all of the risks typically related to the development of new drug candidates, and may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect its business. Tvardi anticipates that it will need substantial additional funding in connection with its continuing operations. However, Tvardi may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If Tvardi raises additional capital through public or private equity offerings, the ownership interest of its existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect its stockholders’ rights. If Tvardi raises additional capital through debt financing, it may be subject to covenants or other restrictions limiting its ability to engage in specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on Tvardi’s financial condition and on its ability to pursue its business plans and strategies. If Tvardi is unable to raise capital, it will need to delay, reduce or terminate planned activities to reduce costs.
11
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, Tvardi is unable to estimate the exact amount of its operating capital requirements.
Tvardi’s future funding requirements will depend on many factors, including, but not limited to:
| · | the initiation, progress, timing, costs and results of preclinical studies and clinical trials for its potential future product candidates; |
| · | the clinical development plans Tvardi establishes for its product candidates; |
| · | the timelines of its clinical trials and the overall costs to conduct and complete the clinical trials, including any increased costs due to disruptions caused by marketplace conditions, including the effects of health epidemics, or other geopolitical and macroeconomic conditions; |
| · | the cost and capital commitments required for manufacturing its product candidates at clinical and if, approved, commercial scales; |
| · | the number and characteristics of product candidates that Tvardi develops; |
| · | the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities; |
| · | whether Tvardi is able to enter into future collaboration agreements and the terms of any such agreements; |
| · | the ability to achieve and timing of achieving a favorable pricing and reimbursement decision by the pricing authorities in the markets of interest; |
| · | the cost of filing, prosecuting, defending and enforcing its patent claims and other intellectual property rights, including patent infringement actions brought by third parties against Tvardi or its product candidates; |
| · | the effect of competing technological and market developments; |
| · | the cost and timing of completion of commercial-scale outsourced manufacturing activities; and |
| · | the cost of establishing sales, marketing and distribution capabilities for any product candidates for which Tvardi may receive regulatory approval in regions where it chooses to commercialize its products on its own. |
A change in the outcome of any of these or other variables with respect to the development of any of Tvardi’s current and future product candidates could significantly change the costs and timing associated with the development of that product candidate. See the section titled “Risk Factors” set forth in the proxy statement/prospectus for additional risks associated with Tvardi’s substantial capital requirements.
12
Cash Flows
The following table summarizes Tvardi’s cash flows for the periods indicated (in thousands):
| Year Ended December 31, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (18,305 | ) | $ | (21,040 | ) | ||
| Net cash provided by investing activities | - | 22,468 | ||||||
| Net cash provided by financing activities | 27,000 | 2 | ||||||
| Net increase in cash and cash equivalents | $ | 8,695 | $ | 1,430 | ||||
Operating Activities
Net cash used in operating activities was $18.3 million for the year ended December 31, 2024, reflecting a net loss of $29.4 million, net of changes in operating assets and liabilities of $8.6 million, and non-cash changes of $2.5 million. The net changes in operating assets and liabilities of $8.6 million was primarily driven by (i) a $3.2 million decrease in prepaid expenses and other current assets, attributable to the timing of patient enrollments and (ii) a $5.6 million increase in accounts payable and accrued expenses, driven by the timing of invoices and payments. The $2.5 million in non-cash expenses was primarily driven by $1.8 million related to the change in fair value of Tvardi’s Convertible Notes, $0.2 million in interest accrued on its Convertible Notes, $0.3 million in stock-based compensation, and $0.1 million in depreciation and amortization.
Net cash used in operating activities was $21.0 million for the year ended December 31, 2023, reflecting a net loss of $17.3 million and net changes in operating assets and liabilities of $4.0 million, partially offset by non-cash changes for depreciation and amortization, stock-based compensation expense, non-cash lease expense and accretion of discounts on short-term investments of $0.3 million. The net changes in operating assets and liabilities of $4.0 million was primarily driven by (i) a $2.9 million increase in prepaid expenses and other current assets, attributable to the timing of patient enrollments and (ii) a $1.0 million decrease in accounts payable and accrued expenses, driven by the timing of invoices and payments.
Investing Activities
Net cash provided by investing activities was $22.5 million for the year ended December 31, 2023 attributable to the maturities of short-term investments.
There was no net cash provided by investing activities for the year ended December 31, 2024.
Financing Activities
The net cash provided by financing activities for the year ended December 31, 2024 was primarily due to the proceeds from Tvardi’s Convertible Notes, partially offset by payments of deferred offering costs.
The immaterial net cash provided by financing activities for the years ended December 31, 2023 was due to proceeds from the exercise of stock options.
Contractual Obligations and Commitments
Lease Obligations
Tvardi leases space under one operating lease agreement for corporate office space in Sugar Land, Texas, which expires in August 2027. As of December 31, 2024, Tvardi had future operating lease liabilities of $0.3 million.
Convertible Notes
In December 2024, Tvardi issued and sold Convertible Notes in an aggregate principal amount of approximately $28.3 million. If the Convertible Notes are not otherwise converted into equity securities pursuant to the scenarios within the terms of the note purchase agreement and as further discussed above, the principal amount of the Convertible Notes and any unpaid accrued interest will be due to the noteholders.
13
Maturity date
If the Convertible Notes are held to the Maturity Date and the noteholders do not elect for the conversion of the Convertible Notes pursuant to the terms discussed above, the $28.3 million in principal and accrued interest of approximately $4.7 million would be due to the noteholders.
Payout upon a change of control
In the event Tvardi consummates a change of control other than a reverse merger while the Convertible Notes remain outstanding, in addition to the outstanding principal and any unpaid accrued interest on the original principal, the noteholders would also receive a repayment premium equal to 100% of the outstanding principal amount of the Convertible Notes.
License Agreements
As discussed above, Tvardi has license agreements with BCM for exclusive use of patent rights of TTI-101. The license agreements contain terms for annual maintenance fees, milestone payments and net revenue royalties. Annual maintenance fees range from $30,000 to $50,000 per year, per license. Potential milestone payments are up to $1,225,000 in the aggregate per license. Milestones include new drug filings, clinical trial stages, and NDA approval by the FDA. Tvardi is obligated to pay BCM royalties in the amount of a low-single-digit percent of net sales of BCM1 Licensed Products or BCM2 Licensed Products during the term, which expire, on a country-by-country basis, on the later of (i) the date of expiration of BCM Patent Rights or Licensed Patent Rights, whichever is the last to expire, or, (ii) if no BCM Patent Rights or Licensed Patent Rights are issued in such country, the tenth anniversary the first commercial sale of the BCM1 Licensed Products or BCM2 Licensed Products in such country. License fees are expensed as incurred within research and development within Tvardi’s statements of operations. Tvardi recorded $50,000 of annual maintenance fees during each of the years ended December 31, 2024 and 2023. Tvardi incurred $125,000 for milestones connected with the initiation of Phase 2 clinical trials in each of the years ended December 31, 2024 and 2023. No royalty fees have been incurred to date.
Other Capital Requirements and Additional Royalty Obligations
Tvardi enters into agreements in the normal course of business with various third-party providers for the provision of research and development services, which include preclinical studies and clinical trial services with CROs and the manufacturing of product candidates for use in its preclinical studies and clinical trials with CDMOs. These agreements may include certain provisions for purchase obligations and termination obligations that could require payments for the cancellation of committed purchase obligations or for early termination of the agreements. The amount of the cancellation or termination payments vary and are based on the timing of the cancellation or termination and the specific terms of the agreement. These obligations and commitments are not presented separately.
In addition to Tvardi’s obligation to make potential royalty payments under the BCM First Agreement and BCM Second Agreement discussed above, pursuant to Tvardi’s founder restricted stock purchase agreements with each of its founders, David J. Tweardy, M.D. and Ron DePinho, M.D., Tvardi is also obligated to pay royalties to each such founder in an amount equal to 1% each on the worldwide net sales of TTI-101 and any derivative formulations (a Royalty Bearing Product). These royalty obligations last, on a country-by-country basis, for the later of (i) the date on which the sale of Royalty Bearing Product is no longer covered by a Covered Patent (as defined below) in such country, or (ii) 15 years after the first commercial sale of Royalty Bearing Product in such country. The timing of when Tvardi’s royalty payments will actually be made is uncertain as the payments are contingent upon future activities, including the successful development, regulatory approval and commercialization of Royalty Bearing Product. A Covered Patent means, subject to certain customary exceptions, an issued patent that is owned by us or an affiliate, or for which all rights to develop and commercialize pharmaceutical products for the treatment of any human disorder, are exclusively licensed to Tvardi or an affiliate by the owner of such patent, with Tvardi’s right or Tvardi’s affiliate’s right to grant sublicenses.
