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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Cara Therapeutics, Inc.    CARA

CARA THERAPEUTICS, INC.

(CARA)
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CARA THERAPEUTICS : Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

02/25/2021 | 04:32pm EDT
You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and the related
notes appearing at the end of this Annual Report on Form 10-K. Some of the
information contained in this discussion and analysis or set forth elsewhere in
this Annual Report on Form 10-K, including information with respect to our plans
and strategy for our business and related financing, includes forward-looking
statements that involve risks and uncertainties. You should read "Cautionary
Note Regarding Forward-Looking Statements" and Item 1A. Risk Factors of this
Annual Report on Form 10-K for a discussion of important factors that could
cause actual results to differ materially from the results described in or
implied by the forward-looking statements contained in the following discussion
and analysis.

Overview

Introduction
We are a clinical-stage biopharmaceutical company focused on developing and
commercializing new chemical entities designed to alleviate pruritus by
selectively targeting peripheral kappa opioid receptors, or KORs. We are
developing a novel and proprietary class of product candidates, led by KORSUVA
(CR845/difelikefalin), a first-in-class KOR agonist that targets KORs located in
the peripheral nervous system and on immune cells.

In our KALM-1 and KALM-2 Phase 3 trials and two Phase 2 trials, KORSUVA
(CR845/difelikefalin) injection (intravenous formulation) has demonstrated
statistically significant reductions in itch intensity and concomitant
improvement in pruritus-related quality of life measures in hemodialysis
patients with moderate-to-severe CKD-aP. We have partnered with VFMCRP, a joint
venture between Vifor Pharma Group and Fresenius Medical Care, and Vifor to
commercialize KORSUVA (CR845/difelikefalin) injection in dialysis patients
with CKD-aP in the U.S. under profit share agreements. We have partnered with
VFMCRP to commercialize KORSUVA worldwide, excluding Japan
(Maruishi/sub-licensee Kissei), and South Korea (CKDP).

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CR845/difelikefalin has also demonstrated statistically significant pain
reduction in clinical trials in patients with moderate-to-severe acute pain in
the post-operative setting, without inducing many of the undesirable side
effects typically associated with currently available opioid pain therapeutics.
We retain rights to all KORSUVA/CR845 formulations and indications worldwide,
excluding KORSUVA (CR845/difelikefalin) injection in dialysis patients with
CKD-aP under our agreements with VFMCRP and Vifor for U.S. and certain ex-U.S.
territories in Japan (Maruishi/sub-licensee Kissei) and South Korea (CKDP).

The FDA has conditionally accepted KORSUVA as the trade name for
CR845/difelikefalin injection. In December 2020, we submitted a NDA to the FDA
for KORSUVA (CR845/difelikefalin) injection for the treatment of
moderate-to-severe pruritus in hemodialysis patients, and in February 2021, the
NDA was accepted by the FDA. KORSUVA's safety and efficacy have not been fully
evaluated by any regulatory authority.

We were incorporated and commenced operations in 2004, and our primary
activities to date have been organizing and staffing our company, developing our
product candidates, including conducting preclinical studies and clinical trials
of CR845/difelikefalin-based product candidates and raising capital. To date, we
have financed our operations primarily through sales of our equity and debt
securities and payments from license agreements. We have no products currently
available for sale, and substantially all of our revenue to date has been
revenue from license agreements, although we have received nominal amounts of
revenue under research grants and the sale of clinical compound.

Collaboration and License Agreements

Vifor (International) Ltd.




On October 15, 2020, we entered into the Vifor Agreement with Vifor under which
we granted Vifor an exclusive license solely in the United States to use,
distribute, offer for sale, promote, sell and otherwise commercialize KORSUVA
(CR845/difelikefalin) injection for all therapeutic uses relating to the
inhibition, prevention or treatment of itch associated with pruritus in
hemodialysis and peritoneal dialysis patients in the United States. Under the
Vifor Agreement, we retain all rights with respect to the clinical development
of, and activities to gain regulatory approvals of, KORSUVA
(CR845/difelikefalin) injection in the United States.



Under the terms of the Vifor Agreement, we received from Vifor an upfront
payment of $100.0 million and an additional payment of $50.0 million for the
purchase of an aggregate of 2,939,552 shares of our common stock at a price of
$17.0094 per share, which represents a premium over a pre-determined average
closing price of our common stock. Upon U.S. regulatory approval of KORSUVA
(CR845/difelikefalin) injection, we will also be eligible to receive an
additional $50.0 million common stock investment at a 20% premium to the 30-day
trailing average price of our common stock as of such date. In addition,
pursuant to the Vifor Agreement, we are eligible to receive payments of up to
$240.0 million upon the achievement of certain sales-based milestones.



The Vifor Agreement provides full commercialization rights in dialysis clinics
to Vifor in the United States under a profit-sharing arrangement. Pursuant to
the profit-sharing arrangement, we will generally be entitled to 60% of the net
profits (as defined in the Vifor Agreement) from sales of KORSUVA
(CR845/difelikefalin) injection in the United States (excluding sales to
Fresenius Medical Center dialysis clinics, compensation for which is governed by
the VFMCRP Agreement) and Vifor is entitled to 40% of such net profits, subject
to potential temporary adjustment in future years based on certain conditions.
Under the Vifor Agreement, in consideration of Vifor's conduct of the marketing,
promotion, selling and distribution of KORSUVA (CR845/difelikefalin) injection
in the United States, we will pay a marketing and distribution fee to Vifor
based on the level of annual net sales. This fee will be deducted from product
sales in calculating the net profits that are subject to the profit-sharing
arrangement under the Vifor Agreement.



The Vifor Agreement will continue in effect until its expiration upon the
cessation of commercial sale of KORSUVA (CR845/difelikefalin) injection in the
United States by Vifor and its affiliates and sublicensees, or until the earlier
termination of the Vifor Agreement.



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In addition, upon the earlier of: (1) the acceptance for filing of an NDA covering KORSUVA (CR845/difelikefalin) injection submitted to the FDA; or (2) October 15, 2023, the Vifor Agreement may be terminated by Vifor in its entirety, with such termination effective upon 12 months' notice.

In connection with the Vifor Agreement, the parties entered into a separate
stock purchase agreement, or the Vifor Purchase Agreement, governing the
issuance of our common stock to Vifor. Pursuant to the Vifor Purchase Agreement,
Vifor will not, and will not cause any direct or indirect affiliate to, during
the period beginning on October 15, 2020 and ending at the close of business on
the earlier of (a) October 15, 2022 and (b) the date that we publicly disclose
the receipt of a complete response letter from the FDA with respect to our NDA
for KORSUVA (CR845/difelikefalin) injection, or the Restricted Period,
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, lend, or otherwise transfer or dispose of, directly or
indirectly, any shares of our common stock or any securities convertible into or
exercisable or exchangeable for our common stock (including without limitation,
common stock or such other securities which may be deemed to be beneficially
owned by Vifor in accordance with the rules and regulations of the SEC and
securities which may be issued upon exercise of a stock option or warrant) owned
by Vifor as of the date hereof or acquired prior to the end of the Restricted
Period (collectively with the common stock, referred to as the Lock-Up
Securities, except any such sale, option or contract by and between Vifor and
one of its affiliates (including Vifor Pharma Group Ltd. or VFMCRP), (ii) enter
into any hedging, swap or other agreement or transaction that transfers, in
whole or in part, any of the economic consequences of ownership of the Lock-Up
Securities, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Lock-Up Securities, in cash or otherwise,
(iii) make any demand for or exercise any right with respect to the registration
of any Lock-Up Securities, or (iv) publicly disclose the intention to do any of
the foregoing.



Under the Vifor Purchase Agreement, the parties also agreed that, in certain
circumstances, upon the request of Vifor, the parties will enter into a
registration rights agreement prior to the end of the Restricted Period that
would provide Vifor (or its affiliate transferee) customary registration rights
with respect to the shares of common stock issued pursuant to the stock purchase
agreement following the expiration of the Restricted Period.



