Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You
should read the following discussion and analysis of our financial condition and results of operations together with our financial statements
and related notes appearing elsewhere in 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. As a result of many factors, including
those factors set forth in the “Risk Factors” section of this document, our actual results could differ materially from the
results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
Overview
We
are a New York City based clinical-stage biopharmaceutical company committed to advancing transformative therapies for the treatment
of cancer and rare diseases. We were founded on the principle of applying modern scientific, regulatory or manufacturing advancements
to established mechanisms in order to create new development opportunities. We prioritize creativity, integrity and tenacity to expedite
our goal of bringing life-changing therapies to people with limited treatment options.
Our
portfolio includes two development programs utilizing TARA-002, an investigational cell therapy based on the broad immunopotentiator,
OK-432, which was originally granted marketing approval by the Japanese Ministry of Health and Welfare as an immunopotentiating cancer
therapeutic agent. This cell therapy is currently approved in Japan and Taiwan for LMs and multiple oncologic indications. We have secured
worldwide rights to the asset excluding Japan and Taiwan and are exploring its use in oncology and rare disease indications. TARA-002
was developed from the same master cell bank of genetically distinct group A Streptococcus pyogenes as OK-432 (marketed as Picibanil®
in Japan by Chugai Pharmaceutical). We are currently developing TARA-002 in NMIBC and in LMs.
We are also pursuing IV
Choline Chloride, an investigational phospholipid substrate replacement therapy, for patients receiving PS which includes both nutrition
and fluids. Choline is a known important substrate for phospholipids that are critical for healthy liver function and also plays an important
role in modulating gene expression, cell membrane signaling, brain development, neurotransmission, muscle function and bone health. PS
patients are unable to synthesize choline from enteral nutrition sources, and there are currently no available PS formulations containing
choline. See “Item 1. Business” for additional information regarding our various clinical trial programs.
We have devoted substantial
efforts to the development of our programs and do not have any approved products and, to date, have not generated any revenues from product
sales. Neither TARA-002 nor IV Choline Chloride have been approved by the FDA or other comparable regulatory authorities for use for any
indications. We do not expect to generate revenues in the near-term, and it is possible we may never generate revenues in the future.
To finance our current strategic plans, including the conduct of ongoing and future clinical trials and further research and development
costs, we will need to raise additional capital. See “Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Liquidity and Capital Resources” for additional information about our liquidity and capital
resource needs.
Since inception, we have
incurred significant operating losses. As of December 31, 2025, we had an accumulated deficit of approximately $302.4 million. We expect
to continue to incur significant expenses and increasing operating losses for at least the next few years as we continue our development
of, and seek marketing approvals for, our product candidates, prepare for and begin the commercialization of any approved products and
add infrastructure and personnel to support our product development efforts and operations as a public company in the U.S.
As
a clinical-stage company, our expenses and results of operations are likely to fluctuate significantly from quarter-to-quarter and year-to-year.
We believe that our period-to-period comparisons of our results of operations should not be relied upon as indicative of our future performance.
As
of December 31, 2025, we had approximately $197.9 million in unrestricted cash and cash equivalents, and marketable debt securities.
79
Financial
Overview
Research
and Development
Research
and development expenses consist primarily of costs incurred for the development of our current and potential future product candidates,
which include personnel-related expenses, including salaries, benefits, travel and stock-based compensation expense, external expenses
incurred under agreements with CROs or CDMOs, the cost of acquiring, developing and manufacturing clinical trial materials, clinical
and non-clinical related costs and costs associated with regulatory operations and facilities, which includes depreciation and other
expenses such as rent, maintenance and other supplies.
General
and Administrative
General and administrative
expenses consist primarily of personnel-related costs, including salaries, benefits, travel expenses and stock-based compensation, for
executive management and other administrative personnel. General and administrative expenses also include professional fees for legal,
investor relations, consulting, auditing and accounting services, business and market development activities, as well as costs related
to human resources, information technology and facilities. In addition, these expenses include costs associated with operating as a public
company, such as expenses related to our Nasdaq listing and SEC compliance and director and officer liability insurance premiums.