14
Critical Accounting Estimates
Tvardi’s financial statements are prepared in accordance with U.S. GAAP. The preparation of the financial statements and related disclosures requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses in Tvardi’s financial statements. Tvardi bases its estimates on historical experience, known trends and events and various other factors that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management evaluates estimates and assumptions on a periodic basis. Tvardi’s actual results may differ from these estimates.
While Tvardi’s significant accounting policies are described in more detail in Note 2 to the financial statements for the years ended December 31, 2024 and 2023, filed as Exhibit 99.1 to this Report, management believes that the following accounting policies are critical to understanding Tvardi’s historical and future performance, as the policies relate to the more significant areas involving management’s judgments and estimates used in the preparation of the financial statements.
Prepaid and Accrued Research and Development Costs
Accounting for preclinical studies and clinical trials relating to activities performed by CROs and other external vendors requires management to exercise significant estimates in regard to the timing and accounting for these expenses. Tvardi estimates costs of research and development activities conducted by service providers, which include costs to properly initiate and manage ongoing preclinical studies and clinical trials. The diverse nature of services being provided under contracts with Tvardi’s CROs, CDMOs and other arrangements, the different compensation arrangements that exist for each type of service and the lack of timely information related to certain pre-clinical and clinical activities complicates the estimation of accruals for services rendered by the CROs, CDMOs and other vendors in connection with preclinical studies and clinical trials.
Examples of estimated accrued research and development expenses include:
| · | expenses incurred under agreements with third parties, including Tvardi’s CROs that conducts research, preclinical studies and clinical trials on its behalf; |
| · | expenses incurred under agreements with third parties, including its CDMOs, that develop and manufacture its product candidate for use in Tvardi’s preclinical studies and clinical trials; and; |
| · | other providers and vendors in connection with research and development activities. |
Tvardi bases its expenses related to preclinical studies and clinical trials on its estimates of the services received and efforts expended pursuant to quotes and contracts with its CROs, CDMOs and other third-party vendors that conduct research, preclinical studies and clinical trials on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to Tvardi’s vendors will exceed the level of services provided and result in a prepayment of the expense.
Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing fees, Tvardi estimates the time period over which services will be performed, the enrollment of patients and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from Tvardi’s estimate, or if Tvardi receives any change orders from its third-party providers, it adjusts the accrual or amount of prepaid expense accordingly. Although Tvardi does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in Tvardi reporting amounts that are too high or too low in any particular period. To date, Tvardi has not made any material adjustments to its prior estimates of accrued research and development expenses.
15
Tvardi also record advance payments to service providers as prepaid expenses and other current assets, which are expensed when the contracted services are performed. If the actual timing of the performance of services varies from the estimate, then Tvardi adjusts the amount of the accrued expense or the prepaid expense accordingly.
Convertible Notes
Tvardi elected to account for its Convertible Notes pursuant to the fair value option under Accounting Standards Codification (ASC) 825, Financial Instruments (ASC 825). In accordance with ASC 825 and the fair value option, Tvardi recorded its Convertible Notes at fair value with changes in fair value recorded as component of other income (expense), net in its statements of operations. As a result of the fair value option, any issuance costs related to the Convertible Notes were expensed as incurred and were not deferred.
The fair value of the Convertible Notes was determined using a scenario-based valuation analysis that requires a probability of inputs, including the probability of occurrence of events that would trigger conversion of the Convertible Notes and the expected timing of such events.
As of December 31, 2024, Tvardi assessed the probability of (i) an automatic conversion of the Convertible Notes into equity securities upon a Qualified or non-Qualified Financing, (ii) an automatic conversion of the Convertible Notes into shares of Tvardi’s common stock upon an IPO, (iii) an automatic conversion of the Convertible Notes into the combined company’s common stock upon a reverse merger, and (iv) an event of default, dissolution, or liquidation, weighted with 20%, 10%, 60%, and 10%, respectively.
Additional assumptions and estimates used to estimate the fair value of the Convertible Notes include the: (i) fixed price conversion option, which was valued using a Black-Scholes option model, (ii) aggregate call value of each scenario, which was synthesized using a bond plus call option model, (iii) expected volatility, (iv) risk-free interest rate, and (v) the fair value of the Convertible Notes under the reverse merger scenario, which was estimated using a forward contract structure.
Stock-Based Compensation Expense and Fair Value of Stock-Based Awards
Stock-Based Compensation Expense
Tvardi measures and records the expense related to stock-based awards granted to employees, directors, consultants and advisors based upon their respective fair value at the date of grant. Generally, Tvardi issues stock option awards with service-based vesting conditions and record the expense for these awards using the straight-line method such that the aggregate amount of expense recognized is at least the fair value of what has legally vested. Tvardi estimates the grant date fair value of each common stock option using the Black-Scholes option-pricing model, which requires the input of highly subjective assumptions and management’s best estimates. These estimates involve inherent uncertainties and management’s judgement. If factors change and different assumptions are used, Tvardi’s stock-based compensation could be materially different in the future.
These assumptions are estimated as follows:
| · | Fair value — Because Tvardi’s common stock is not yet publicly traded, it must estimate the fair value of common stock. Tvardi’s board of directors considers numerous objective and subjective factors to determine the fair value of its common stock at each meeting in which awards are approved. |
| · | Expected Volatility — Because Tvardi does not have any trading history for its common stock, the expected volatility is estimated using averages of the historical volatility of its peer group of companies for a period equal to the expected term of the stock options granted. Tvardi’s peer group of publicly traded companies was chosen based on their similar size, stage in the life cycle or area of specialty. Tvardi intends to continue to consistently apply this process using the same or a similar peer group of public companies, until a sufficient amount of historical information regarding the volatility of its own common stock price becomes available. |
16
| · | Expected Term — Derived from the life of the options granted under the option plan and is based on the simplified method which is essentially the weighted average of the vesting period and contractual term. |
| · | Risk-Free Interest Rate — The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a term that is equal to the options’ expected term at the grant date. |
| · | Dividend Yield — Tvardi has not declared or paid dividends to date and does not anticipate declaring dividends. As such, the dividend yield has been estimated to be zero. |
Changes in the foregoing assumptions can materially affect the estimate of fair value and ultimately how much share-based compensation expense is recognized; and the resulting change in fair value, if any, is recognized in Tvardi’s statements of operations during the period the related services are rendered. These inputs are subjective and generally require significant analysis and judgment to develop.
Fair Value of Stock-Based Awards
As a privately held company, there has been no public market for Tvardi’s common stock to date. The estimated fair value of Tvardi’s common stock has been determined by its board of directors as of the date of each option grant, with input from management, considering the most recently available third-party valuations of its common stock and its board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.
Tvardi’s third-party valuations of common stock were prepared using the option-pricing method (OPM), which used a market approach to estimate Tvardi’s enterprise value. The OPM treats common stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger.