Vifor Fresenius Medical Care Renal Pharma Ltd.

In May 2018, we entered into a license agreement, or the VFMCRP Agreement, with
VFMCRP, a joint venture between Vifor Pharma Group and Fresenius Medical Care,
under which we granted VFMCRP a license to seek regulatory approval to
commercialize, import, export, use, distribute, offer for sale, promote, sell
and otherwise commercialize KORSUVA (CR845/difelikefalin) injection for all
therapeutic uses to prevent, inhibit or treat itch associated with pruritus in
hemodialysis and peritoneal-dialysis patients worldwide (excluding the United
States, Japan and South Korea). We retain full development and commercialization
rights for KORSUVA injection for the treatment of CKD-aP in dialysis patients in
the U.S. except in the dialysis clinics of Fresenius Medical Care North America,
or FMCNA, where we and VFMCRP will promote KORSUVA injection under a
profit-sharing arrangement.

Upon entry into the VFMCRP Agreement, VFMCRP made
a non-refundable, non-creditable $50 million upfront payment to us and Vifor
purchased 1,174,827 shares of our common stock for $20 million, at a premium for
the price of $17.024 per share. We are eligible to receive from VFMCRP
regulatory and commercial milestone payments in the aggregate of up to
$470 million, consisting of up to $30 million in regulatory milestones and up to
$440 million in tiered commercial milestones, all of which are sales-related. We
are also eligible to receive tiered double-digit royalty payments based on
annual net sales, as defined, of KORSUVA (CR845/difelikefalin) injection in the
licensed territories. In the United States, we and VFMCRP will promote KORSUVA
(CR845/difelikefalin) injection in the dialysis clinics of FMCNA under a
profit-sharing arrangement (subject to the terms and conditions of the VFMCRP
Agreement) based on net FMCNA clinic sales recorded by us.

Maruishi Pharmaceutical Co., Ltd.

In April 2013, we entered into a license agreement with Maruishi, or the Maruishi Agreement, under which we granted Maruishi an exclusive license to develop, manufacture and commercialize drug products containing CR845/difelikefalin in Japan in the acute pain and uremic pruritus fields. Maruishi has a right of first negotiation for any

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other indications for which we develop CR845/difelikefalin and, under certain
conditions, Maruishi may substitute another pruritus indication for the uremic
pruritus indication originally included in its license from us. If we abandon
development of CR845/difelikefalin and begin development of another kappa opioid
receptor agonist that is covered by the claims of the patents we licensed to
Maruishi, such other agonist will automatically be included in the license to
Maruishi. Maruishi is required to use commercially reasonable efforts, at its
expense, to develop, obtain regulatory approval for and commercialize
CR845/difelikefalin in Japan. We are required to use commercially reasonable
efforts, at our expense, to develop, obtain regulatory approval for and
commercialize CR845/difelikefalin in the United States.

Under the terms of the Maruishi Agreement, we received a non-refundable and
non-creditable upfront license fee of $15.0 million and are eligible to receive
up to an aggregate of $10.5 million in clinical development and regulatory
milestones, of which $2.5 million (before contractual foreign currency exchange
adjustments) has been received as of December 31, 2020. In January 2021, we met
the milestone criteria, as set forth in the Maruishi Agreement, for Maruishi's
first initiation of a Phase III trial for uremic pruritus in Japan. As a result,
we received a milestone payment of $2.0 million ($1.9 million after contractual
foreign currency exchange adjustments) from Maruishi. We are also eligible to
receive a one-time sales milestone of one billion Yen when a certain sales level
is attained. We also receive a mid-double-digit percentage of all non-royalty
payments received by Maruishi from its sublicensees, if any. We are also
eligible to receive tiered royalties based on net sales, if any, with minimum
royalty rates in the low double digits and maximum royalty rates in the low
twenties. Maruishi's obligation to pay us royalties continues, on a
product-by-product basis, until the expiration of the last-to-expire licensed
patent covering such product or the later expiration of any market exclusivity
period. The Maruishi Agreement continues until terminated. Either we or Maruishi
may terminate the Maruishi Agreement for the other party's breach of the
agreement or bankruptcy. Maruishi may terminate the agreement at any time at
will. We may terminate the agreement as a whole if Maruishi challenges the
licensed patent rights, and we may terminate the agreement with respect to any
indication if Maruishi discontinues its development activities. In addition, in
connection with the Maruishi Agreement, Maruishi made an $8.0 million equity
investment in our company.

Chong Kun Dang Pharmaceutical Corporation


In April 2012, we entered into a license agreement with CKDP, or the CKDP
Agreement, under which we granted CKDP an exclusive license to develop,
manufacture and commercialize drug products containing CR845/difelikefalin in
South Korea. CKDP is required to use commercially reasonable efforts, at its
expense, to develop, obtain regulatory approval for and commercialize
CR845/difelikefalin in South Korea. We are required to use commercially
reasonable efforts, at our expense, to develop, obtain regulatory approval for
and commercialize CR845/difelikefalin in the United States.

Under the terms of the CKDP Agreement, we received a non-refundable and
non-creditable $0.6 million upfront payment and are eligible to receive up to an
aggregate of $3.8 million in development and regulatory milestones (before South
Korean withholding taxes). In May 2020, we met the milestone criteria, as set
forth in the CKDP Agreement, for completion of a Phase 3 trial for uremic
pruritus in the United States. As a result, in June 2020, we received a
milestone payment of $0.6 million (net of South Korean withholding tax) from
CKDP. As of December 31, 2020, we have received $2.3 million (before South
Korean withholding tax) of development and regulatory milestones. We are also
eligible to receive a mid-double-digit percentage of all non-royalty payments
received by CKDP from its sublicensees, if any, and tiered royalties ranging
from the high single digits to the high teens based on net sales, if any. CKDP's
obligation to pay us royalties continues, on a product-by-product basis, until
the expiration of the last-to-expire licensed patent covering such product or
the later expiration of any market exclusivity period. The CKDP Agreement
continues until CKDP no longer has any obligation to pay us royalties on any
product. Either we or CKDP may terminate the CKDP Agreement for the other
party's breach of the CKDP Agreement or bankruptcy. CKDP may terminate the CKDP
Agreement if any of the licensed patent rights is invalid, unenforceable, is
narrowed in scope or is deemed unpatentable, except as a result of a challenge
by CKDP, or a third party commercializes a product containing a compound
identical to CR845/difelikefalin without infringing any of the licensed patent
rights in South Korea. We may terminate the CKDP Agreement if CKDP challenges
the licensed patent rights or if a third party in South Korea owns an issued
patent that claims CR845/difelikefalin and CKDP's sale of products would
infringe that patent. In addition, in connection with the CKDP Agreement, CKDP
made a $0.4 million equity investment in our company.

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Manufacturing and License Agreements

Enteris Biopharma, Inc.

In August 2019, we entered into the Enteris License Agreement with Enteris. Pursuant to the Enteris License Agreement, Enteris granted to us a non-exclusive, royalty-bearing license, including the right to grant sublicenses, under certain proprietary technology and patent rights related to or covering formulations for oral delivery of peptide active pharmaceutical ingredients with functional excipients to enhance permeability and/or solubility, known as Enteris's Peptelligence® technology, to develop, manufacture and commercialize products using such technology worldwide, excluding Japan and South Korea.


As consideration for the licensed rights under the Enteris License Agreement, we
paid an upfront fee equal to $8.0 million, consisting of $4.0 million in cash
and $4.0 million in shares of our common stock pursuant to the Enteris Purchase
Agreement described below. As a result, we recognized $8.0 million of R&D
expense related to the Enteris License Agreement during the year ended December
31, 2019.