Other
Income (Expense), net
Other income (expense), net
consists of interest and investment income (expense) and other income (expense). Interest and investment income (expense) consists of
interest and dividend income on our cash and cash equivalents and marketable debt securities and amortization of premiums and/or accretion
of discounts. Other income (expense) may also include non-operating items, such as refundable tax credits and other miscellaneous income
not related to our core operating activities.
Critical
Accounting Policies and Significant Judgments and Estimates
Our
management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or
GAAP. The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. We base our estimates on historical experience and other
market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially
from those estimates or assumptions.
While
our significant accounting policies are described in more detail in the notes to our consolidated financial statements and related notes
appearing elsewhere in this Annual Report on this Form 10-K, we believe the following accounting policies to be most critical to the
judgments and estimates used in the preparation of our financial statements.
Our critical accounting policy
is the accounting for research and development prepaid and accrued expenses.
Research
and Development Prepaid and Accrued Expenses
We
record accruals for estimated costs of research, preclinical, non-clinical, clinical and manufacturing development within accrued expenses
which are significant components of research and development expenses. A substantial portion of our ongoing research and development
activities are conducted by third-party service providers. We accrue costs incurred under these third-party arrangements based on estimates
of actual work completed in accordance with the respective agreements. We determine the estimated costs to accrue through discussions
with internal personnel and our external service providers as to the percentage of completion of the services and the agreed-upon fees
to be paid for such services. Payments made to third parties under these arrangements in advance of performance of the related services
are recorded as prepaid expenses until the services are rendered.
80
Results
of Operations
Comparison
of the Years Ended December 31, 2025 and 2024
The
following table summarizes our results of operations (in thousands):
For the Years Ended December 31, Period -to- Period
Operating expenses:
Other income (expense), net:
Research
and development expenses
The
following table summarizes our research and development expenses (in thousands):
For the Years Ended December 31, Period -to- Period
Direct expenses by product candidate:
Research and development
expenses were $42.6 million for the year ended December 31, 2025, which represented an increase of approximately $10.9 million as compared
to the year ended December 31, 2024. This increase was primarily due to a $10.1 million increase in direct expenses for our product candidates
and a $0.9 million increase in indirect expenses. The increase in direct expenses was primarily due to site expansion and enrollment efforts
for the ADVANCED-2 trial for NMIBC, start-up costs related to the ADVANCED-3 trial for NMIBC, as well as start-up and enrollment costs
related to the THRIVE-3 trial for IV Choline Chloride. The increase in indirect expenses was primarily due to a $2.0 million increase
in personnel-related expenses offset by a decrease of $1.1 million in research and development expenses not directly attributable to one
specific product candidate.
General
and administrative expenses
The
following table summarizes our general and administrative expenses (in thousands):
For the Years Ended December 31, Period -to- Period
81
General and administrative
expenses were $21.9 million for the year ended December 31, 2025, which represented an increase of approximately $4.5 million as compared
to the year ended December 31, 2024. This increase was primarily due to an increase of $2.3 million in personnel-related expenses, as
well as an increase of $2.1 million in other general and administrative expenses primarily related to professional and consulting services.
Other
income (expense), net
Other income (expense), net
was $7.1 million for the year ended December 31, 2025, which represented an increase of approximately $2.6 million as compared to the
year ended December 31, 2024. The $2.2 million increase in interest and investment income (expense) is due primarily to investment returns
on a higher invested balance. The $0.3 million increase in other income (expense) is due to an increase in refundable tax credits received
in the year ended December 31, 2025.
Liquidity
and Capital Resources
Overview
As
of December 31, 2025 and 2024, our unrestricted cash and cash equivalents, and marketable debt securities were $197.9 million and $170.3
million, respectively. We have not generated revenues since our inception and have incurred net losses of approximately $57.4 million
and $44.6 million for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, we had working capital of approximately
$148.6 million and stockholder’s equity of approximately $196.4 million. During the year ended December 31, 2025, cash flows used
in operating activities were approximately $56.4 million, consisting primarily of a net loss of approximately $57.4 million, which includes
non-cash activities of approximately $4.0 million, inclusive of $3.8 million in stock-based compensation expense, as well as cash used
for changes in operating assets and liabilities of $2.9 million. Since inception, we have met our liquidity requirements principally
through the sale of our common stock, preferred stock and pre-funded warrants in private placements of securities and public offerings
of securities. In addition, we may receive proceeds upon the exercise of the common warrants issued in the April 2024 private placement
described below.