These third-party valuations resulted in a valuation of Tvardi’s common stock of $0.92 and $0.82 as of June 30, 2023 and June 30, 2022, respectively. In addition to considering the results of these third-party valuations, Tvardi’s board of directors considered various objective and subjective factors to determine the fair value of its common stock as of each grant date, including:
| · | the prices at which Tvardi sold shares of its preferred stock and the superior rights and preferences of the preferred stock relative to its common stock at the time of each grant; |
| · | the lack of an active public market, for Tvardi’s common stock and preferred stock; |
| · | the progress of Tvardi’s research and development programs, including the status and results of preclinical studies and clinical trials for its product candidates; |
| · | Tvardi’s stage of development and commercialization and its business strategy, and material risks to its business; |
| · | external market conditions affecting the pharmaceutical and biopharmaceutical industry and trends within each industry; |
| · | Tvardi’s financial position, including cash on hand, and its historical and forecasted performance and operating results; |
17
| · | the likelihood of achieving a liquidity event, such as an initial public offering or sale of Tvardi in light of prevailing market conditions; and |
| · | the analysis of initial public offerings and the market performance of similar companies in the biopharmaceutical industry. |
The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if Tvardi had used significantly different assumptions or estimates, the fair value of its common stock and its stock-based compensation expense could have been materially different. For the year ended December 31, 2024, if there was a 10% increase in the valuation of its common stock at each of the valuation dates listed above and to the underlying exercise price of stock options granted during the year assuming that such options were granted with an exercise price equal to the fair value of common stock, the impact to its stock-based compensation expense would not be material. If there was a 10% decrease in the valuation of its common stock at each of the valuation dates listed above and to the underlying exercise price of stock options granted during the year assuming that such options were granted with an exercise price equal to the fair value of common stock, the impact to its stock-based compensation expense would not be material for the year ended December 31, 2024. Tvardi’s estimate of fair value is reviewed and approved by its board of directors.
Once a public trading market for Tvardi’s common stock has been established in connection with the completion of this Merger, it will no longer be necessary for Tvardi’s board of directors to estimate the fair value of its common stock in connection with its accounting for stock options and other such awards Tvardi may grant, as the fair value of its common stock will be determined based on the quoted market price of its common stock.
Options Granted
The following table summarizes by grant date the number of shares subject to options granted from January 1, 2023 through the date of this Report, the per share exercise price of the options, the per share fair value of common stock underlying the options on each grant date and the per share estimated fair value of the options:
| Grant Date | Number of shares subject to options granted | Per share exercise price of options | Per share fair value of common stock | Per share estimated fair value of options | ||||||||||||
| January 12, 2023 | 607,129 | $ | 0.82 | $ | 0.82 | $ | 0.52 | |||||||||
| June 27, 2023 | 60,000 | $ | 0.82 | $ | 0.82 | (1) | $ | 0.52 | ||||||||
| June 27, 2023 | 20,000 | $ | 0.82 | $ | 0.82 | (1) | $ | 0.53 | ||||||||
| January 31, 2024 | 25,000 | $ | 0.92 | $ | 0.92 | $ | 0.62 | |||||||||
| (1) | At the time of the options grants on June 27, 2023, Tvardi’s board of directors determined that the fair value of its common stock of $0.82 per share, calculated by its third-party valuation as of June 30, 2022, reasonably reflected the per share fair value of its common stock as of the grant date. Tvardi applied the fair value of common stock from its retrospective fair value assessment to determine the fair value of the June 27, 2023 awards, noting an immaterial incremental stock-based compensation expense to be recorded for accounting purposes of approximately $2,000. |
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact Tvardi’s financial position and results of operations is disclosed in Note 2 to the financial statements for the years ended December 31, 2024 and 2023, filed as Exhibit 99.1 to this Report.
18
Quantitative and Qualitative Disclosures About Market Risks
Interest Rate Risk
As of December 31, 2024 and 2023, Tvardi had $31.6 million and $22.9 million in cash and cash equivalents, respectively, which are primarily maintained in accounts with multiple financial institutions in the United States. Tvardi may maintain cash and cash equivalent balances in excess of Federal Deposit Insurance Corporation limits. Tvardi does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. Tvardi’s primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term duration and low risk profile of Tvardi’s cash equivalents, it believes an immediate 10% change in interest rates would not have a material effect on their fair market value.
Effects of Inflation
Inflation generally affects Tvardi by increasing the cost of labor and research and development contract costs. Tvardi does not believe inflation has had a material effect on its results of operations during the periods presented in its financial statements filed as Exhibit 99.1 to this Report.
Foreign Currency Exchange Risk
All of Tvardi’s employees and its operations are currently located in the United States, and expenses are generally denominated in U.S. dollars. As such, Tvardi is not exposed to financial risks from exchange rate fluctuations between U.S. dollars and other currencies.
19
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Defined terms included below shall have the same meaning as terms defined and included in the Registration Statement on Form S-4 (File No. 333-283900), which was declared effective by the Securities and Exchange Commission on February 14, 2025 (the proxy statement/prospectus).
For the purposes of the discussion in this section, the Reverse Stock Split at ratio of 1-for-3 has been applied, and any references herein to the Reverse Stock Split shall account for such assumption.
On December 17, 2024, Cara, Tvardi, and Merger Sub entered into the Merger Agreement, pursuant to which Merger Sub will merge with and into Tvardi, with Tvardi surviving as a wholly-owned subsidiary of Cara (such transaction, the Merger). Upon completion of the Merger, the business of Tvardi will continue as the business of the surviving corporation, referred to herein as the combined company. After the completion of the Merger, Cara will change its corporate name to Tvardi Therapeutics, Inc.
At the Closing, (i) each outstanding share of common stock of Tvardi (including the shares of common stock issuable upon conversion of all shares of preferred stock of Tvardi prior to the Merger), $0.001 par value per share (Tvardi common stock), will be converted into the right to receive 6,539,393 shares of common stock of Cara, $0.001 par value per share (Cara common stock) in the aggregate, based on an Exchange Ratio of 0.1341 (as more fully described in the section titled Merger Agreement — Merger Consideration and Exchange Ratio included in the proxy statement/prospectus), and (ii) the outstanding Convertible Notes of Tvardi will be converted into approximately 1,265,755 shares of Cara common stock, assuming interest on the Convertible Notes is accrued through an anticipated Closing of April 15, 2025 (the Anticipated Closing Date), after giving effect to the Reverse Stock Split. Cara will assume outstanding and unexercised options to purchase shares of Tvardi common stock, and in connection with the Merger, they will be converted into options to purchase shares of Cara common stock based on the Exchange Ratio. As of the Effective Time, Cara’s stockholders will continue to own and hold their then existing shares of Cara common stock, after giving effect to the Reverse Stock Split at a ratio of 1-for-3.
The Exchange Ratio reflects the final Cara Net Cash as of the Anticipated Closing Date of approximately $23.8 million (see Note 1 of the accompanying notes for additional discussion).
On December 30, 2024, Cara filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the December Reverse Stock Split, approved by Cara’s Board on December 19, 2024. Cara’s common stock began trading on The Nasdaq Capital Market on a post-split basis as of December 31, 2024.
Cara’s stockholders have approved amendments to its amended and restated certificate of incorporation, including to effect the Reverse Stock Split and increase in authorized shares, for which approvals were also necessary to complete the transactions contemplated by the Merger Agreement. Upon the effectiveness of the amendment to the amended and restated certificate of incorporation effecting the Reverse Stock Split, the outstanding shares of Cara common stock will be combined into a lesser number of shares at a ratio of 1-for-3. For purposes of the unaudited pro forma condensed combined financial information and related notes, the Reverse Stock Split refers to a reverse stock split of Cara common stock at a ratio of 1-for-3, which Cara anticipates effecting on the Anticipated Closing Date.
The pro forma adjustments reflect (i) Cara pre-Merger accounting adjustments, referred to as “Transaction Accounting Adjustments — Asset Disposition and Other Adjustments,” that occur prior to Closing and (ii) transaction accounting adjustments, referred to as “Transaction Accounting Adjustments — Reverse Merger,” that occur in connection with the Merger.
| · | “Transaction Accounting Adjustments — Asset Disposition and Other Adjustments” include (i) the wind-down of Cara’s operations, including the transfer of its lease to a third-party, (ii) the transfer of certain of Cara’s operating assets and liabilities to a third-party in connection with its APA, and (iii) other wind-down activities for Cara’s remaining operating assets and liabilities. |
| · | “Transaction Accounting Adjustments — Reverse Merger” includes the (i) conversion of each share of Tvardi convertible preferred stock, (ii) the conversion of the Convertible Notes (both, together with the Merger, the Transactions), and (iii) other Merger related items. |
The unaudited pro forma condensed combined balance sheet combines the historical balance sheets of Cara and Tvardi as of December 31, 2024, and depicts the accounting of the Transactions under U.S. GAAP. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2024 combine the historical results of Cara and Tvardi for those periods and depict the pro forma balance sheet transaction accounting adjustments assuming that those adjustments were made as of January 1, 2024. Collectively, pro forma balance sheet transaction accounting adjustments and pro forma statements of operations transaction accounting adjustments are referred to as “transaction accounting adjustments” or “pro forma adjustments.” The unaudited pro forma condensed combined financial information was prepared pursuant to the rules and regulations of Article 11 of SEC Regulation S-X, as amended.