We are also obligated, pursuant to the Enteris License Agreement, to pay Enteris
(1) milestone payments upon the achievement of certain development, regulatory
and commercial milestones and (2) low-single digit royalty percentages on net
sales of licensed products, subject to reductions in specified circumstances.
Until the second anniversary of the entry into the Enteris License Agreement, we
have the right, but not the obligation, to terminate our obligation to pay any
royalties under the Enteris License Agreement in exchange for a lump sum payment
in cash, or the Royalty Buyout. Subject to certain conditions, we may elect to
pay 50% of the lump sum due under the Royalty Buyout in shares of our common
stock pursuant to the Enteris Purchase Agreement. During the year ended December
31, 2020, we paid $5.0 million to Enteris for a milestone earned during the year
ended December 31, 2020 in relation to the Enteris License Agreement. As a
result, we recognized $5.0 million of R&D expense related to the Enteris License
Agreement during the year ended December 31, 2020.

The Enteris License Agreement will expire on a country-by-country, licensed
product-by-licensed product basis upon the later of (1) the expiration (or
invalidation) of all valid claims in licensed patent rights that cover such
product in such country, (2) the end of the calendar quarter in which generic
competition (as defined in the Enteris License Agreement) occurs for such
product in such country and (3) ten years from the first commercial sale of such
product.

Either party may terminate the Enteris License Agreement upon written notice if
the other party has failed to remedy a material breach within 60 days (or 30
days in the case of a material breach of a payment obligation). Enteris may
terminate the Enteris License Agreement upon 30 days' written notice to us if we
or any of our affiliates formally challenge the validity of any licensed patent
rights or assists a third party in doing so. We may terminate the Enteris
License Agreement for any reason or no reason (a) prior to receipt of first
regulatory approval for a licensed product in the United States for any
indication upon 30 days' prior written notice to Enteris or (b) on or after
receipt of first regulatory approval for a licensed product in the United States
for any indication upon 60 days' prior written notice to Enteris.

In connection with the Enteris License Agreement, in August 2019, we entered
into the Enteris Purchase Agreement with Enteris and its affiliate, EBP Holdco
LLC, collectively referred to as Purchaser, pursuant to which we issued and sold
to Purchaser 170,793 shares of our common stock in a private placement. Such
shares were issued in satisfaction of the $4.0 million portion of the upfront
fee payable in shares of our common stock pursuant to the Enteris License
Agreement and for no additional consideration, based on a purchase price of
$23.42 per share, which was equal to the 30-day volume weighted average price of
our common stock on August 20, 2019. In addition, if we exercise our Royalty
Buyout option, we may elect to make 50% of the payment in stock by issuing
additional shares of our common stock valued at the 30-day volume weighted
average price of our common stock as of such exercise. Pursuant to the Purchase
Agreement, we effected the registration and sale of the shares issued and sold
to Purchaser thereunder in accordance with the applicable requirements of the
Securities Act of 1933, as amended, or the Securities Act, which included the
filing of a registration statement with the SEC on September 9, 2019. In
addition, the Purchase Agreement includes customary representations, warranties
and covenants by us.

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Patheon UK Limited

In July 2019, we entered into an MSA with Patheon UK Limited, or Patheon. The
MSA governs the general terms under which Patheon, or one of its affiliates,
will provide non-exclusive manufacturing services to us for the drug products
specified by us from time to time. Pursuant to the MSA, we have agreed to order
from Patheon at least a certain percentage of our commercial requirements for a
product under a related Product Agreement. Each Product Agreement that we may
enter into from time to time will be governed by the terms of the MSA, unless
expressly modified in such Product Agreement.

The MSA has an initial term ending December 31, 2023, and will automatically
renew after the initial term for successive terms of two years each if there is
a Product Agreement in effect, unless either party gives notice of its intention
to terminate the MSA at least 18 months prior to the end of the then current
term.

Either party may terminate the MSA or a Product Agreement upon written notice if
the other party (1) has failed to remedy a material breach within a specified
time or (2) is declared insolvent or bankrupt, voluntarily files a petition of
bankruptcy or assigns such agreement for the benefit of creditors. We may
terminate a Product Agreement (a) upon 90 days' prior written notice if any
governmental agency takes any action that prevents us from selling the relevant
product in the relevant territory, (b) upon six months' prior written notice if
we do not intend to order manufacturing services due to a product's
discontinuance in the market, or (c) upon 90 days' prior written notice if we
determine that the manufacture or supply of a product likely infringes
third-party rights. Patheon may terminate the MSA or a Product Agreement
(i) upon six months' prior written notice if we assign such agreement to an
assignee that is unacceptable to Patheon for certain reasons, or (ii) upon
30 days' prior written notice if, after the first year of commercial sales, we
forecast zero volume for 12 months.

The MSA contains, among other provisions, customary representations and
warranties by the parties, a grant to Patheon of certain limited license rights
to our intellectual property in connection with Patheon's performance of the
services under the MSA, certain indemnification rights in favor of both parties,
limitations of liability and customary confidentiality provisions.

Also in July 2019, we entered into two related Product Agreements under the MSA,
one with each of Patheon and Patheon Manufacturing Services LLC, or Patheon
Greenville, to govern the terms and conditions of the manufacture of commercial
supplies of CR845/difelikefalin injection, our lead product candidate. Pursuant
to the Product Agreements, Patheon and Patheon Greenville will manufacture
commercial supplies of CR845/difelikefalin injection at the Monza, Italy and
Greenville, North Carolina manufacturing sites, respectively, from active
pharmaceutical ingredient supplied by us. Patheon and Patheon Greenville will be
responsible for supplying the other required raw materials and packaging
components, and will also provide supportive manufacturing services such as
quality control testing for raw materials, packaging components and finished
product.

Components of Operating Results

Revenue


To date, we have not generated any revenue from product sales. Substantially all
of our revenue recognized to date has consisted of upfront payments under
license agreements with Vifor, VFMCRP, Maruishi and CKDP, and milestone and
sub-license payments under license agreements with CKDP and Maruishi for
CR845/difelikefalin, some or all of which was deferred upon receipt, as well as
license agreements for CR665, our first-generation drug program for which
development efforts have ceased and clinical compound sales from certain license
agreements. Through December 31, 2020, we have earned a total of $6.7 million in
clinical development or regulatory milestone payments and clinical compound
sales from certain license agreements. We have not yet received any milestone
payments under the Vifor or VFMCRP agreements or royalties under any of our
collaborations.

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Research and Development (R&D)


Our R&D expenses relate primarily to the development of CR845/difelikefalin. R&D
expenses consist of expenses incurred in performing R&D activities, including
compensation and benefits for full-time R&D employees, clinical trial and
related clinical manufacturing expenses, third-party formulation expenses, fees
paid to CROs and other consultants, stock-based compensation for R&D employees
and consultants and other outside expenses. Our R&D expenses also included
expenses related to preclinical activities for our earlier stage programs in
prior periods and may include such expenses in the future.

R&D costs are expensed as incurred. Non-refundable advance payments for goods or
services to be received in the future for use in R&D activities are deferred and
capitalized. The capitalized amounts are expensed as the related goods are
delivered or the services are performed. Most of our R&D costs have been
external costs, which we track on a program-by program basis. Our internal R&D
costs are primarily compensation expenses for our full-time R&D employees. We do
not track internal R&D costs on a program-by-program basis.

R&D activities are central to our business model. Product candidates in later
stages of clinical development generally have higher development costs than
those in earlier stages of clinical development, primarily due to the increased
size and duration of later-stage clinical trials. Based on our current
development plans, we presently expect that our R&D expenses for 2021 will
increase over those for 2020. However, it is difficult to determine with
certainty the duration and completion costs of our current or future nonclinical
programs and clinical trials of our product candidates, or if, when or to what
extent we will generate revenues from the commercialization and sale of any of
our product candidates that obtain regulatory approval. We may never succeed in
achieving regulatory approval for any of our product candidates.

The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors including, but not limited to:


 ? per patient trial costs;


? the number of patients that participate in the trials;

? the number of sites included in the trials;

? the countries in which the trial is conducted;

? the length of time required to enroll eligible patients;

? the number of doses that patients receive;

? the drop-out or discontinuation rates of patients;

? potential additional safety monitoring or other studies requested by regulatory

agencies;

? the duration of patient follow-up; and

? the efficacy and safety profile of the product candidate.