Liquidity
On
November 3, 2023, we filed a shelf registration statement on Form S-3, or the Shelf Registration Statement, which became effective in
November 2023. The Shelf Registration Statement permits the offering, issuance and sale by us of up to a maximum aggregate offering price
of $300.0 million of common stock, preferred stock, debt securities and warrants in one or more offerings and in any combination. In
December 2024, we sold and issued approximately $102.8 million in gross proceeds of common stock and pre-funded warrants in a public
offering, or the December 2024 Public Offering, under the Shelf Registration Statement. The net proceeds were approximately $95.9 million.
In December 2025, we sold and issued approximately $86.3 million in gross proceeds of common stock in a public offering, or the December
2025 Public Offering, under the Shelf Registration Statement. The net proceeds were approximately $80.4 million.
In April 2024, the Company entered into a private placement transaction,
or the April 2024 Private Placement, whereby the Company sold and issued common stock, warrants and in, in some circumstances, pre-funded
warrants to certain purchasers. At the close of the April 2024 Private Placement, the Company received approximately $45.0 million in
gross proceeds. The net proceeds were approximately $42.0 million. Additionally, as part of the April 2024 Private Placement, purchasers
were offered common warrants. Common warrants exercised as of December 31, 2025 have resulted in $3.8 million in proceeds and, if exercised,
proceeds from the remaining common warrants as of December 31, 2025 could result in an additional $53.1 million.
We
are in the business of developing biopharmaceuticals and have no current or near-term revenues. We have incurred substantial clinical
and other costs in our drug development efforts. We will need to raise additional capital in order to fully realize management’s
plans.
We
believe that our current financial resources are sufficient to satisfy our estimated liquidity needs for at least 12 months from the
date of issuance of our consolidated financial statements included elsewhere in this Annual Report on this Form 10-K.
82
As a result of volatility
in the capital markets, economic conditions, general global economic uncertainty, political change, global pandemics and other factors,
we do not know whether additional capital will be available when needed, or that, if available, we will be able to obtain additional capital
on reasonable terms. If we are unable to raise additional capital due to volatile global financial markets, general economic uncertainty
or other factors, we may need to curtail planned development activities. Despite recent moderation, the sustained elevated interest rates
in recent years have had, and may continue to have, a negative effect on market prices for common stock of public companies, especially
those in the biotech industry and those that have no current or near-term revenue. Further, a recession or market correction, supply chain
disruptions and/or inflation could materially affect our business and the value of our common stock.
Cash
Flows
The
following table summarizes our sources and uses of cash (in thousands):
For the Years Ended December 31, Period -to- Period
Comparison
of the Years Ended December 31, 2025 and 2024
Net cash provided by (used
in) operating activities was approximately $(56.4) million for the year ended December 31, 2025 compared to approximately $(35.8) million
for the year ended December 31, 2024. The increase of approximately $20.6 million in cash used in operating activities was primarily driven
by an increase in net loss of $12.8 million, an increase in cash used for operating assets and liabilities, primarily related to changes
in prepaid expenses and other current assets, accounts payable, and accrued expenses and other current liabilities, resulting from the
timing of payments to our service providers of $6.9 million, and by a decrease in non-cash items, consisting principally of accretion
of discount on marketable debt securities and stock-based compensation expense of $0.8 million.
Net cash provided by (used
in) investing activities was approximately $(139.5) million for the year ended December 31, 2025 compared to approximately $19.2 million
for the year ended December 31, 2024. The increase in cash used of $158.7 million resulted primarily from an increase in purchases of
marketable debt securities of $175.2 million offset slightly by an increase in proceeds from marketable debt securities matured and redeemed
of $16.6 million.
Net cash provided by (used
in) financing activities was $82.7 million for the year ended December 31, 2025 compared to $139.9 million for the year ended December
31, 2024. The decrease of approximately $57.2 million resulted primarily from less capital being raised from public and private offerings
in the year ended December 31, 2025 as compared to the year ended December 31, 2024 of $53.1 million. During the year ended December 31,
2025, cash provided by financing activities related to public offerings was $82.9 million as compared to December 31, 2024 where cash
provided by financing activities related to private and public offerings was $136.0 million. Additionally, during the year ended December
31, 2024 cash provided by financing activities related to the exercise of common warrants was $3.8 million.