The unaudited pro forma condensed combined financial information and related notes have been derived from and should be read in conjunction with:
| · | the historical audited financial statements for Tvardi for the years ended December 31, 2024 and 2023 and related notes included as Exhibit 99.1 of this Current Report on Form 8-K (this Report); |
| · | the historical audited consolidated financial statements for Cara for years ended December 31, 2024 and 2023, the related notes, and its Management’s Discussion and Analysis of Financial Condition and Results of Operations included in its Annual Report on Form 10-K filed with the SEC on March 11, 2025; and |
| · | Management’s Discussion and Analysis of Financial Condition and Results of Operations of Tvardi included as Exhibit 99.2 of this Report. |
The unaudited pro forma condensed combined financial information is based on the assumptions and pro forma adjustments that are described in the accompanying notes. The pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analyses are performed, and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these estimates and the final accounting, expected to be completed after the Closing, may occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of the two companies. The unaudited pro forma condensed combined financial information is not necessarily indicative of the financial position or results of operations in the future periods or the result that actually would have been realized had Cara and Tvardi been a combined organization during the specified periods. The actual results reported in periods following the Merger may differ significantly from those reflected in the unaudited pro forma condensed combined financial information presented herein for a number of reasons, including, but not limited to, differences in the assumptions used to prepare the unaudited pro forma condensed combined financial information.
Accounting rules require evaluation of certain assumptions, estimates, or determination of financial statement classifications. The accounting policies of Cara may materially vary from those of Tvardi. During preparation of the unaudited pro forma condensed combined financial information, management has performed a preliminary analysis and is not aware of any material differences, and accordingly, this unaudited pro forma condensed combined financial information assumes no material differences in accounting policies. Following the Merger, management will conduct a final review of Cara’s accounting policies in order to determine if differences in accounting policies require adjustment or reclassification of Cara’s results of operations or reclassification of assets or liabilities to conform to Tvardi’s accounting policies and classifications. As a result of this review, management may identify differences that, when conformed, could have a material impact on these unaudited pro forma condensed combined financial statements.
UNAUDITED PRO FORMA
CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 2024
(In thousands, except share and per share amounts)
| Historical | As Adjusted | Historical | ||||||||||||||||||||||||||||
| 6(A) | 6(B) | |||||||||||||||||||||||||||||
| Cara Therapeutics, Inc. | Transaction Accounting Adjustments - Asset Disposition and Other Adjustments | Cara Therapeutics, Inc. | Tvardi Therapeutics, Inc. | Transaction Accounting Adjustments - Reverse Merger | Pro Forma Combined | |||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 37,903 | $ | (2,100 | ) | 6 | (a) | $ | 36,326 | $ | 31,614 | $ | (2,763 | ) | 6 | (f) | $ | 63,123 | ||||||||||||
| 4,495 | 6 | (b) | (2,054 | ) | 6 | (f) | ||||||||||||||||||||||||
| (3,972 | ) | 6 | (d) | |||||||||||||||||||||||||||
| Accounts receivable, net - related party | 407 | (407 | ) | 6 | (b) | - | - | - | ||||||||||||||||||||||
| Inventory, net | 900 | (900 | ) | 6 | (a) | - | - | - | ||||||||||||||||||||||
| Other receivables | 4,088 | (4,088 | ) | 6 | (b) | - | - | - | ||||||||||||||||||||||
| Prepaid expenses and other current assets | 529 | (529 | ) | 6 | (c) | - | 72 | 72 | ||||||||||||||||||||||
| Total current assets | 43,827 | (7,501 | ) | 36,326 | 31,686 | (4,817 | ) | 63,195 | ||||||||||||||||||||||
| Property, equipment and improvements, net | - | - | 84 | 84 | ||||||||||||||||||||||||||
| Intangible assets, net | - | - | 385 | 385 | ||||||||||||||||||||||||||
| Operating lease right-of-use assets | - | - | 216 | 216 | ||||||||||||||||||||||||||
| Deferred offering costs | - | - | 2,811 | (2,811 | ) | 6 | (g) | - | ||||||||||||||||||||||
| Other non-current assets | - | - | 17 | 17 | ||||||||||||||||||||||||||
| Total assets | $ | 43,827 | $ | (7,501 | ) | $ | 36,326 | $ | 35,199 | $ | (7,628 | ) | $ | 63,897 | ||||||||||||||||
| Liabilities, Convertible Preferred Stock and Stockholders' Deficit | ||||||||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||||||
| Accounts payable and accrued expenses | $ | 3,972 | $ | (3,972 | ) | 6 | (d) | $ | - | $ | 10,264 | 3,986 | 6 | (e) | $ | 16,339 | ||||||||||||||
| 2,089 | 6 | (g) | ||||||||||||||||||||||||||||
| Operating lease liability - current portion | - | - | - | 103 | 103 | |||||||||||||||||||||||||
| Total current liabilities | 3,972 | (3,972 | ) | - | 10,367 | 6,075 | 16,442 | |||||||||||||||||||||||
| Liability related to sales of future royalties and milestones, net | 44,448 | (44,448 | ) | 6 | (a) | - | - | - | ||||||||||||||||||||||
| Operating lease liability - net of current portion | - | 201 | 201 | |||||||||||||||||||||||||||
| Convertible Notes | - | 30,259 | 7,276 | 6 | (l) | - | ||||||||||||||||||||||||
| (37,535 | ) | 6 | (l) | |||||||||||||||||||||||||||
| Total liabilities | 48,420 | (48,420 | ) | - | 40,827 | (24,184 | ) | 16,643 | ||||||||||||||||||||||
| Tvardi redeemable convertible preferred stock (Series A, B), $0.001 par value | - | - | 85,503 | (85,503 | ) | 6 | (h) | - | ||||||||||||||||||||||
| Stockholders’ equity (deficit): | ||||||||||||||||||||||||||||||
| Cara preferred stock; $0.001 par value | - | - | - | - | - | |||||||||||||||||||||||||
| Cara common stock; $0.001 par value | 5 | 5 | - | - | 6 | (j) | 8 | |||||||||||||||||||||||
| (3 | ) | 6 | (i) | |||||||||||||||||||||||||||
| 1 | 6 | (l) | ||||||||||||||||||||||||||||
| (2 | ) | 6 | (k) | |||||||||||||||||||||||||||
| 7 | 6 | (k) | ||||||||||||||||||||||||||||
| Tvardi common stock, $0.001 par value | - | 19 | 30 | 6 | (h) | - | ||||||||||||||||||||||||
| (49 | ) | 6 | (k) | |||||||||||||||||||||||||||
| Additional paid-in capital | 751,014 | 751,014 | 1,086 | 85,473 | 6 | (h) | 146,758 | |||||||||||||||||||||||
| 3 | 6 | (i) | ||||||||||||||||||||||||||||
| 37,534 | 6 | (l) | ||||||||||||||||||||||||||||
| (4,900 | ) | 6 | (g) | |||||||||||||||||||||||||||
| 96 | 6 | (j) | ||||||||||||||||||||||||||||
| (723,548 | ) | 6 | (k) | |||||||||||||||||||||||||||
| Accumulated deficit | (755,612 | ) | 41,448 | 6 | (a) | (714,693 | ) | (92,236 | ) | (96 | ) | 6 | (j) | (99,512 | ) | |||||||||||||||