In addition, the probability of success for each product candidate will depend
on numerous factors, including competition, manufacturing capability and
commercial viability. We will determine which programs to pursue and how much to
fund each program in response to the scientific and clinical success of each
product candidate, as well as an assessment of each product candidate's
commercial potential.

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General and Administrative
General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation, for personnel in executive,
finance, accounting, legal, business development, information technology and
human resources functions. Other costs include facility costs not otherwise
included in R&D expenses, legal fees, insurance costs, investor relations costs,
patent costs and fees for accounting and consulting services.

We anticipate that our general and administrative expenses for 2021 will
generally approximate those for 2020 to support our continued R&D activities and
for our product candidates. These expenses will likely include costs related to
the hiring of additional personnel, fees to outside consultants, lawyers,
accountants and investor relations firms. In addition, if Oral
CR845/difelikefalin or any future product candidate obtains regulatory approval
for marketing, we expect to incur expenses associated with building a sales
and
marketing team.

Other Income, Net

Other income, net consists of interest and dividend income earned on our cash,
cash equivalents, marketable securities and restricted cash, realized gains and
losses on the sale of marketable securities and property and equipment as well
as accretion of discounts/amortization of premiums on purchases of marketable
securities. In the event we record a credit loss expense on our
available-for-sale debt securities, those expenses would be offset against
other
income.

Benefit from Income Taxes

The benefit from income taxes relates to state R&D tax credits exchanged for
cash pursuant to the Connecticut R&D Tax Credit Exchange Program, which permits
qualified small businesses engaged in R&D activities within Connecticut to
exchange their unused R&D tax credits for a cash amount equal to 65% of the
value of the exchanged credits.

Results of Operations

Comparison of the years ended December 31, 2020, 2019 and 2018

Revenue


                                              Year Ended December 31,
                                2020                     2019                    2018

                                             Dollar amounts in thousands
                                           % change                % change
License and milestone fees    $ 134,439         581 %  $ 19,746          47 %  $ 13,436
Clinical compound revenue           643         359 %       140         320 %        33
Total revenue                 $ 135,082         579 %  $ 19,886          48 %  $ 13,469

License and milestone fee revenue


License and milestone fees revenue of $134.4 million for the year ended December
31, 2020 was related to license fees of $111.6 million earned by us in
connection with the Vifor Agreement that we entered into in October 2020,
license fees of $22.3 million earned by us in connection with the VFMCRP
Agreement, and $0.6 million (net of South Korean withholding taxes) earned by us
for achieving a development milestone under the CKDP Agreement. License and
milestone fees revenue of $19.7 million and $13.4 million for the years ended
December 31, 2019 and 2018, respectively, were related to license fees earned by
us during the respective periods in connection with the VFMCRP Agreement (see
Note 11 of Notes to Financial Statements, Collaboration and Licensing
Agreements, in this Annual Report on Form 10-K).

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Clinical compound revenue
Clinical compound revenue of $643 thousand for the year ended December 31, 2020
was related to the sales of clinical compound to VFMCRP for $115 thousand and to
Maruishi for $528 thousand. Clinical compound revenue of $140 thousand and $33
thousand for the years ended December 31, 2019 and 2018, respectively, related
to the sale of clinical compound to Maruishi.

Research and Development Expense


                                                            Year Ended December 31,
                                              2020                    2019                    2018

                                                          Dollar amounts in thousands
                                                        % change                % change
Direct clinical trial costs                 $  68,937       (14) %  $  80,098         41 %  $ 56,625
Consultant services in support of
clinical trials                                 5,792         30 %      4,470         31 %     3,406
Stock-based compensation                        8,197         41 %      5,809         32 %     4,395
Depreciation and amortization                     112          2 %        110       (62) %       288
Other R&D operating expenses                   24,813          6 %     23,333        116 %    10,817
Total R&D expense                           $ 107,851        (5) %  $ 113,820         51 %  $ 75,531




For the year ended December 31, 2020 compared to the year ended December 31,
2019, the net decrease in direct clinical trial costs and related consultant
costs primarily resulted from decreases totaling $33.2 million, mainly from
activities related to the KALM-1 Phase 3 efficacy trial and the 52-week
open-label extension study of KORSUVA (CR845/difelikefalin) injection in CKD
patients undergoing hemodialysis, the Phase 2 efficacy trial of Oral CR845 in
CKD-aP patients, the KALM-2 Phase 3 efficacy trial of KORSUVA
(CR845/difelikefalin) injection in CKD patients undergoing hemodialysis, the
Phase 2 efficacy trial for CLD-aP, costs associated with a supportive Phase 1
study and other license fees. Those costs were partially offset by an increase
of $19.4 million, mainly from the Phase 2 efficacy trial for pruritus associated
with AD, the Phase 2 efficacy and safety trial for pruritus associated with NP,
costs associated with a supportive Phase 1 study, costs associated with the
preparation our NDA submission and other general costs. There was also an
increase of $4.1 million in clinical and commercial drug manufacturing costs.
The increase in stock-based compensation expense was primarily the result of
additional stock option and restricted stock unit grants to new and existing
employees, as well as additional stock-based compensation expense relating to
the vesting of performance-based restricted stock units that were achieved in
2020 as compared to 2019 by certain executives. The increase in other R&D
operating expenses primarily resulted from a $5.0 million milestone earned by
Enteris during the year ended December 31, 2020, as well as increases in payroll
and related costs and cost of clinical compound sales, partially offset by the
upfront payment of $8.0 million made to Enteris upon entering the Enteris
License Agreement during the year ended December 31, 2019 and decreases in
travel and related costs.

For the year ended December 31, 2019 compared to the year ended December 31,
2018, the net increase in direct clinical trial costs and related consultant
costs primarily resulted from increases totaling $32.7 million, mainly from
activities related to the two Phase 3 efficacy trials and up to 12 week Phase 3
safety trial of KORSUVA (CR845/difelikefalin) injection in CKD patients
undergoing hemodialysis, the Phase 2 efficacy trial of Oral CR845 in CKD-aP
patients, the Phase 2 efficacy trial for CLD-aP and the Phase 2 efficacy trial
for pruritus associated with AD. There was also an increase of $1.6 million in
drug manufacturing costs. Those costs were partially offset by a decrease of
$9.4 million, mainly from the Phase 2/3 I.V. CR845/difelikefalin adaptive
clinical trial in post-operative pain and costs associated with certain Phase 1
studies. The increase in stock-based compensation expense was primarily the
result of additional stock option grants to R&D employees. The increase in other
R&D operating expenses primarily resulted from the upfront payment of $8.0
million upon entering into the Enteris License Agreement and an increase in
payroll and related costs associated with R&D personnel.

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The following table summarizes our R&D expenses by product candidate for the years ended December 31, 2020, 2019 and 2018:


                                                             Year Ended December 31,
                                              2020                     2019                     2018

                                                           Dollar amounts in thousands
                                                         % change                 % change
External research and development expenses:
I.V. CR845 - Pruritus                       $  44,026        (26) %  $  59,687          67 %  $ 35,781
I.V. CR845 - Pain                                 100        (73) %        373        (94) %     6,386
Oral CR845 - Pruritus                          30,491          25 %     24,475          56 %    15,670
Oral CR845 - Pain                                  23        (32) %         33        (98) %     2,194
Internal research and development expenses     33,211          14 %     29,252          89 %    15,500
Total research and development expenses     $ 107,851         (5) %  $ 113,820          51 %  $ 75,531

General and Administrative Expense


                                                       Year Ended December 31,
                                         2020                    2019                    2018

                                                     Dollar amounts in thousands
                                                   % change                % change
Professional fees and public/investor
relations                              $  3,841         (1) %  $  3,883          34 %  $  2,906
Stock-based compensation                  6,638         (2) %     6,759          19 %     5,700
Depreciation and amortization                97          11 %        88           7 %        82
Other G&A operating expenses             11,270          61 %     7,015           6 %     6,632
Total G&A expense                      $ 21,846          23 %  $ 17,745          16 %  $ 15,320




For the year ended December 31, 2020 compared to the year ended December 31,
2019, the decrease in professional fees and public/investor relations expenses
was primarily the result of a decrease in consultants' costs, partially offset
by increases in accounting fees. The decrease in stock-based compensation
expense was primarily the result of the resignation of our former Chief
Financial Officer in December 2019, a decrease in stock-based compensation
expense due to fewer performance-based restricted stock units vesting during
2020 as compared to 2019, and the issuance of common stock relating to the
consulting agreement that ended in 2019, partially offset by additional stock
option grants and restricted stock unit grants to employees and members of our
Board of Directors, including our current CFO beginning in October 2020. The
increase in other G&A operating expenses was primarily the result of increases
in commercial costs, insurance costs, and payroll and related costs.

