Cara Therapeutics (CARA) Risk Analysis

Should Cara resume development of Cara's product candidate or any future product candidate, Cara may not be able to initiate or continue conducting clinical trials for any such product candidate if Cara is unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. Cara's competitors may have ongoing clinical trials for product candidates that treat the same indications as its future product candidates, should Cara resume development activities in the future, and patients who would otherwise be eligible for Cara's clinical trials may instead enroll in clinical trials of its competitors' product candidates. Patient enrollment is affected by other factors including: - the size and nature of the patient population;- the severity of the disease under investigation;- the eligibility criteria for, and design of, the trial in question;- the perceived risks and benefits of the product candidate under study;- competition in recruiting and enrolling patients in clinical trials;- the efforts to facilitate timely enrollment in clinical trials;- the patient referral practices of physicians;- the ability to monitor patients adequately during and after treatment;- the proximity and availability of clinical trial sites for prospective patients; and - delays or difficulties due to public health crises, such as pandemics or other similar outbreaks. For example, Cara experienced a delay in patient enrollment for its Phase 2 clinical trial of oral difelikefalin for the treatment of pruritus in patients with hepatic impairment due to primary biliary cholangitis that led to Cara's decision to discontinue and unblind this trial. Should Cara resume development of its product candidate or any future product candidate, Cara could in the future experience similar delays in programs for such product candidates. Should Cara resume development of its product candidate or any future product candidate, Cara's inability to enroll a sufficient number of patients for Cara's clinical trials would result in significant delays and could require Cara to abandon one or more clinical trials altogether. Cara may encounter difficulties and/or delays in completing any future enrollments, should Cara resume development activities in the future. Enrollment delays in Cara's clinical trials may result in increased development costs for Cara's product candidate, or the inability to complete development of its product candidate, which would cause the value of Cara to decline, limit Cara's ability to obtain additional financing, and materially impair Cara's ability to generate revenues.

Conducting clinical trials, pursuing regulatory approvals, establishing outsourced manufacturing relationships, and successfully manufacturing and commercializing products and product candidates is expensive. If Cara resumes development of its product candidate or any future product candidate, Cara will need to raise additional capital to resume the development of oral difelikefalin and potentially in-license or acquire other product candidates. In January 2024, Cara announced a prioritization of its pipeline to focus its resources on its late-stage clinical program evaluating oral difelikefalin in chronic pruritus associated with NP and terminate Cara's Phase 3 clinical program evaluating oral difelikefalin in pruritus associated with advanced chronic kidney disease, including its KICK 1 and KICK 2 Phase 3 clinical trials. As part of this strategic update, in the first quarter of 2024, Cara reduced its global workforce by approximately 50%. In June 2024, Cara discontinued the clinical program in NP following the outcome from the dose-finding Part A of the KOURAGE-1 study evaluating the efficacy and safety of oral difelikefalin for moderate-to-severe pruritus in adult patients with NP in which oral difelikefalin did not demonstrate a meaningful clinical benefit at any dose compared to placebo. Following the discontinuation of the clinical program in NP, Cara announced that it was undertaking a comprehensive exploration of strategic alternatives focused on maximizing stockholder value. In connection with its streamlined operating plan, Cara further reduced its headcount by approximately 70%. Cara has incurred, and expects to continue to incur, significant costs in connection with this process. After taking into account the discontinuation of Cara's clinical development programs, reduction in workforce and comprehensive exploration of strategic alternatives, Cara expects that its current unrestricted cash and cash equivalents and available-for-sale marketable securities will be sufficient to fund its currently anticipated operating plan for at least the next 12 months. In connection with the termination of all ongoing clinical programs, Cara's research and development expenses have decreased. Should Cara resume development activities in the future, Cara expects that research and development costs would increase significantly. It is possible that the assumptions upon which Cara has based this estimate may prove to be wrong, and Cara could use its capital resources sooner than it presently expects. Cara's future funding requirements will depend on many factors, including, but not limited to: - the discontinuation of its clinical program for oral difelikefalin for chronic pruritus associated with NP;- the exploration of strategic alternatives to maximize shareholder value, including whether Cara is able to implement any potential strategic alternatives, in a timely manner or at all, whether Cara realizes all or any anticipated benefits of any such transactions and whether any such transactions would generate value for stockholders;- should Cara resume development activities in the future, the rate of progress and costs related development of and any trials for product candidates;- should Cara resume development activities in the future, the rate of progress and costs for any product candidates that Cara may in-license or acquire in the future;- the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with any product candidate, including any such costs Cara may be required to expend if Cara's licensors are unwilling or unable to do so;- the effect of competing technological and market developments; and - the terms and timing of any collaborative, licensing, co-promotion or other arrangements that Cara may establish. Future capital requirements will also depend on the extent to which Cara acquires or invests in additional complementary businesses, products and technologies. Until Cara can generate a sufficient amount of product revenue, if ever, Cara may seek to finance future cash needs through public or private equity offerings, debt financings, milestone and royalty payments from corporate collaboration and licensing arrangements, as well as through interest income earned on cash and investment balances. Cara cannot be certain that additional funding will be available on acceptable terms, or at all, and Cara's ability to raise additional capital may be adversely impacted by potential worsening global economic conditions, including fluctuations in inflation and interest rates, the continuing disruptions to and volatility in the credit and financial markets in the United States and worldwide, including resulting from the ongoing conflicts between Russia and the Ukraine, conflicts in the Middle East, and increasing tensions between China and Taiwan.