| (529 | ) | 6 | (c) | (3,986 | ) | 6 | (e) | |||||||||||||||||||||||
| (2,763 | ) | 6 | (f) | |||||||||||||||||||||||||||
| (2,054 | ) | 6 | (f) | |||||||||||||||||||||||||||
| 723,592 | 6 | (k) | ||||||||||||||||||||||||||||
| (7,276 | ) | 6 | (l) | |||||||||||||||||||||||||||
| Total stockholders' equity (deficit) | (4,593 | ) | 40,919 | 36,326 | (91,131 | ) | 102,059 | 47,254 | ||||||||||||||||||||||
| Total liabilities and stockholders' equity (deficit) | $ | 43,827 | $ | (7,501 | ) | $ | 36,326 | $ | 35,199 | $ | (7,628 | ) | $ | 63,897 | ||||||||||||||||
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
UNAUDITED PRO FORMA
CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2024
(In thousands, except share and per share amounts)
| Historical | As Adjusted | Historical | |||||||||||||||||||||||||||||||
| 7(A) | 7(B) | ||||||||||||||||||||||||||||||||
| Cara Therapeutics, Inc. | Transaction
Accounting Adjustments - Asset Disposition and Other Adjustments | Cara Therapeutics, Inc. | Tvardi Therapeutics, Inc. | Transaction
Accounting Adjustments - Reverse Merger | Pro
Forma Combined | ||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||
| Collaborative revenue | $ | 2,086 | $ | (2,086 | ) | 7 | (b) | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||
| Commercial supply revenue | 640 | (640 | ) | 7 | (b) | - | - | - | |||||||||||||||||||||||||
| Clinical compound revenue | 84 | (84 | ) | 7 | (b) | - | - | - | |||||||||||||||||||||||||
| Other revenue | 4,327 | (4,327 | ) | 7 | (b) | - | - | - | |||||||||||||||||||||||||
| Total revenue | 7,137 | (7,137 | ) | - | - | - | - | ||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||
| Cost of goods sold | 620 | (620 | ) | 7 | (b) | - | - | - | |||||||||||||||||||||||||
| Research and development | 32,805 | 13 | 7 | (a) | 32,818 | 23,650 | 56,468 | ||||||||||||||||||||||||||
| General and administrative | 26,530 | 516 | 7 | (a) | 27,046 | 4,457 | 2,763 | 7 | (c) | 40,402 | |||||||||||||||||||||||
| 2,054 | 7 | (c) | |||||||||||||||||||||||||||||||
| 3,986 | 7 | (d) | |||||||||||||||||||||||||||||||
| 96 | 7 | (e) | |||||||||||||||||||||||||||||||
| Restructuring | 5,565 | 5,565 | 5,565 | ||||||||||||||||||||||||||||||
| Total operating expenses | 65,520 | (91 | ) | 65,429 | 28,107 | 8,899 | 102,435 | ||||||||||||||||||||||||||
| Operating loss | (58,383 | ) | (7,046 | ) | (65,429 | ) | (28,107 | ) | (8,899 | ) | (102,435 | ) | |||||||||||||||||||||
| Gain in connection with extinguishment of liability related to sales of future royalties and milestones | - | 41,448 | 7 | (b) | 41,448 | - | 41,448 | ||||||||||||||||||||||||||
| Other income (expense), net | 2,828 | 2,828 | (2,037 | ) | (7,276 | ) | 7 | (f) | (6,485 | ) | |||||||||||||||||||||||
| Interest income | - | - | 747 | 747 | |||||||||||||||||||||||||||||
| Impairment of long-lived assets | (4,274 | ) | (4,274 | ) | (4,274 | ) | |||||||||||||||||||||||||||
| Inventory write-down | (2,963 | ) | (2,963 | ) | (2,963 | ) | |||||||||||||||||||||||||||
| Non-cash interest expense on liability related to sales of future royalties and milestones | (8,473 | ) | 8,473 | 7 | (b) | - | - | - | |||||||||||||||||||||||||
| Loss before benefit from income taxes | (71,265 | ) | 42,875 | (28,390 | ) | (29,397 | ) | (16,175 | ) | (73,962 | ) | ||||||||||||||||||||||
| Benefit from income taxes | 398 | 398 | - | 398 | |||||||||||||||||||||||||||||
| Net loss | $ | (70,867 | ) | $ | 42,875 | $ | (27,992 | ) | $ | (29,397 | ) | $ | (16,175 | ) | $ | (73,564 | ) | ||||||||||||||||
| Net loss per share: | |||||||||||||||||||||||||||||||||
| Basic and Diluted | $ | (15.53 | ) | $ | (1.53 | ) | $ | (7.87 | ) | ||||||||||||||||||||||||
| Weighted average shares: | |||||||||||||||||||||||||||||||||
| Basic and Diluted | 4,562,738 | 19,193,932 | 9,352,162 | 7 | (g) | ||||||||||||||||||||||||||||
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Information.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
| 1. | Description of the Merger |
Transaction
On December 17, 2024, Cara, Tvardi and Merger Sub entered into the Merger Agreement pursuant to which Merger Sub will merge with and into Tvardi, with Tvardi surviving as a wholly owned subsidiary of Cara. Subject to the terms and conditions of the Merger Agreement, at the Closing:
| a) | each outstanding share of Tvardi common stock, after giving effect to the conversion of Tvardi’s preferred stock into common stock, will be converted into the right to receive a number of shares of Cara common stock, based on the Exchange Ratio; |
| b) | the outstanding Convertible Notes will be converted into 1,265,755 shares of Cara common stock, in accordance with the terms discussed below; and |
| c) | each outstanding and unexercised option to purchase shares of Tvardi common stock (Tvardi options) immediately prior to the Closing will be assumed by Cara and will be converted to an option to purchase shares of Cara common stock, with necessary adjustments to the number of shares and exercise price to reflect the Exchange Ratio. |
Under the terms of the Merger Agreement, Cara’s Board will take actions to accelerate, after giving effect to the Reverse Stock Split, the vesting of (i) certain options to purchase Cara common stock held by non-executive employees or directors as of the closing of the Merger and (ii) Cara’s restricted stock units (RSUs) that vest solely on the basis of time. The options of Cara’s remaining executives will accelerate upon the closing of the Merger, pursuant to change- in-control language within the preexisting employment agreements or separation arrangements of the executives. Of the total incremental fair value associated with the modification to accelerate vesting of Cara’s options and RSUs, $0.3 million is included as consideration of the Merger and $0.1 million is included as an adjustment to the unaudited pro forma condensed combined financial information.
Immediately following the Merger, Cara stockholders as of immediately prior to the Merger are expected to own approximately 16.57% of the outstanding capital stock of the combined company on a diluted basis, and former Tvardi stockholders are expected to own approximately 83.43% of the outstanding capital stock of the combined company on a diluted basis, of which 13.53% represents Tvardi investors who participated in Convertible Notes. Tvardi stockholders are expected to receive approximately 7,805,148 shares of Cara common stock in connection with the Merger. The 7,805,148 shares are based on the number of shares of Tvardi (i) common stock outstanding immediately prior to the Merger, (ii) convertible preferred stock outstanding as of December 31, 2024, which will be converted into shares of Tvardi common stock on a one-for-one basis immediately prior to the closing of the Merger, and (iii) Convertible Notes, which will be converted into shares of Cara common stock upon the Closing (as further described below).