For the year ended December 31, 2019 compared to the year ended December 31,
2018, the increase in professional fees and public/investor relations expenses
was primarily the result of increased consultants' costs and legal and
accounting fees. The increase in stock-based compensation expense was primarily
the result of additional stock option grants to G&A employees, additional
stock-based compensation expense relating to restricted stock units granted to
the members of our Board of Directors in June 2019, and stock-based compensation
expense resulting from issuing shares of our common stock for consulting
services performed during the year ended December 31, 2019. The increase in
other G&A operating expenses was primarily the result of an increase in
insurance costs and franchise taxes, partially offset by a decrease in rent,
utilities and related costs.

Other Income, Net


                                Year Ended December 31,
                   2020                   2019                   2018

                               Dollar amounts in thousands
                             % change               % change
Other income, net $ 2,334        (48) %  $ 4,490          51 %  $ 2,980




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For the year ended December 31, 2020 compared to the year ended December 31,
2019, the decrease in other income, net was primarily due to a decrease in net
accretion income and a decrease in interest income resulting from a lower yield
on our lower average balance of our portfolio of investments in the 2020 period,
partially offset by a realized gain of approximately $0.3 million from the sale
of our available-for-sale marketable securities in the 2020 period.

For the year ended December 31, 2019 compared to the year ended December 31,
2018, the increase in other income, net was primarily due to an increase in
interest and accretion income resulting from a higher average balance of our
portfolio of investments in the 2019 period.

Benefit from Income Taxes


For the years ended December 31, 2020, 2019 and 2018, pre-tax income (losses)
were $7.7 million, $(107.2) million and $(74.4) million, respectively, and we
recognized a benefit from income taxes of $691 thousand, $816 thousand and $389
thousand, respectively.

The benefit from income taxes relates to state R&D tax credits exchanged for
cash pursuant to the Connecticut R&D Tax Credit Exchange Program, as discussed
above. We recognized a full valuation allowance against deferred tax assets at
December 31, 2020, 2019 and 2018.

Liquidity and Capital Resources

Sources of Liquidity


Since our inception and through December 31, 2020, we have raised an aggregate
of $774.5 million to fund our operations, including (1) net proceeds of $446.3
million from the sale of shares of our common stock in five public offerings,
including our initial public offering; (2) proceeds of $73.3 million from the
sale of shares of our convertible preferred stock and from debt financings prior
to our initial public offering; (3) payments of $201.9 million under our license
agreements, primarily with Vifor, VFMCRP, Maruishi, CKDP and an earlier product
candidate for which development efforts ceased in 2007; and (4) net proceeds of
$53.0 million from the purchase of our common stock in relation to the license
agreements with Vifor and VFMCRP (see Note 11 of Notes to Financial Statements,
Collaboration and Licensing Agreements, in this Annual Report on Form 10-K).

In order to fund our future operations, including our planned clinical trials,
we filed the Shelf Registration Statement (File No. 333-230333), which provides
for aggregate offerings of up to $300.0 million of common stock, preferred
stock, debt securities, warrants or any combination thereof and was declared
effective on April 4, 2019. The securities registered under the Shelf
Registration Statement include unsold securities that had been registered under
our previous Registration Statement on Form S-3 (File No. 333-216657) that was
declared effective on March 24, 2017. To date, we have offered and sold an
aggregate of approximately $145.5 million of securities under this Shelf
Registration Statement. We believe that our Shelf Registration Statement
provides us with the flexibility to raise additional capital to finance our
operations as needed.

On July 24, 2019, we entered into an underwriting agreement with J.P. Morgan
Securities LLC and Jefferies LLC, as representatives of the several underwriters
named therein, relating to the issuance and sale by us of up to 6,325,000 shares
of our common stock, including 825,000 additional shares of common stock that
the underwriters had the option to purchase, at a public offering price of
$23.00 per share. We closed this offering on July 29, 2019, including the full
exercise of the underwriters' option to purchase additional shares of common
stock. We received net proceeds of $136.5 million, after deducting $9.0 million
of underwriting discounts and commissions and offering expenses. This offering
was made by pursuant to the Shelf Registration Statement, and a related
prospectus supplement dated July 24, 2019, which was filed with the SEC on
July 25, 2019.

We may offer additional securities under our Shelf Registration Statement from time to time in response to market conditions or other circumstances if we believe such a plan of financing is in the best interests of our stockholders.

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As of December 31, 2020, we had $251.5 million in unrestricted cash and cash
equivalents and available-for-sale marketable securities. We believe our current
unrestricted cash and cash equivalents and available-for-sale marketable
securities will be sufficient to fund our currently anticipated operating
expenses and capital expenditures into 2023, without giving effect to any
potential milestone payments or potential product revenue we may receive under
our licensing and collaboration agreements with Vifor, VFMCRP, Maruishi and
CKDP. Our anticipated operating expenses include contractually committed costs
as well as non-contractually committed clinical trial costs for trials that may
be delayed or not initiated and other non-committed controllable costs.

Under the Vifor Agreement, we are eligible to receive regulatory and commercial
milestone payments in the aggregate of up to $290.0 million, consisting of a
$50.0 million common stock investment for a regulatory milestone and up to
$240.0 million upon the achievement of certain sales-based milestones. As of
December 31, 2020, we have not received any milestone payments under the Vifor
Agreement.



Under the VFMCRP Agreement, we are eligible to receive regulatory and commercial
milestone payments in the aggregate of up to $470.0 million, consisting of up to
$30.0 million in regulatory milestones and up to $440.0 million in tiered
commercial milestones, all of which are sales-related. We are also eligible to
receive tiered double-digit royalty payments based on annual net sales, as
defined in the VFMCRP Agreement, of CR845/difelikefalin injection in the
Licensed Territories. As of December 31, 2020, we have not received any
milestone payments under the VFMCRP Agreement.

Under the Maruishi Agreement, we are also potentially eligible to earn up to an
aggregate of $6.0 million in clinical development milestones and $4.5 million in
regulatory milestones, before any foreign exchange adjustment, as well as tiered
royalties, with percentages ranging from the low double digits to the low
twenties, based on net sales of products containing CR845/difelikefalin in
Japan, if any, and share in any sub-license fees. As of December 31, 2020, we
have received milestone payments of $2.5 million before contractual foreign
currency exchange adjustments under the Maruishi Agreement. In January 2021, we
met the milestone criteria, as set forth in the Maruishi Agreement, for
Maruishi's first initiation of a Phase III trial for uremic pruritus in Japan.
As a result, we received a milestone payment of $2.0 million ($1.9 million after
contractual foreign currency exchange adjustments) from Maruishi.

Under the CKDP Agreement, we are potentially eligible to earn up to an aggregate
of $2.3 million in clinical development milestones and $1.5 million in
regulatory milestones, before South Korean withholding tax, as well as tiered
royalties with percentages ranging from the high single digits to the high
teens, based on net sales of products containing CR845/difelikefalin in South
Korea, if any, and share in any sub-license fees. In May 2020, the criteria for
revenue recognition for a milestone event set forth in the CKDP Agreement was
achieved, and we recorded $0.6 million (net of South Korean withholding tax) as
license and milestone fees revenue during the year ended December 31, 2020
relating to the milestone payment received from CKDP. As of December 31, 2020,
$2.3 million (before South Korean withholding tax) of development and regulatory
milestones have been received under the CKDP Agreement.