83
Contractual
and Other Obligations
Operating
lease obligations
Our
operating lease obligations primarily consist of lease payments on our corporate headquarters in New York, New York, as well as lease
payments for our development laboratory, a manufacturing facility and an additional manufacturing space, all located in North America
which are described in further detail in Note 9 of our consolidated financial statements included in this Annual Report on Form 10-K.
Future contractual payments on operating lease obligations due within one year of December 31, 2025 are $1.4 million, and future contractual
payments on operating lease obligations due greater than one year from December 31, 2025 are $2.2 million.
Other
obligations
From
time to time, we enter into certain types of contracts that contingently require us to indemnify parties against third-party claims,
supply agreements, and agreements with directors and officers. The terms of such obligations vary by contract and in most instances a
maximum dollar amount is not explicitly stated therein. Generally, amounts under these contracts cannot be reasonably estimated until
a specific claim is asserted, thus no liabilities have been recorded for these obligations on our consolidated balance sheet for the
periods presented.
We
enter into contracts in the normal course of business with CROs and clinical sites for the conduct of clinical trials, non-clinical research
studies, professional consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts
generally provide for termination on notice, and therefore are cancelable contracts.
Certain
of these agreements require us to pay milestones to such third parties upon achievement of certain development, regulatory or commercial
milestones as further described in Note 10 of our consolidated financial statements included in this Annual Report on Form 10-K. Amounts
related to contingent milestone payments are not considered contractual obligations as they are contingent on the successful achievement
of certain development, regulatory approval and commercial milestones, which may not be achieved.
We
also have obligations to make future payments to third parties that become due and payable on the achievement of certain milestones,
including future payments to third parties with whom we have entered into research, development and commercialization agreements. We
have not included these commitments on our consolidated balance sheet for the periods presented because the achievement and timing of
these milestones is not fixed and determinable.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
No
disclosure required.
84
Item 8.
Financial Statements and Supplementary Data.
Protara
Therapeutics, Inc.
Index
to Consolidated Financial Statements
Page No.
Protara Therapeutics, Inc. for the Years Ended December 31, 2025 and 2024
Report of Independent Registered Public Accounting Firm (PCAOB ID:42) 86
Consolidated Balance Sheets as of December 31, 2025 and 2024 87
Notes to Consolidated Financial Statements 91
85
Report
of Independent Registered Public Accounting Firm
To the Stockholders
and the Board of Directors of Protara Therapeutics, Inc.
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Protara Therapeutics, Inc. (the Company) as of December 31, 2025 and 2024,
the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each
of the two years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the two years in the period
ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
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 audit committee 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 the critical audit matter
does not alter in any way our opinion on the consolidated 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 account or disclosure to which it relates.
Clinical trial prepaid and accrued expenses
/s/ Ernst
& Young LLP
We have served
as the Company’s auditor since 2021
New York,
New York
March 10,
2026
86
Protara
Therapeutics, Inc.
Consolidated
Balance Sheets
(in
thousands, except share and per share data)
December 31,
Assets
Current assets:
Prepaid expenses and other current assets 3,950 1,863
Restricted cash, non-current 745 745
Marketable debt securities, non-current 42,336 -
Property and equipment, net 759 1,027
Operating lease right-of-use asset 3,174 4,255
Liabilities and Stockholders’ Equity
Current liabilities:
Accrued expenses and other current liabilities 6,229 5,408
Operating lease liability, non-current 2,117 3,359
Commitments and contingencies (Note 10)
Stockholders’ Equity:
Preferred stock, $0.001 par value, authorized 10,000,000 shares:
Accumulated other comprehensive income (loss) 90 2
Total liabilities and stockholders’ equity $ 209,468 $ 181,454
See
accompanying notes to consolidated financial statements.
87
Protara
Therapeutics, Inc.
Consolidated
Statements of Operations and Comprehensive Loss
(in
thousands, except share and per share data)
Years Ended December 31,
Operating expenses:
Other income (expense), net:
Interest and investment income (expense) 6,380 4,171
Other comprehensive income (loss):
Net unrealized gain (loss) on marketable debt securities 88 33
Other comprehensive income (loss) 88 33
Comprehensive income (loss) $ (57,351 ) $ (44,563 )
See
accompanying notes to consolidated financial statements.