The following table summarizes the pro forma number of shares of common stock of the combined company outstanding following the consummation of the Transactions.
| Assuming Cara Net Cash at Closing of $23.8 Million | ||||||||
| Equity Capitalization Summary Upon Consummation of the Merger | Number of Shares Owned | % Ownership | ||||||
| Tvardi stockholders | 6,539,393 | 69.90 | % | |||||
| Cara Therapeutic Inc. stockholders | 1,550,380 | 16.57 | % | |||||
| Investors participating in the Convertible Notes | 1,265,755 | 13.53 | % | |||||
| Total common stock of the combined company | 9,355,528 | 100.00 | % | |||||
The following table summarizes the pro forma number of shares of common stock of the combined company outstanding following the consummation of the Transactions on a fully diluted basis, which includes In-the-Money Cara stock options and Tvardi options outstanding.
| Assuming Cara Net Cash at Closing of $23.8 Million | ||||||||
| Equity Capitalization Summary (fully diluted basis) | Number of Shares Owned | % Ownership | ||||||
| Tvardi stockholders (including option holders) | 7,267,676 | 72.02 | % | |||||
| Cara Therapeutic Inc. stockholders (including In-the-Money option holders) | 1,557,645 | 15.44 | % | |||||
| Investors participating in the Convertible Notes | 1,265,755 | 12.54 | % | |||||
| Total common stock of the combined company | 10,091,077 | 100.00 | % | |||||
| (1) | Includes 739,207 Tvardi options outstanding as of December 31, 2024, after applying the Exchange Ratio. |
| (2) | Includes 7,265 In-the-Money Cara stock options, after giving effect to the Reverse Stock Split. |
Consummation of the Merger is subject to certain closing conditions, including, among other things, (i) approval by the stockholders of each party of the adoption and approval of the Merger Agreement and the transactions contemplated thereby (the related approvals were received by the stockholders of each party by the time of the filing of this Current Report on Form 8-K), (ii) Nasdaq’s approval of the listing of the shares of Cara common stock to be issued in connection with the Merger, (iii) the effectiveness of a registration statement filed with the SEC in connection with the Merger (the related registration statement was declared effective by the SEC on February 14, 2025), and (iv) Cara Net Cash at the Closing of at least $18.0 million.
The pre-Merger employment agreements or Severance Plan arrangements for Cara’s remaining executives include entitlement to change-in-control and severance payments and the retention agreements for the remaining Cara non-executive employees include severance and retention bonus payments. The aggregate of these change-in-control, severance, and retention bonus payments will be treated as pre-Merger compensation expense of Cara and will be reflected as an increase to accrued expenses of Cara, which will be paid prior to the Anticipated Closing Date.
Related events that occurred in connection with the Merger are discussed in more detail below:
Prior to the Closing, (i) Cara transferred its operating lease to a third-party, (ii) discontinued its research and development activities, (iii) entered into an APA to sell certain of its remaining operating assets and liabilities (referred to herein as Cara’s Asset Disposition), and (iv) settled its other remaining operating assets and liabilities. Additionally, at Closing, Cara’s current Directors & Officers (D&O) policy will be fully utilized. Also prior to the Closing, Tvardi issued $28.3 million of Convertible Notes to certain of its investors. Cara’s Asset Disposition and Tvardi’s Convertible Notes are discussed in more detail below.
Asset Disposition
Cara and its subsidiary, Cara Royalty Sub, LLC, entered into an APA with CSL Vifor, pursuant to which CSL Vifor will acquire certain assets and rights for the development, manufacture and commercialization of difelikefalin, as well as certain associated liabilities (the Asset Disposition). The APA is expected to close concurrently with the close of the Merger.
Pursuant to the APA, in connection with the consummation of the Asset Disposition, CSL Vifor and HCR have agreed to enter into an amended and restated agreement to amend and replace the existing Purchase and Sale Agreement.
Additionally, pursuant to the APA, at the consummation of the Asset Disposition, Cara has agreed to pay CSL Vifor $3.0 million to compensate CSL Vifor for the estimated incremental future expenses to be incurred by CSL Vifor as a result of the transfer of the assets to be acquired and the liabilities to be assumed by it in connection with the Asset Disposition. See the section titled “Asset Sale” included in the proxy statement/prospectus for further detail.
CSL Vifor’s assumption of Cara’s liabilities refers to Cara’s “liability related to sales of future royalties and milestones, net” of $44.4 million, as included on Cara’s audited consolidated balance sheet, included in its Annual Report on Form 10-K filed with the SEC on March 11, 2025.
Pursuant to the terms of the Asset Disposition, Cara is to be released of its obligation to transfer royalty payments to HCR (as further discussed within the notes to Cara’s audited consolidated financial statements as of and for the year ended December 31, 2024, included in its Annual Report on Form 10-K filed with the SEC on March 11, 2025). In connection with Cara’s release of its $44.4 million liability, Cara will recognize a gain on the extinguishment of the related obligation. Also pursuant to the terms of the APA, as discussed above, Cara will pay CSL Vifor $3.0 million to compensate CSL Vifor for the estimated incremental future expenses to be incurred by CSL Vifor as a result of the transfer of the assets to be acquired and the liabilities to be assumed by it in connection with the Asset Disposition.
The treatment of the APA within Cara’s financial statements is still being assessed. For purposes of the pro formas, Cara has preliminarily concluded that the disposal will not qualify as discontinued operations under ASC 205.
Convertible Notes
In December 2024, Tvardi entered into a note purchase agreement to issue and sell Convertible Notes in an aggregate principal amount of $28.3 million. The Convertible Notes accrue interest at 8% per annum and mature on December 31, 2026. Tvardi accounts for the Convertible Notes using the fair value option and recorded the Convertible Notes based on their fair value upon issuance, with changes in fair value recorded in other income (expense), net in Tvardi’s statement of operations. As of December 31, 2024, Tvardi recorded a change in fair value of $1.8 million.
Upon the closing of the Merger, the outstanding balance of the Convertible Notes and all accrued interest will be automatically converted into shares of Cara common stock, at a conversion price equal to 80% of the implied valuation of the combined company common stock in the Merger. Assuming interest on the Convertible Notes is accrued through the Anticipated Closing Date of April 15, 2025, immediately prior to the Closing, the Convertible Notes and accrued interest will convert into 1,265,755 shares of Cara common stock.
| 2. | Basis of Presentation |
The unaudited pro forma condensed combined financial information is prepared in accordance with Article 11 of SEC Regulation S-X. The adjustments presented in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an understanding of the combined company upon consummation of the Merger.
The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the accompanying notes. Accordingly, the pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analyses are performed and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary accounting conclusions and estimates and the final accounting conclusions and amounts may occur as a result of, among other reasons: (i) changes in initial assumptions in the determination of the accounting acquirer and related accounting, (ii) changes in the amount of cash used in Cara’s operations, and (iii) other changes in Cara’s assets and liabilities, which are expected to be completed prior to the Closing. These differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and the combined company’s future results of operations and financial position.
| 3. | Accounting Policies |
During the preparation of the accompanying unaudited pro forma condensed combined financial information, Management was not aware of any material differences between Tvardi’s accounting policies and the accounting policies of Cara. Following the consummation of the Merger, Tvardi will conduct a more detailed review of Cara’s accounting policies. As a result, Tvardi may identify differences between the accounting policies of the two companies that, when conformed, could have had a material impact on the accompanying unaudited pro forma condensed combined financial information.
| 4. | Accounting for the Merger |
The unaudited pro forma condensed combined financial information gives effect to the Merger, which will be accounted for under GAAP as an in-substance reverse recapitalization of Cara by Tvardi. The treatment as an in-substance reverse recapitalization is based on the assessment that as a result of, and following, Cara’s discontinuation of its research and development activities, Asset Disposition, and settlement of its other remaining operating assets and liabilities, on the Anticipated Closing Date, Cara is expected to have nominal operations and nominal pre-combination assets. Cara’s nominal pre-combination assets are expected to primarily be cash and cash equivalents. Under this method of accounting, Tvardi will be considered the accounting acquirer for financial reporting purposes. This determination is based on the expectations that, immediately following the Merger:
| · | Tvardi stockholders will own a substantial majority of the voting rights of the combined company; |
| · | Tvardi will designate a majority of the initial members of the board of directors of the combined company; |
| · | Tvardi’s executive management team will become the management team of the combined company; and |
| · | The combined company will be renamed Tvardi Therapeutics, Inc. and its headquarters will be Tvardi’s current headquarters, in Houston, Texas. |
As a result of Tvardi being treated as the accounting acquirer, Tvardi’s assets and liabilities will be recorded at their pre-combination carrying amounts. Cara’s assets will be measured and recognized at their fair values as of the Effective Time, which are expected to approximate the carrying value of the acquired cash and cash equivalents, with no goodwill or other intangible assets recorded. Any difference between the consideration transferred and the fair value of the assets of Cara following the determination of the actual consideration transferred for Cara will be reflected as an adjustment to additional paid-in capital. For periods prior to the Closing, the historical financial statements of Tvardi shall become the historical financial statements of the combined company.