Our ability to earn these payments and their timing is dependent upon the outcome of I.V. and Oral CR845/difelikefalin development activities and, potentially, commercialization. However, our receipt of any further such amounts is uncertain at this time and we may never receive any more of these amounts.

Funding Requirements

Our primary uses of capital have been, and we expect will continue to be, compensation and related expenses, third-party clinical R&D services and clinical costs. In the past, we have also previously used capital for laboratory and related supplies.

Since inception, we have incurred significant operating and net losses. We
incurred net losses of $106.4 million and $74.0 million for the years ended
December 31, 2019 and 2018, respectively. As of December 31, 2020, we had an
accumulated deficit of $392.3 million. Although we generated net income for the
year ended December 31, 2020 as a result of a commercial license transaction, we
expect to continue to incur significant expenses and operating and net losses in
the foreseeable future, as we continue to develop and seek marketing approval
for I.V. and Oral CR845/difelikefalin. Our financial results may fluctuate
significantly from quarter to quarter and year to year, depending

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on the timing of our clinical trials, the receipt of additional milestone
payments, if any, under our licensing and collaborations with Vifor, VFMCRP,
Maruishi and CKDP, the receipt of payments under any future collaborations
and/or licensing agreements we may enter into, and our expenditures on other R&D
activities.

We anticipate that our expenses may increase as we:

? continue the development of KORSUVA (CR845/difelikefalin) injection for CKD-aP

in dialysis patients;

? continue the development of Oral KORSUVA (CR845/difelikefalin) for CKD-aP and

other diseases associated with pruritus, such as CLD-aP and AD;

? explore the potential to further develop I.V. CR845/difelikefalin in the

post-operative setting;

? conduct R&D of any potential future product candidates;

? seek regulatory approvals for I.V. CR845/difelikefalin and any product

candidates that successfully complete clinical trials;

establish a sales, marketing and distribution infrastructure and scale up

? external manufacturing capabilities to commercialize any products for which we

may obtain regulatory approval;

? maintain, expand and protect our global intellectual property portfolio;

? hire additional clinical, quality control and scientific personnel; and

add operational, financial and management information systems and personnel,

? including personnel to support our drug development and potential future

commercialization efforts.



The successful development of any of our product candidates is highly uncertain.
As such, at this time, we cannot reasonably estimate or know the nature, timing
and costs of the efforts that will be necessary to complete the development of
I.V. CR845/difelikefalin, Oral CR845/difelikefalin or our other current and
future programs. We are also unable to predict when, if ever, we will generate
any further material net cash inflows from CR845/difelikefalin. This is due to
the numerous risks and uncertainties associated with developing medicines,
including the uncertainty of:

? successful enrollment in, and completion of clinical trials;

? receipt of marketing approvals from applicable regulatory authorities;

? establishing commercial manufacturing capabilities or making arrangements with

third-party manufacturers;

? obtaining and maintaining patent and trade secret protection and regulatory

exclusivity for our product candidates;

? launching commercial sales of the products, if and when approved, whether alone

or in collaboration with others;

? achieving meaningful penetration in the markets which we seek to serve; and

obtaining adequate coverage or reimbursement by third parties, such as

 ? commercial payers and government healthcare programs, including Medicare and
   Medicaid.


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A change in the outcome of any of these variables with respect to the
development of I.V. CR845/difelikefalin, Oral CR845/difelikefalin or any of our
future product candidates would significantly change the costs and timing
associated with the development of that product candidate. Further, the timing
of any of the above may be impacted by the ongoing COVID-19 pandemic,
introducing additional uncertainty.

Because our product candidates are still in clinical development and the outcome
of these efforts is uncertain, we cannot estimate the actual amounts necessary
to successfully complete the development and commercialization of all our
product candidates or whether, or when, we may achieve profitability. Until such
time, if ever, as we can generate substantial product revenues, we expect to
finance our cash needs through a combination of equity or debt financings and
collaboration arrangements, including our existing licensing and collaboration
agreements with Vifor, VFMCRP, Maruishi and CKDP.

We will require additional capital beyond our current balances of cash and cash
equivalents and available-for-sale marketable securities and anticipated amounts
as described above, and this additional capital may not be available when
needed, on reasonable terms, or at all, and our ability to raise additional
capital may be adversely impacted by potential worsening global economic
conditions and the recent disruptions to and volatility in the credit and
financial markets in the United States and worldwide resulting from the ongoing
COVID-19 pandemic. If we are not able to do so, we could be required to
postpone, scale back or eliminate some, or all, of these objectives. To the
extent that we raise additional capital through the future sale of equity or
convertible debt, the ownership interest of our stockholders will be diluted,
and the terms of these securities may include liquidation or other preferences
that adversely affect the rights of our existing common stockholders. If we
raise additional funds through the issuance of debt securities, these securities
could contain covenants that would restrict our operations. If we raise
additional funds through collaboration arrangements in the future, we may have
to relinquish valuable rights to our technologies, future revenue streams or
product candidates or grant licenses on terms that may not be favorable to us.
If we are unable to raise additional funds through equity or debt financings
when needed, we may be required to delay, limit, reduce or terminate our drug
development or future commercialization efforts or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market
ourselves.

Outlook

Based on timing expectations and projected costs for our current clinical
development plans, which include conducting supportive Phase 1 trials, Phase 2
trials, and Phase 3 trials of Oral KORSUVA (CR845/difelikefalin) in patients
with pruritus associated with CKD, CLD, AD, and NP, we expect that our existing
cash and cash equivalents and available-for-sale marketable securities as of
December 31, 2020 will be sufficient for us to fund our currently anticipated
operating expenses and capital expenditures into 2023, without giving effect to
any potential milestone payments or potential product revenue we may receive
under our collaboration agreements with VFMCRP, Maruishi and CKDP. Our
anticipated operating expenses include contractually committed costs as well as
non-contractually committed clinical trial costs for trials that may be delayed
or not initiated and other non-committed controllable costs. Because the process
of testing product candidates in clinical trials is costly and the timing of
progress in these trials is uncertain, it is possible that the assumptions upon
which we have based this estimate may prove to be wrong, and we could use our
capital resources sooner than we presently expect.

The Tax Cuts and Jobs Act of 2017


On December 22, 2017, the TCJA was enacted in the United States. Under generally
accepted accounting principles in the United States, or GAAP, the effect of a
change in tax rates and tax law is recorded discretely as a component of the
income tax provision related to continuing operations in the period of
enactment. Under the TCJA, among other provisions, the maximum Federal corporate
tax rate is reduced from 35% to 21% for tax years beginning after December 31,
2017.

Accounting Standards Codification, or ASC, section 740, Income Taxes, requires
deferred tax assets and liabilities to be measured at the enacted tax rate
expected to apply when temporary differences are to be realized or settled.
Therefore, at the date of enactment, we reduced deferred tax assets by $25.9
million based on the revised tax rate, which required a re-assessment of the
related valuation allowance. Based on expected net losses into the foreseeable
future, we

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will currently continue to record a 100% valuation allowance against our
deferred tax assets. The corresponding reduction in the valuation allowance as a
result of the re-measurement of deferred tax assets and liabilities was also
recorded to continuing operations in the tax provision. As of December 31, 2020
and 2019, we did not have any foreign subsidiaries and the international aspects
of the TCJA are not applicable for the respective periods.

In addition, NOLs arising in taxable years beginning after December 31, 2017,
can be carried forward indefinitely but carryback is generally prohibited. The
use of such NOL carryforwards for taxable years beginning after 2020 is limited
to 80% of taxable income. NOLs generated before January 1, 2018 will not be
subject to the taxable income limitation and will continue to have a two-year
carryback and 20-year carryforward period.

On December 22, 2017, Staff Accounting Bulletin 118, or SAB 118, was issued by
the SEC due to the complexities involved in accounting for the TCJA. SAB 118
requires us to include in our financial statements a reasonable estimate of the
impact of the TCJA on earnings to the extent such estimate has been determined.
Accordingly, our U.S. provision for income tax for 2017 was based on the
reasonable estimate guidance provided by SAB 118. We finalized the accounting
for the TCJA as of December 31, 2018, which resulted in insignificant
adjustments.