88
Protara
Therapeutics, Inc.
Consolidated
Statements of Changes in Stockholders’ Equity
(in
thousands, except share and per share data)
Shares Amount Shares Amount Capital Deficit (Loss) Equity
Issuance of common stock upon exercise of stock options - - 47,580 - 135 - - 135
Stock-based compensation - restricted stock units - - - - 480 - - 480
Stock-based compensation - stock options - - - - 3,645 - - 3,645
Unrealized gain (loss) on marketable debt securities - - - - - - 33 33
Issuance of common stock upon exercise of stock options - - 8,239 - 21 - - 21
Stock-based compensation - restricted stock units - - - - 685 - - 685
Stock-based compensation - stock options - - - - 3,141 - - 3,141
Unrealized gain (loss) on marketable debt securities - - - - - - 88 88
See
accompanying notes to consolidated financial statements.
89
Protara
Therapeutics, Inc.
Consolidated
Statements of Cash Flows
(in
thousands)
Years Ended December 31,
Cash flows from operating activities:
Operating lease right-of-use asset 1,081 1,009
Realized loss (gain) on redemption of marketable debt securities (9 ) -
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (2,087 ) 1,262
Accrued expenses and other current liabilities 821 2,676
Operating lease liabilities (1,124 ) (984 )
Net cash provided by (used in) operating activities (56,365 ) (35,808 )
Cash flows from investing activities:
Purchase of marketable debt securities (204,631 ) (29,382 )
Purchase of property and equipment (94 ) (63 )
Net cash provided by (used in) investing activities (139,491 ) 19,155
Cash flows from financing activities:
Proceeds from private placement, net of offering costs of $3,034 - 41,964
Proceeds from exercise of April 2024 Common Warrants - 3,807
Proceeds from exercise of December 2024 Pre-Funded Warrants 1 -
Proceeds from exercise of stock options 21 135
Net cash provided by (used in) financing activities 82,715 139,865
Cash and cash equivalents and restricted cash - beginning of year 163,543 40,331
Cash and cash equivalents and restricted cash - end of year $ 50,402 $ 163,543
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ - $ -
Income taxes $ - $ -
Supplemental disclosure of non-cash investing and financing activities:
Proceeds from public offering – offering costs incurred but not paid $ 526 $ 614
See
accompanying notes to consolidated financial statements.
90
Protara Therapeutics, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share and per share data)
1. Organization and Nature of the Business
Overview
Protara Therapeutics, Inc., and its consolidated subsidiaries, or Protara
or the Company, is a clinical-stage biopharmaceutical company committed to advancing transformative therapies for the treatment of cancer
and rare diseases. Protara’s portfolio includes two development programs utilizing TARA-002, an investigational cell therapy in
development for the treatment of non-muscle invasive bladder cancer, or NMIBC, and lymphatic malformations, or LMs. Additionally, the
Company’s portfolio includes Intravenous, or IV, Choline Chloride, an investigational phospholipid substrate replacement therapy
in development for patients receiving parenteral support, or PS.
Liquidity and Capital Resources
The Company is in the business
of developing biopharmaceuticals and has no current or near-term revenues. The Company has incurred substantial clinical and other costs
in its drug development efforts. The Company will need to raise additional capital in order to fully realize management’s plans.
The Company believes that
its current financial resources are sufficient to satisfy the Company’s estimated liquidity needs for at least 12 months from the
date of issuance of these consolidated financial statements.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or
GAAP.
Principles of Consolidation
The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been
eliminated in the accompanying consolidated financial statements.
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,
revenues, expenses, and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements.
Significant items subject to such estimates include but are not limited to research and development accruals as well as contingencies.
On an ongoing basis, the
Company’s management evaluates its estimates based on historical and anticipated results, trends, and various other assumptions
believed to be reasonable. Actual results could differ from those estimates. The results of any changes in accounting estimates are
reflected in the financial statements of the period in which the change becomes evident.
91
Protara Therapeutics, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share and per share data)
Cash and Cash Equivalents and Restricted
Cash
The Company considers all
highly liquid instruments with an original maturity of three months or less when acquired to be cash equivalents. Cash and cash equivalents
may be held in depository, money market accounts and/or U.S. Treasury securities, and are reported at fair value.