Estimated Consideration Transferred (Purchase Price)
The estimated purchase price, which represents the consideration transferred to Cara stockholders in the Merger, is calculated based on the fair value of the common stock of the combined company that Cara stockholders will own as of the Closing of the Transaction because, with no active trading market for shares of Tvardi, the fair value of the Cara common stock represents a more reliable measure of the fair value of consideration transferred in the Merger. Accordingly, the accompanying unaudited pro forma condensed combined financial information reflects an estimated purchase price of approximately $24.5 million. The following summarizes the estimate of the purchase price to be paid in the Merger, after giving the effect to the Reverse Stock Split (in thousands, except share and per share amounts):
| Common shares of the combined company owned by Cara stockholders (1) | 1,550,380 | |||
| Multiplied by the fair value per share of Cara common stock (2) | $ | 15.60 | ||
| Total | $ | 24,186 | ||
| Estimated fair value of assumed Cara stock-based awards based on pre-Merger service (3) | 323 | |||
| Total estimated purchase price | $ | 24,509 |
| (1) | The estimated purchase price was determined based on the number of shares of Cara common stock that Cara stockholders owned immediately prior to the closing of the Merger, after giving effect to the Reverse Stock Split. For purposes of this unaudited pro forma condensed combined financial information, the estimated number of shares represents 1,523,743 shares of Cara common stock outstanding as of December 31, 2024, 792 RSUs that vested subsequent to December 31, 2024 and 25,845 unvested RSUs outstanding as of the date of this Report, which will become vested in full upon the Closing. |
| (2) | The estimated purchase price is based on the closing price on The Nasdaq Capital Market on March 18, 2025, and adjusted to give the effect to the Reverse Stock Split. |
| (3) | Reflects the estimated acquisition-date fair value of the assumed Cara equity awards attributable to pre- Merger service expected to be outstanding as of the Effective Time. This is included as an adjustment to the unaudited pro forma condensed combined balance sheet by crediting and debiting additional paid-in capital, resulting in no impact to the unaudited pro forma condensed combined financial information. |
The actual purchase price for the assets of Cara will vary based on, among other things, the Cara share price at the Closing and the number of shares of Cara common stock outstanding immediately prior to the Closing. As such, the estimated purchase price consideration reflected in the unaudited pro forma condensed combined financial information does not purport to represent what the actual purchase price consideration will be when the Merger is completed. The actual purchase price will fluctuate until the Effective Time, and the final valuation of the purchase price consideration could differ significantly from the current estimate.
| 5. | Shares of Cara Common Stock Issued to Tvardi Stockholders upon the Closing of the Merger |
At the Closing, (i) all outstanding shares of Tvardi common stock (including shares of Tvardi common stock issued upon conversion of Tvardi convertible preferred stock) will be exchanged for shares of Cara common stock based on the Exchange Ratio of 0.1341 and (ii) all outstanding Tvardi Convertible Notes, including interest accrued through the Anticipated Closing Date, will be converted into 1,265,755 shares of Cara common stock. The estimated number of shares of Cara common stock that Cara expects to issue to Tvardi’s stockholders applies the final Cara Net Cash at the Anticipated Closing Date of $23.8 million and is determined as follows:
| Shares of Tvardi common stock outstanding as of December 31, 2024 | 19,197,914 | |||
| Tvardi stock option exercises subsequent to December 31, 2024 | 5,416 | |||
| Shares of Tvardi common stock issued upon conversion of Tvardi convertible preferred stock, see Note 6(h) | 29,555,538 | |||
| Total Tvardi common stock outstanding prior to the closing of the Merger | 48,758,868 | |||
| Exchange Ratio | 0.1341 | |||
| Shares of Tvardi common stock outstanding before the conversion of Tvardi's Convertible Notes | 6,539,393 | |||
| Shares of Cara common stock issued upon conversion of Tvardi 's Convertible Notes, see Note 6(l) | 1,265,755 | |||
| Shares of Cara common stock issued to Tvardi stockholders upon closing of the Merger | 7,805,148 |
In addition, in connection with the Merger, Cara will assume all of the outstanding options to acquire Tvardi common stock and such stock options will become exercisable for shares of Cara common stock following the Merger.
| 6. | Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2024 |
The pro forma notes and adjustments, based on estimates that could change materially as additional information is obtained, are as follows:
Pro forma notes:
6(A) Derived from the audited consolidated balance sheet of Cara as of December 31, 2024
6(B) Derived from the audited balance sheet of Tvardi as of December 31, 2024
Pro forma Balance Sheet Transaction Accounting Adjustments:
Transaction Accounting Adjustments — Asset Disposition and Other Adjustments
| 6(a) | To reflect, pursuant to the terms of the APA, the (i) derecognition of Cara’s $44.4 million “liability related to sales of future royalties and milestones, net” as the related obligation will be transferred to a third-party, (ii) the sale of Cara’s inventory, and (iii) payment of $3.0 million to compensate CSL Vifor for the estimated incremental future expenses to be incurred by CSL Vifor as a result of the transfer of the assets to be acquired and the liabilities to be assumed by it in connection with the Asset Disposition. The offset to accumulated deficit primarily reflects a gain related to the extinguishment of Cara’s prior obligation. |
| 6(b) | To reflect the receipt of cash and reduction of receivables of $4.5 million prior to the closing of the Merger. |
| 6(c) | To reflect the derecognition of Cara’s prepaid expenses of $0.5 million, consisting of $0.1 million of prepaid insurance related to Cara’s current D&O policy that will be fully utilized at Closing, prepaid R&D clinical costs of less than $0.1 million, and other prepaid costs of $0.4 million, as these amounts will either be written-off or fully amortized at the Closing. |
| 6(d) | To reflect the payment of $4.0 million of Cara’s accounts payable and accrued expenses, consisting of $1.9 million of accrued professional fees, $1.4 million of accounts payable, $0.6 million of accrued compensation and benefits, and $0.1 million of accrued research projects before the Closing. |
Transaction Accounting Adjustments — Reverse Merger
| 6(e) | To reflect estimated transaction costs of $4.0 million, not yet reflected in the historical financial statements of Cara, which are expected to be incurred by Cara in connection with the Merger, such as advisory, legal, accounting, auditing, and other professional fees as an increase in accrued expenses of $4.0 million and a corresponding increase in accumulated deficit in the unaudited pro forma condensed combined balance sheet. This estimate may change as additional information becomes known. |
| 6(f) | To reflect estimated incremental compensation expense of $4.8 million related to severance, retention, and change-in-control payments resulting from (i) pre-existing employment agreements or severance plan arrangements for executives and (ii) retention agreements for non-executive employees that were agreed upon prior to the Merger that had not yet been paid or fully accrued for as of December 31, 2024. As these costs are expected to be paid prior to the Closing, the $4.8 million is recorded as decrease to cash and cash equivalents and an increase to accumulated deficit in the unaudited pro forma condensed combined balance sheet as of December 31, 2024. |
| 6(g) | To reflect (i) estimated transaction costs of $2.1 million incurred by Tvardi in connection with the Merger, such as advisory, legal and auditor fees as an increase in accrued expenses of $2.1 million, (ii) the derecognition of the deferred offering costs of $2.8 million included in the historical financial statements, and (iii) a reduction to additional paid-in capital of $4.9 million in the unaudited pro forma condensed combined balance sheet. As the Merger is accounted for as a reverse recapitalization equivalent to the issuance of equity for the net assets of Cara, these direct and incremental costs are treated as a reduction of the net proceeds received within additional paid-in capital. |
| 6(h) | To reflect the automatic conversion, on a one-to-one basis, of all outstanding shares of Tvardi convertible preferred stock, with a carrying amount of $85.5 million, into 29,555,538 shares of Tvardi common stock immediately prior to the Merger. Tvardi convertible preferred stock outstanding immediately prior to the Closing was comprised of the following: |
| Tvardi Convertible Preferred Stock | ||||
| Series A Preferred Stock | 9,499,999 | |||
| Series B Preferred Stock | 20,055,539 | |||