Should Cara resume development of its product candidate or any future product candidates, its business will depend on the successful development, regulatory approval, and commercialization of such product candidates. In January 2024, Cara announced a prioritization of its pipeline to focus its resources on its late-stage clinical program evaluating oral difelikefalin in chronic pruritus associated with NP and terminate its Phase 3 clinical program evaluating oral difelikefalin in pruritus associated with advanced chronic kidney disease, including the KICK 1 and KICK 2 Phase 3 clinical trials. In June 2024, Cara discontinued the clinical program in NP following the outcome from the dose-finding Part A of the KOURAGE-1 study evaluating the efficacy and safety of oral difelikefalin for moderate-to-severe pruritus in adult patients with NP in which oral difelikefalin did not demonstrate a meaningful clinical benefit at any dose compared to placebo. Should Cara resume development activities in the future, Cara cannot be certain that any such product candidates will be successful in clinical trials or receive regulatory approval. Regulatory authorities may interpret Cara's data differently than Cara does. Cara is not permitted to market or promote any of its product candidates before it receives regulatory approval from the FDA or comparable foreign regulatory authorities, and, should Cara resume development activities in the future it may never receive such regulatory approval for oral difelikefalin or any future product candidates. Should Cara resume development of its product candidate or any future product candidates, the success of such product candidates will depend on many factors, including but not limited to: - successful enrollment in, and completion of, clinical trials, as well as completion of preclinical studies;- favorable efficacy and acceptable safety data from Cara's clinical trials and other studies;- receipt of additional regulatory approvals;- managing Cara's reliance on sole-source third parties such as its third-party vendors, suppliers, and manufacturers;- the performance by CROs or other third parties and consultants Cara may retain of their duties to Cara in a manner that complies with its protocols and applicable laws and that protects the integrity of the resulting data;- obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity;- ensuring Cara does not infringe, misappropriate or otherwise violate the valid patent, trade secret or other intellectual property rights of third parties;- successfully launching, either alone or with a commercial partner, any product candidate for which regulatory approval is received;- obtaining and maintaining favorable reimbursement from third-party payers and governments for products and product candidates;- competition with other products;- post-marketing commitments, if any, to regulatory agencies following regulatory approval of any product candidate;- continued acceptable safety profile following regulatory approval; and - manufacturing or obtaining sufficient supplies of Cara's products and any product candidate that may be necessary for use in clinical trials for evaluation of any product candidate and commercialization of any approved product. If Cara does not achieve and maintain one or more of these factors in a timely manner or at all, Cara could experience significant delays in its ability to, or be unable to obtain regulatory approvals for, and/or to successfully commercialize any products or product candidates, should Cara resume development of its product candidate or any future product candidate, which would materially harm Cara's business and Cara may not be able to generate sufficient revenues and cash flows to continue its operations.