The Company’s restricted
cash balances consist of cash deposits to collateralize letter of credit obligations.
The following table provides
a reconciliation of cash and cash equivalents, and restricted cash in the consolidated balance sheets to the total amount shown in the
consolidated statements of cash flows:
As of December 31,
Restricted cash, non-current 745 745
Fair Value Measurements
Accounting Standards Codification,
or ASC, 820 provides the framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used in
pricing the asset or liability. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets
or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
Fair value is defined as
the exchange price, or an exit price, representing the amount that would be received upon the sale of an asset or payment to transfer
a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value
measurements, the three-tier fair value hierarchy is used to prioritize the inputs in measuring fair value as follows:
● Level 1 Quoted prices in active markets for identical assets or liabilities.
The carrying amounts of cash
and cash equivalents, prepaid expenses and accounts payable approximate their fair values due to the short-term nature of these instruments.
Marketable Debt Securities
The Company classifies investments in marketable debt securities with
remaining maturities when purchased of greater than three months as current. Investments with a remaining maturity date greater than one
year are classified as non-current. The Company classifies all marketable debt securities as available-for-sale. The cost of securities
sold is based on the specific identification method. Interest earned on securities that are classified as available-for-sale are included
in interest and investment income (expense).
The Company records investments at fair value with unrealized gains
and losses recorded as a component of other comprehensive income (loss) in the consolidated statements of operations and comprehensive
loss until realized. Realized gains and losses are reflected in interest and investment income (expense) in the consolidated statements
of operations and comprehensive loss and are determined using the specific identification method with transactions recorded on a settlement
date basis. Fair value is determined based on quoted market rates when observable or utilizing data points that are observable, such
as quoted prices, interest rates and yield curves. To determine whether an other-than-temporary impairment exists, the Company considers
whether it has the ability and intent to hold the investment until a market price recovery, and whether evidence indicating the recoverability
of the cost of the investment outweighs evidence to the contrary. The Company has the ability to hold such securities with an unrealized
loss until its forecasted recovery. The Company determined that there was no material change in the credit risk of these investments.
92
Protara Therapeutics,
Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share and per share data)
The Company periodically
evaluates the need for an allowance for credit losses. This evaluation includes consideration of several qualitative and quantitative
factors, including whether it plans to sell the security, whether it is more likely than not it will be required to sell any marketable
debt securities before recovery of its amortized cost basis, and if the entity has the ability and intent to hold the security to maturity,
and the portion of any unrealized loss that is the result of a credit loss. Factors considered in making these evaluations include quoted
market prices, recent financial results, operating trends, and implied values from any recent transactions or offers of investee securities,
credit quality of debt instrument issuers, expected cash flows from securities, other publicly available information that may affect the
value of the marketable debt security, duration and severity of decline in value and the Company’s strategy and intentions for holding
the marketable debt security.
Concentrations of Credit Risk
Financial instruments, which
potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents, restricted cash and
investments in marketable debt securities.
The Company invests its excess
cash primarily in money market funds and high quality investment grade marketable debt securities of governments and/or corporations.
The Company has adopted an investment policy that includes guidelines relative to credit quality, diversification and maturities to preserve
principal and liquidity.
Property and Equipment, net
Property and equipment, including
leasehold improvements, are recorded at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line
method over the estimated useful life of the asset. Depreciation begins at the time the asset is placed in service. Leasehold improvements
are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Repairs and maintenance
costs are expensed as incurred, whereas major improvements are capitalized as additions to property and equipment.
The estimated useful lives
for significant property and equipment categories are as follows:
Asset Classification Estimated Useful Life
Computer equipment 3-5 years
Furniture, fixtures and other 5 years
Laboratory equipment 7 years
Leasehold improvements Shorter of the lease term or useful life of asset
Leases
The Company enters into contracts
in the normal course of business and assesses whether any such contracts contain a lease. The Company determines if an arrangement is
a lease at inception if it conveys the right to control the identified asset for a period of time in exchange for consideration. Under
ASC 842, lease expense is recognized as a single lease cost on a straight-line basis over the lease term. The lease term consist of non-cancelable
periods and may include options to extend or terminate the lease term, when it is reasonably certain such options will be exercised.