The CARES Act of 2020 and Consolidated Appropriations Act of 2021


On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief,
and Economic Security Act of 2020, or the CARES Act (H.R. 748), which was
further expanded with the signing of the Consolidation Appropriations Act of
2021 (H.R. 133) on December 27, 2020. The CARES Act (and December expansion)
includes a variety of economic and tax relief measures intended to stimulate the
economy, including loans for small businesses, payroll tax credits/deferrals,
and corporate income tax relief. Due to our history of tax loss carryforwards
and full valuation allowance, the CARES Act did not have a significant effect to
the income tax provision, as the corporate income tax relief was directed
towards cash taxpayers.



Cash Flows

The following is a summary of the net cash flows provided by (used in) our
operating, investing and financing activities for the years ended December 31,
2020, 2019 and 2018:


                                                          Year Ended December 31,
                                                      2020          2019           2018

                                                         Dollar amounts in thousands
Net cash used in operating activities              $  (5,487)$ (109,225)$ (22,301)
Net cash used in investing activities                (20,275)       (30,516)      (82,819)
Net cash provided by financing activities              39,140        142,604       110,813
Net increase in cash, cash equivalents and
restricted cash                                    $   13,378$     2,863$    5,693

Net cash used in operating activities

Net cash used in operating activities for the year ended December 31, 2020
consisted primarily of a $7.4 million cash outflow from net changes in operating
assets and liabilities and a $6.5 million cash outflow from net non-cash
charges, partially offset by net income of $8.4 million (which includes $111.6
million of licensing and milestone fees revenue from the Vifor Agreement). Net
non-cash charges primarily consisted of a decrease of $22.3 million in deferred
revenue associated with our VFMCRP Agreement, partially offset by stock-based
compensation expense of $14.8 million and the amortization expense component of
lease expense of $0.8 million relating to our Stamford operating leases. The
change in operating assets and liabilities primarily consisted of a cash outflow
of $3.2 million from an increase in prepaid expenses, primarily related to an
increase in prepaid clinical costs, a cash outflow of $2.8 million from a
decrease in accounts payable and accrued expenses, and a cash outflow of $1.1
million relating to operating lease liabilities associated with our Stamford
operating leases.

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Net cash used in operating activities for the year ended December 31, 2019
consisted primarily of a net loss of $106.4 million and a $3.8 million cash
outflow from net non-cash charges, partially offset by a $0.9 million cash
inflow from net changes in operating assets and liabilities. Net non-cash
charges primarily consisted of a decrease of $19.7 million in deferred revenue
associated with our VFMCRP Agreement and $1.4 million related to accretion of
available-for-sale securities, partially offset by stock-based compensation
expense of $12.6 million and a noncash expense of $4.0 million related to the
Enteris License Agreement. The change in operating assets and liabilities
primarily consisted of a cash inflow of $6.0 million from an increase in
accounts payable and accrued expenses, partially offset by a cash outflow of
$4.1 million from an increase in prepaid expense, primarily related to an
increase in prepaid clinical costs and a cash outflow of $0.9 million from
operating lease liability relating to lease payments made for the Stamford Lease
as a result of our adoption of ASC 842: Leases.

Net cash used in operating activities for the year ended December 31, 2018
consisted primarily of a net loss of $74.0 million, partially offset by a
$50.5 million cash inflow from net non-cash charges and a $1.2 million inflow
from net changes in operating assets and liabilities. Net non-cash charges
primarily consisted of an increase in deferred revenue of $42.0 million related
to the VFMCRP Agreement and stock-based compensation expense of $10.1 million,
partially offset by $1.8 million related to amortization/accretion of
available-for-sale securities. The net change in operating assets and
liabilities primarily consisted of a cash inflow of $5.1 million from an
increase in accounts payable and accrued expenses, partially offset by cash
outflows of $3.2 million from an increase in prepaid expense, primarily related
to an increase in prepaid clinical costs, and cash outflows of $0.8 million
related to an increase in other receivables.

Net cash used in investing activities

Net cash used in investing activities was $20.3 million for the year ended
December 31, 2020, which primarily included cash outflows of $232.9 million for
the purchases of available-for-sale marketable securities, partially offset by
cash inflows of $171.4 million from maturities and redemptions of
available-for-sale marketable securities and proceeds of $41.6 million from
sales of available-for-sale marketable securities.

Net cash used in investing activities was $30.5 million for the year ended
December 31, 2019, which primarily included cash outflows of $286.1 million for
the purchases of available-for-sale marketable securities, partially offset by
$255.6 million from maturities and redemptions of available-for-sale marketable
securities.

Net cash used in investing activities was $82.8 million for the year ended
December 31, 2018, which primarily included cash outflows of $337.9 million for
the purchase of available-for-sale marketable securities, partially offset by
cash inflows of $175.3 million from maturities of available-for-sale marketable
securities and $79.8 million from the sale of available-for-sale marketable
securities.

Net cash provided by financing activities


Net cash provided by financing activities for the year ended December 31, 2020
consisted of proceeds of $38.4 million from the sale of our common stock
relating to the Vifor Agreement and $0.7 million received from the exercise of
stock options.

Net cash provided by financing activities for the year ended December 31, 2019
consisted of gross proceeds of $145.5 million from our issuance and sale of our
common stock in July 2019, partially offset by $9.0 million of underwriting
discounts and commissions and offering expenses paid by us during the year ended
December 31, 2019, and proceeds of $6.1 million received from the exercise of
stock options.

Net cash provided by financing activities for the year ended December 31, 2018
consisted of gross proceeds of $98.3 million from our issuance and sale of our
common stock in July 2018, partially offset by $6.3 million of underwriting
discounts and commissions and offering expenses paid by us during the year ended
December 31, 2018, proceeds of $14.6 million from the sale of our common stock
relating to the VFMCRP Agreement and $4.2 million received from the exercise of
stock options.

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Contractual Obligations

The following table summarizes our significant contractual obligations as of December 31, 2020 (in thousands):


                                           Payment Due for the Year Ending December 31,
                                   2021            2022            2023           2024        2025       Total
Stamford operating leases       $     1,921$     1,957$     1,992     $      -    $      -    $ 5,870
Contractual obligations and commitments at December 31, 2020 also included the
Enteris License Agreement, which we entered into in August 2019, and the MSA we
entered into with Patheon in July 2019. However, we have no material
non-cancelable purchase commitments with these contract manufacturers or service
providers, as we have generally contracted on a cancelable purchase order basis.
Therefore, these were not included in the table above. Furthermore, milestone
payments potentially owed by us in connection with the Enteris License Agreement
were not included in the table above as these milestone events may or may not be
achieved.

See Note 17 of Notes to Financial Statements, Commitments and Contingencies, in
this Annual Report on Form 10-K for details about our contractual obligations
and commitments, and Note 7 of Notes to Financial Statements, Restricted Cash,
in this Annual Report on Form 10-K for details about our letter of credit
associated with our Stamford operating leases.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under SEC rules.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial statements requires us
to make estimates, judgments and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities as
of the date of the balance sheets and the reported amounts of revenues and
expenses during the reporting periods. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances at the time such estimates are made. Actual results and
outcomes may differ materially from our estimates, judgments and assumptions. We
periodically review our estimates in light of changes in circumstances, facts
and experience. The effects of material revisions in estimates are reflected in
the financial statements prospectively from the date of the change in estimate.