| Total shares of Tvardi convertible preferred stock converted to shares of Tvardi common stock immediately prior to the merger | 29,555,538 | |||
| 6(i) | To reflect the Reverse Stock Split. |
| 6(j) | To reflect the accelerated vesting of 26,637 of Cara’s RSUs, after giving effect to the Reverse Stock Split, upon the Closing pursuant to the terms of the Merger Agreement, an increase in compensation expenses of approximately $0.1 million and a decrease in additional paid-in capital of $0.1 million. |
| 6(k) | To reflect the recapitalization of Tvardi, pursuant to the Merger Agreement, through the contribution of 48,758,868 shares of Tvardi common stock (see Note 5), and the issuance of 7,805,148 shares of Cara common stock, reflecting the Exchange Ratio of 0.1341 and including the issuance of common stock upon the conversion of the Convertible Notes, and to reflect the derecognition of the accumulated deficit of Cara which is reversed to additional paid-in capital. |
The derecognition of accumulated deficit of Cara of $723.6 million is determined as follows (in thousands):
| Accumulated deficit of Cara as of December 31, 2024 | $ | (755,612 | ) | |
| Gain in connection with extinguishment of liability related to sales of future royalties and milestones, see Note 6(a) | 41,448 | |||
| Derecognition of prepaid expenses, See Note 6(c) | (529 | ) | ||
| Transaction costs of Cara, see Note 6(e) | (3,986 | ) | ||
| Compensation expense related to change-in-control, severance, bonus, and retention payments, see Note 6(f) | (4,817 | ) | ||
| Acceleration of Cara RSUs upon closing of the Merger, see Note 6(j) | (96 | ) | ||
| Total adjustment to derecognize the accumulated deficit of Cara | $ | (723,592 | ) |
| 6(l) | To reflect an (i) incremental fair value adjustment of $7.3 million on the Convertible Notes, reflecting the 20% discount of the Convertible Notes and accrued interest immediately prior to the conversion and (ii) the issuance of 1,265,755 shares of Cara common stock, pursuant to the terms of the Convertible Notes, described in Note 1. The incremental change in the fair value of the Convertible Notes of $7.3 million is adjusted for pro forma purposes through accumulated deficit as of December 31, 2024. |
| 7. | Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2024 |
The pro forma notes and adjustments, based on estimates that could change materially as additional information is obtained, are as follows:
Pro forma notes:
7(A) Derived from the audited consolidated statement of operations and comprehensive loss of Cara for the year ended December 31, 2024
7(B) Derived from the audited statement of operations of Tvardi for the year ended December 31, 2024
Tvardi did not record any provision or benefit for income taxes during the year ended December 31, 2024 because Tvardi incurred a pre-tax loss in 2024 and maintains a full valuation allowance on its deferred tax assets. Cara incurred a pre-tax loss in 2024 and maintains a full valuation allowance on its deferred tax assets but did record a $0.4 million benefit for income taxes during the year ended December 31, 2024 related to its exchange of its research and development tax credit incurred during the year ended December 31, 2023. The recognition of the $0.4 million tax benefit did not have a material impact to Cara’s effective tax rate or its audited consolidated financial statements for the year ended December 31, 2024. As of December 31, 2024, Cara had no unrecognized tax benefits. Accordingly, no pro forma adjustments have an impact on associated income tax.
Pro forma Statement of Operations Transaction Accounting Adjustments:
Transaction Accounting Adjustments — Asset Disposition and Other Adjustments
| 7(a) | To reflect the derecognition of Cara’s prepaid expenses of $0.5 million, consisting of $0.1 million of prepaid insurance related to Cara’s current D&O policy that will be fully utilized at Closing, prepaid R&D clinical costs of less than $0.1 million, and other prepaid costs of $0.4 million, assuming the adjustment made in Note 6(c) was made on January 1, 2024. |
| 7(b) | To reflect (i) a gain of $41.4 million representing the transfer of Cara’s obligation related to its “liability related to sales of future royalties and milestones, net” to a third-party, CSL Vifor, net of $3.0 million paid to compensate CSL Vifor for the estimated incremental future expenses to be incurred by CSL Vifor as a result of the transfer of the assets to be acquired and the liabilities to be assumed by it in connection with the Asset Disposition, pursuant to the APA and (ii) the corresponding derecognition of Cara’s “non-cash interest expense on liability related to sales of future royalties and milestones,” both assuming the adjustment made in Note 6(a) was made on January 1, 2024. |
The pro forma adjustment also eliminates Cara’s revenue and cost of goods sold recognized in the historical financial statements, assuming that the APA was signed on January 1, 2024, as Cara’s revenue and costs of goods sold are directly related to difelikefalin, the rights to which will be sold to a third-party in connection with the APA. Cara’s “non-cash interest expense on liability related to sales of future royalties and milestones” is also eliminated in this pro forma adjustment since, as discussed above, the related obligation is being transferred to a third-party.
Transaction Accounting Adjustments — Reverse Merger
| 7(c) | To reflect the estimated incremental compensation expense of $4.8 million related to severance, retention, and change-in-control payments recorded in general and administrative expenses, resulting from (i) pre-existing employment agreements or severance plan arrangements for executives and (ii) retention agreements for non-executive employees that were agreed upon prior to the Merger that had not yet been paid or fully accrued for as of December 31, 2024, assuming that the adjustment described in Note 6(f) was made on January 1, 2024. |
| 7(d) | To reflect Cara’s estimated advisory, legal, audit, and other costs related to the Merger, including the estimated D&O tail policy, that were not recorded in its historical financial statements as an increase to general and administrative expenses in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2024, assuming that the adjustment described in Note 6(e) was made on January 1, 2024. The D&O tail policy is recorded as an increase to general and administrative expenses in the unaudited pro forma condensed combined statement of operations as most of Cara’s directors and officers will not continue as directors and officers in the post-combination entity and therefore the D&O tail policy does not represent any future benefit for the post-combination entity. |
| 7(e) | To reflect Cara’s increase in compensation expense of $0.1 million due to the accelerated vesting of 26,637 RSUs, after giving effect to the Reverse Stock Split, in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2024, assuming that the adjustment described in 6(j) was made on January 1, 2024. |
| 7(f) | To reflect the incremental change in fair value related to Tvardi’s Convertible Notes that is recorded in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2024, assuming that the adjustment described in Note 6(l) was made on January 1, 2024. |
| 7(g) | The pro forma combined basic and diluted net loss per share has been adjusted to reflect the pro forma net loss for the year ended December 31, 2024. In addition, the number of shares used in calculating the pro forma combined basic and diluted net loss per share has been adjusted to reflect the estimated total number of shares of common stock of the combined company for the respective periods. For the year ended December 31, 2024, the pro forma weighted-average shares have been calculated as follows: |
| December 31, 2024 | ||||
| Basic and Diluted | ||||
| Historical weighted-average number of Tvardi common stock outstanding | 19,193,932 | |||
| Tvardi stock option exercises subsequent to December 31, 2024 | 5,416 | |||
| Impact of Tvardi convertible preferred stock assuming conversion as of January 1, 2024, see Note 6(h) | 29,555,538 | |||
| Application of Exchange Ratio to historical Tvardi weighted-average shares outstanding | 0.1341 | |||
| Adjusted Tvardi weighted-average number of common stock outstanding | 6,538,858 | |||
| Impact of Convertible Notes assuming consummation of the Merger as of January 1, 2024, see Note 6(l) | 1,265,755 | |||
| Historical weighted-average number of Cara common stock outstanding (1) | 1,520,912 | |||
| Equity awards subject to outstanding Cara RSUs that fully vest upon consummation of the merger (2) | 26,637 | |||
| Pro forma combined weighted average number of common stock outstanding | 9,352,162 | |||
| (1) | Represents the historical weighted-average number of Cara common stock outstanding, after giving effect to the Reverse Stock Split. |
| (2) | Represents the total Cara RSUs expected to be included in common stock outstanding as of the Closing, after giving effect to the Reverse Stock Split, which includes 792 RSUs that vested subsequent to December 31, 2024 and 25,845 unvested RSUs outstanding as of the date of this Report, which will become vested in full upon the Closing. |