Drug development is expensive and can take many years to complete, and its outcome is inherently uncertain. Should Cara resume development of its product candidate or any future product candidate, Cara cannot guarantee that any clinical trials or preclinical studies will be conducted as planned, including whether Cara is able to meet expected timeframes for data readouts, or complete on schedule, if at all, and failure can occur at any time during the trial or study process, including due to factors that are beyond Cara's control. Should Cara resume development activities in the future, the results from preclinical studies or clinical trials of oral difelikefalin, any potential future product candidates, or a competitor's product candidate in the same class may not predict the results of later clinical trials, and interim, topline or preliminary results of a clinical trial are not necessarily indicative of final results. Oral difelikefalin or any future product candidate in later stages of clinical trials may fail to show the desired characteristics despite having progressed through preclinical studies and initial clinical trials. It is not uncommon to observe results in clinical trials that are unexpected based on preclinical studies and early clinical trials, and many product candidates fail in clinical trials despite very promising early results. For example, in December 2023, Cara announced the outcome from the dose-finding Part A of the KIND 1 study evaluating the efficacy and safety of oral difelikefalin in moderate-to-severe pruritus associated with atopic dermatitis as an adjunct to topical corticosteroids. In the study, oral difelikefalin did not demonstrate a meaningful clinical benefit, which resulted in Cara's decision to discontinue the clinical program in atopic dermatitis. Further, in June 2024, Cara discontinued the clinical program in NP following the outcome from the dose-finding Part A of the KOURAGE-1 study evaluating the efficacy and safety of oral difelikefalin for moderate-to-severe pruritus in adult patients with NP in which oral difelikefalin did not demonstrate a meaningful clinical benefit at any dose compared to placebo. Moreover, preclinical and clinical data may be susceptible to varying interpretations and analyses. A number of companies in the biopharmaceutical and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results in earlier studies. Such setbacks have occurred and may occur for many reasons, including, but not limited to: clinical sites and investigators may deviate from clinical trial protocols, whether due to lack of training or otherwise, and Cara may fail to detect any such deviations in a timely manner; patients may fail to adhere to any required clinical trial procedures, including any requirements for post-treatment follow-up; product candidates may fail to demonstrate safety, potency (or efficacy) in certain patient subpopulations, which has not been observed in earlier trials due to limited sample size, lack of analysis or otherwise; or, should Cara resume development of its product candidate or any future product candidate, its clinical trials may not adequately represent the patient populations Cara intends to treat, whether due to limitations in Cara's trial designs or otherwise, such as where one patient subgroup is overrepresented in the clinical trial. There can be no assurance that Cara will not suffer similar setbacks despite the data Cara may observe in earlier studies. Based upon negative or inconclusive results, Cara or any current or any future collaborator may decide, or regulators may require, Cara to conduct additional preclinical studies or clinical trials, which would cause Cara to incur additional operating expenses and delays and may not be sufficient to support regulatory approval on a timely basis or at all. As a result, Cara cannot be certain that, should Cara resume development of its product candidate or any future product candidate, any clinical trials or preclinical studies will be successful. Any safety concerns observed in any clinical trials, should Cara resume development of its product candidate or any future product candidate, could limit the prospects for regulatory approval of such product candidate, which could have a material adverse effect on Cara's business, financial condition, results of operations and prospects.

Because Cara has limited financial and managerial resources, it has focused on developing product candidates for specific indications that Cara believed to be most likely to succeed, in terms of both regulatory approval and commercialization. As a result, Cara may have foregone or delayed, or, should Cara resume development activities in the future, may in the future forgo or delay, pursuit of opportunities with other product candidates or for other indications that may prove to have greater commercial potential. For example, in 2023, Cara terminated the atopic dermatitis program as part of its strategy to focus on its advanced chronic kidney disease and NP programs. Further, in January 2024, Cara announced a prioritization of its pipeline to focus its resources on its late-stage clinical program evaluating oral difelikefalin in chronic pruritus associated with NP and terminated its Phase 3 clinical program evaluating oral difelikefalin in pruritus associated with advanced chronic kidney disease. In June 2024, Cara discontinued the clinical program in NP following the outcome from the dose-finding Part A of the KOURAGE-1 study evaluating the efficacy and safety of oral difelikefalin for moderate-to-severe pruritus in adult patients with NP in which oral difelikefalin did not demonstrate a meaningful clinical benefit at any dose compared to placebo. Cara's resource allocation decisions may cause it to fail to capitalize on viable commercial products or profitable market opportunities. Should Cara resume development activities in the future, its spending on future R&D programs and product candidates for specific indications may not yield any commercially viable products. If Cara does not accurately evaluate the commercial potential or target market for a particular product candidate, Cara may relinquish valuable rights to that product candidate through collaboration, licensing, or other royalty arrangements in cases in which it would have been more advantageous for Cara to retain sole development and commercialization rights to such product candidate.