Leases classified as operating
leases are included in operating lease right-of-use, or ROU, assets, current operating lease liabilities and noncurrent operating lease
liabilities in our consolidated balance sheets. Finance leases are included in property and equipment and finance lease obligations, in
our consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term. Lease liabilities represent
the present value of future lease payments, discounted using an incremental borrowing rate, which is a management estimate based on the
information available at the commencement date of a lease arrangement. ROU assets and lease liabilities are recognized at the lease commencement
date.
The Company has elected
to account for the lease and non-lease components for leases as a single component for classes of all underlying assets and allocate
all the contract consideration to the lease component only. Lease cost for operating leases is recognized on a straight-line basis over
the lease term and is included in operating expenses on the consolidated statements of operations and comprehensive loss. Variable lease
payments are included in lease operating expenses.
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Protara Therapeutics, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share and per share data)
The Company recognizes costs
associated with lease arrangements having an initial term of 12 months or less, or short-term leases, on a straight-line basis over the
lease term; such short-term leases are not recorded on the balance sheet.
Impairment of Long-Lived Assets
Long-lived assets are reviewed
for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable
or that the useful life is shorter than originally estimated. When such events occur, the Company compares the carrying amounts of the
asset or asset group to the undiscounted expected future cash flows. If this comparison indicates that the asset or asset group is impaired,
the amount of impairment is measured as the difference between the carrying value and fair value of the asset or asset group. If the useful
life is shorter than originally estimated, the Company will amortize the remaining carrying value over the new shorter useful life. To
date, no such impairment loss has been recognized.
Segment Information
In accordance with ASC 280, operating segments are defined as components
of an enterprise for which separate discrete information is available for evaluation by the chief operating decision maker, or CODM, or
decision-making group in deciding how to allocate resources and in assessing performance. The Company views its operations and manages
its business as one operating and reporting segment. See Note 16, Segment Information for further information.
Research and Development
Research and development
expenses consist primarily of third-party costs incurred to develop drug candidates, personnel-related expenses, including salaries, benefits,
travel and stock-based compensation expense, depreciation and other allocated overhead costs, which include rent and maintenance of facilities
and other supplies. Research and development costs are expensed as incurred.
Before a drug candidate receives
regulatory approval, the Company records upfront and milestone payments made to third parties under licensing arrangements as expense
provided that there is no alternative future use of the rights in other research and development projects.
Nonrefundable advance payments
to vendors for goods or services that will be used or received in future research and development activities are deferred and recognized
as expense in the period in which the related goods are delivered or services are performed. Where milestone payments are due to third
parties under research and development collaboration arrangements or other contractual agreements, the milestone payment obligations are
expensed when the milestone conditions are met and the amount of payment is reasonably estimable.
Once a drug candidate receives
regulatory approval, the Company records any milestone payments in identifiable intangible assets, less accumulated amortization and,
unless the asset is determined to have an indefinite life, the Company amortizes the payments on a straight-line basis over the remaining
agreement term or the expected product life cycle, whichever is shorter.
Certain third-party costs
are included as a component of research and development expense. These expenses include fees paid to contract research organizations,
or CROs, and other clinical trial costs, contractual services costs and costs for supply of its drug candidates. Depending upon the timing
of payments to the service providers, the Company recognizes prepaid expenses or accrued expenses related to these costs. These accrued
or prepaid expenses are based on management’s estimates of the work performed under service agreements, milestones achieved and
experience with similar contracts in conjunction with known variable factors such as enrolled patients and site activity. The Company
monitors each of these factors and adjusts estimates accordingly.
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Protara Therapeutics, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share and per share data)
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 recovery
of the expenditure. Amounts incurred are classified as general and administrative expenses.
Interest and Investment Income (Expense)
Interest and investment income
(expense) consist primarily of interest income, accretion income earned and amortization expense incurred and realized gains or losses related
to our marketable debt securities, interest income related to cash and cash equivalents and restricted cash and dividend income related
to money market funds.
Stock-Based Compensation
The Company’s stock-based compensation programs provide for stock
awards including stock options, restricted stock units, or RSUs, and an employee stock purchase program, or ESPP. The Company accounts
for stock-based compensation using the fair value method.
The Company measures all