We define our critical accounting policies as those accounting principles
generally accepted in the United States that require us to make subjective
estimates and judgments about matters that are uncertain and are likely to have
a material impact on our financial condition and results of operations as well
as the specific manner in which we apply those principles. We believe the
critical accounting policies used in the preparation of our financial statements
which require significant estimates and judgments are as follows:

Revenue Recognition


On January 1, 2018, we adopted Accounting Standards Update, or ASU, 2014-09,
Revenue from Contracts with Customers (Topic 606), or ASC 606, as amended by ASU
2016-08, 2016-10, 2016-12 and 2016-20 using the full retrospective method. Under
ASC 606, we recognize revenue in an amount that reflects the consideration to
which we expect to be entitled in exchange for the transfer of promised goods or
services to customers. To determine revenue recognition for contracts with
customers that are within the scope of ASC 606, we perform the following steps:
(1) identify the contract with the customer, (2) identify the performance
obligations in the contract, (3) determine the transaction price, (4) allocate
the transaction price to the performance obligations in the contract, and
(5) recognize revenue when (or as) the entity satisfies a performance
obligation. We concluded that upon adoption of ASC 606, as amended, there was no
impact on our results of operations, financial position or cash flows for any
period presented

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from our only two revenue-related contracts, which were in effect at that time: the CKDP Agreement or the Maruishi Agreement.


We have entered into agreements to license our intellectual property, or IP,
related to CR845/difelikefalin to develop, manufacture and/or commercialize drug
products. These agreements typically contain multiple performance obligations,
including licenses of IP and R&D services. Payments to us under these agreements
may include nonrefundable license fees, payments for research activities,
payments based upon the achievement of certain milestones and royalties on any
resulting net product sales.

We identify agreements as contracts that create enforceable rights and
obligations when the agreement is approved by the parties, identifies the rights
of the parties and the payment terms, has commercial substance and it is
probable that we will collect the consideration to which we will be entitled in
exchange for the goods and services that will be transferred to the customer.
The counterparty is considered to be a customer when it has contracted with us
to obtain goods and services that are the output of our ordinary activities
(i.e., development of pharmaceutical products) in exchange for consideration.

A performance obligation is a promise to transfer distinct goods or services to
a customer. Performance obligations that are both capable of being distinct and
distinct within the context of the contract are considered to be separate
performance obligations. Performance obligations are capable of being distinct
if the counterparty is able to benefit from the good or service on its own or
together with other resources that are readily available to it. Performance
obligations are distinct within the context of the contract when each
performance obligation is separately identifiable from each other; i.e., we are
not using the goods or services as inputs to produce or deliver the combined
output or outputs specified by the customer; one or more of the goods or
services does not significantly modify or customize one of the other goods or
services in the contract; and goods or services are not highly interdependent or
not highly interrelated. Performance obligations that are not distinct are
accounted for as a single performance obligation over the period that goods or
services are transferred to the customer. The determination of whether
performance obligations in a contract are distinct may require significant
judgment.

The transaction price is the amount of consideration that we expect to be
entitled to in exchange for transferring promised goods or services to the
customer based on the contract terms at inception of a contract. There is a
constraint on inclusion of variable consideration related to licenses of IP,
such as milestone payments or sales-based royalty payments, in the transaction
price if there is uncertainty at inception of the contract as to whether such
consideration will be recognized in the future because it is probable that there
will be a significant reversal of revenue in the future when the uncertainty is
resolved. The determination of whether or not it is probable that a significant
reversal of revenue will occur in the future depends on the likelihood and
magnitude of the reversal. Factors that could increase the likelihood or
magnitude of a reversal of revenue include (a) the susceptibility of the amount
of consideration to factors outside the entity's influence, such as the outcome
of clinical trials, the timing of initiation of clinical trials by the
counterparty and the approval of drug product candidates by regulatory agencies,
(b) situations in which the uncertainty is not expected to be resolved for a
long period of time, and (c) level of our experience in the field. When it
becomes probable that events will occur, for which variable consideration was
constrained at inception of the contract, we allocate the related consideration
to the separate performance obligations in the same manner as described below.

At inception of a contract, we allocate the transaction price to the distinct
performance obligations based upon their relative standalone selling prices.
Standalone selling price is the price at which an entity would sell a promised
good or service separately to a customer. The best evidence of standalone
selling price is an observable price of a good or service when sold separately
by an entity in similar circumstances to similar customers. Since we typically
do not have such evidence, we estimate standalone selling price so that the
amount that is allocated to each performance obligation equals the amount that
we expect to receive for transferring goods or services. The methods that we use
to make such estimates include (1) the adjusted market assessment approach,
under which we forecast and analyze CR845/difelikefalin in the appropriate
market, the phase of clinical development as well as considering recent similar
license arrangements within the same phase of clinical development, therapeutic
area, type of agreement, etc. and (2) the expected cost of satisfying the
performance obligations plus a margin, or the expected cost plus a margin
approach.

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We recognize revenue when, or as, we satisfy a performance obligation by
transferring a promised good or service to a customer and the customer obtains
control of the good or service. Revenue related to the grant of a license that
is a distinct performance obligation and that is deemed to be functional IP is
recognized at the point in time that we have the right to payment for the
license, the customer has legal title to the license and can direct the use of
the license (for example, to grant sublicenses), the customer has the
significant risks and rewards of ownership of the license and the customer has
accepted the asset (license) by signing the license agreement.

Recognition of revenue related to R&D services that are a distinct performance
obligation or that are combined with granting of a license as a single
performance obligation is deferred at inception of a contract and is recognized
as those services are performed based on the costs incurred as a percentage of
the estimated total costs to be incurred to complete the performance obligation.

Milestone payments are considered to be variable consideration and are not
included in the transaction price at inception of the contract if it is
uncertain that the milestone will be achieved. Rather, when it becomes probable
that the milestone will be achieved and, therefore, there will not be a
significant reversal of revenue in future periods, the respective amount to be
earned is included in the transaction price, allocated to the distinct
performance obligations based on their relative standalone selling price and
recognized as revenue, as described above. Sales milestones and sales-based
royalty payments related to a license of IP are recognized as revenue when the
respective sales occur.

See Note 2 of Notes to Financial Statements, Summary of Significant Accounting
Policies - Revenue Recognition, and Note 12 of Notes to Financial Statements,
Revenue Recognition, in this Annual Report on Form 10-K for further details
about our critical accounting estimates for revenue recognition for our
significant contracts.

Stock-Based Compensation


We grant stock options to employees, non-employee directors and non-employee
consultants as compensation for services performed. Employee and non-employee
members of the Board of Directors' awards of stock-based compensation are
accounted for in accordance with ASC 718, Compensation - Stock Compensation, or
ASC 718. ASC 718 requires all share-based payments to employees and non-employee
directors, including grants of stock options, to be recognized in the Statements
of Comprehensive Income (Loss) based on their grant date fair values. The grant
date fair value of stock options is estimated using the Black-Scholes option
valuation model. On January 1, 2019, we used the Black-Scholes option valuation
model to remeasure the fair value of all outstanding unvested options that had
been granted to non-employee consultants in accordance with ASU 2018-07,
Compensation - Stock Compensation (Topic 718), Improvements to Non-employee
Share-Based Payment Accounting. For all share-based payments granted to
employees and non-employees, compensation cost relating to awards with
service-based graded vesting schedules is recognized using the straight-line
method over the requisite service period.

Using this model, fair value is calculated based on (i) the fair value or market
price of our common stock on the grant date; (ii) expected volatility of our
common stock price, (iii) the periods of time over which employees and
non-employee directors are expected to hold their options prior to exercise
(expected term), (iv) expected dividend yield on our common stock, and
(v) risk-free interest rates.

The assumptions for expected volatility and the expected term of stock options
used in computing the fair value of option awards reflect our best estimates but
involve uncertainties related to market and other conditions, many of which are
outside of our control. Changes in any of these assumptions may materially
affect the fair value of stock options granted and the amount of stock-based
compensation recognized in future periods.

See Note 2 of Notes to Financial Statements, Summary of Significant Accounting Policies - Stock-Based Compensation, in this Annual Report on Form 10-K for further details about our critical accounting estimates for stock-based compensation.

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Accounting Pronouncements Recently Adopted; Recent Accounting Pronouncements Not Yet Adopted

Please refer to Note 2 of Notes to Financial Statements, Summary of Significant Accounting Policies, in this Annual Report on Form 10-K.

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