In order to successfully launch a product and have it become profitable, should Cara resume development of its product candidate or any future product candidate, Cara anticipates that it will have to dedicate substantial time and resources. Cara's ability to generate revenues from any commercialized products will depend on a number of factors, including, but not limited to: - achievement of broad market acceptance and coverage by government and third-party payers for Cara's product;- Cara's or Cara's partners' effectiveness in marketing and selling Cara's product;- Cara's ability to have manufactured commercial quantities of its product at acceptable cost levels and in compliance with regulatory requirements;- Cara's ability to maintain a cost-efficient organization and, to the extent Cara seeks to do so, to collaborate successfully with additional third parties;- Cara's ability to expand and maintain intellectual property protection for its product successfully;- the efficacy and safety of Cara's product; and - Cara's ability to comply with regulatory requirements, which are subject to change. Because of the numerous risks and uncertainties associated with Cara's commercialization efforts, Cara may not be able to achieve profitability. For example, Cara previously successfully developed KORSUVA injection through regulatory approval, for the treatment of moderate-to-severe pruritus associated with chronic kidney disease in adults undergoing hemodialysis. However, this product failed to achieve meaningful commercial success. Even if Cara does achieve profitability, Cara may not be able to sustain or increase profitability on a quarterly or annual basis. A failure to become and remain profitable would depress the value of the company and could impair Cara's ability to raise capital, expand its business, diversify its product offerings or continue its operations. A decline in the value of the company could also cause you to lose all or part of your investment.

Should Cara resume development of its product candidate or any future product candidate, Cara expects to continue to rely on third parties for the manufacture of any such product candidate for preclinical and clinical testing. If Cara were to experience an unexpected loss of supply of a product candidate for any reason, whether as a result of manufacturing, supply or storage issues or otherwise, Cara could experience delays, disruptions, suspensions or terminations of, or be required to restart or repeat, any clinical studies. Should Cara resume development of its product candidate or any future product candidate, any problems or delays Cara experiences in preparing for commercial-scale manufacturing of a product or product candidate may result in a delay in FDA approval of the product or product candidate or may impair Cara's ability to manufacture commercial quantities, which would adversely affect Cara's business. For example, Cara's manufacturers would need to produce specific batches of a product or product candidate to demonstrate acceptable stability under various conditions and for commercially viable lengths of time. Cara and its contract manufacturers would need to demonstrate to the FDA and other regulatory authorities acceptable stability data for any product candidate, as well as validate methods and manufacturing processes, in order to receive and maintain regulatory approval to commercialize any approved product candidates. Furthermore, if Cara's commercial manufacturers fail to deliver the required commercial quantities of bulk drug substance or finished product on a timely basis and at commercially reasonable prices, Cara would likely be unable to meet demand for its product and Cara would lose potential revenues. The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products often encounter difficulties in production, particularly in scaling up initial production. These problems include difficulties with production costs and yields, quality control, including stability of the products and product candidates and quality assurance testing, shortages of qualified personnel, as well as compliance with strictly enforced federal, state and foreign regulations. Manufacturers that Cara engages may not perform as agreed. If manufacturers Cara engages were to encounter any of these difficulties, Cara's ability to provide products for commercialization and product candidates to patients in any future clinical trials, should Cara resume development activities in the future, would be jeopardized. This could, among other things, lead to increased costs, lost revenue, damage to customer relationships, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If problems are not discovered before the product is released to the market, recall and product liability costs may also be incurred. Further, should Cara resume development of its product candidate or any future product candidate, Cara may rely on proprietary technology developed by contract manufacturers for purposes of manufacturing certain of its products and product candidates and Cara's failure to negotiate or maintain the long-term use of any such proprietary technology or the inability for its contract manufacturers to produce any products and product candidates or components of any products and product candidates in the volumes that Cara requires on a timely basis, may lead to delays or interruptions in the regulatory approval or commercialization process, as well as increased costs. For example, in August 2019, Cara entered into the Enteris License Agreement and intended to use Enteris's Peptelligence technology to develop, manufacture and commercialize oral difelikefalin. In light of Cara's decision to discontinue the development of oral difelikefalin, it is possible that the Enteris License Agreement will be terminated. If Cara decides to resume development of oral difelikefalin in the future, if the Enteris License Agreement has been terminated or, for any other reason, Cara experiences any interruptions in the manufacture, delivery or scale-up of the Enteris formulation technology, Cara may experience delays in the development and commercialization of oral difelikefalin. Further, if Cara is unable to maintain its relationship with Enteris, Cara may be forced to reformulate oral difelikefalin which could significantly delay commercializing oral difelikefalin and require Cara to incur additional costs in connection with such reformulation and potentially needed to seek additional approvals from the FDA. The operations of Cara's third-party manufacturers have been and, should Cara resume development of its product candidate or any future product candidate, may in the future be constrained or disrupted and their operating capacity may be reduced by public health crises, such as pandemics or other similar outbreaks, which could negatively impact Cara's clinical development and commercialization timelines. In addition, should Cara resume development of its product candidate or any future product candidate, any manufacturers must comply with cGMP requirements enforced by the FDA through its facilities inspection program. These requirements include quality control, quality assurance and the maintenance of records and documentation. Manufacturers of Cara's products and product candidates may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. If Cara's contract manufacturers cannot successfully manufacture material that conforms to Cara's specifications and the strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, regulatory agencies subject an approved product, its manufacturer and the manufacturer's facilities to continual review and inspections, including periodic unannounced inspections. The subsequent discovery of previously unknown problems with Cara's current or any future approved products, including adverse events of unanticipated severity or frequency, or problems with the facilities where Cara's current or any future approved products are manufactured, may result in restrictions on the marketing of Cara's current or any such future approved products, up to and including withdrawal of the affected product from the market. Cara has little control over its manufacturers' compliance with these regulations and standards. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of its products and product candidate or if it withdraws any such approval in the future, Cara may need to find alternative manufacturing facilities, which would significantly impact Cara's ability to develop, obtain regulatory approval for or market its products and any product candidate, should Cara resume development of its product candidate or any future product candidate, if approved. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension, delay or denial of product approval, product seizure or recall, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to Cara's manufacturers' failure to adhere to applicable laws or for other reasons, Cara may not be able to obtain regulatory approval for or successfully commercialize its products and any potential future product candidates.

Cara's commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for difelikefalin and, should Cara resume development activities in the future, for any other product candidates that Cara may develop, license or acquire and the methods Cara uses to manufacture them, as well as successfully defending these patents and trade secrets against third-party challenges. Cara will only be able to protect its technologies from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets cover them. The patent prosecution process is expensive and time-consuming, and Cara may not be able to file and prosecute to issuance all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that Cara may fail to identify patentable aspects of its R&D output before it is too late to obtain patent protection. Moreover, should Cara enter into additional collaborations it may be required to consult with or cede control to collaborators regarding the prosecution, maintenance and enforcement of its patents. Therefore, these patents and applications may not be successfully prosecuted to issuance and enforced in a manner consistent with the best interests of Cara's business. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical or biotechnology patents has emerged to date in the United States. The patent situation outside the United States is also uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of Cara's intellectual property. Accordingly, Cara cannot predict the breadth of claims that may be allowed or enforced in its patents or in third-party patents. The degree of future protection for Cara's proprietary rights is uncertain, because legal means afford only limited protection and may not adequately protect Cara's rights or permit Cara to gain or keep its competitive advantage. Moreover, the patent application process is also subject to numerous risks and uncertainties, and there can be no assurance that Cara or any of its future development partners will be successful in protecting difelikefalin and, should Cara resume development activities in the future, any other product candidates that Cara may develop, license or acquire by obtaining and defending patents. For example: - Cara may not have been the first to make the inventions covered by each of its pending patent applications and issued patents;- Cara may not have been the first to file patent applications for these inventions;- others may independently develop similar or alternative technologies or duplicate any of Cara's product candidates or technologies;- it is possible that none of the pending patent applications will result in issued patents;- the issued patents covering Cara's product candidates may not provide a basis for commercially viable active products, may not provide Cara with any competitive advantages, or may be challenged by third parties;- Cara may not develop additional proprietary technologies that are patentable;- patents of others may have an adverse effect on Cara's business;- competitors may file trademark infringement claims or challenges to the validity of Cara's trademark(s);- noncompliance with governmental patent agencies requirements can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction, potentially allowing competitors to enter the market earlier than would otherwise have been the case;- Cara's competitors, many of whom have substantially greater resources than Cara does and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with, or eliminate Cara's ability to make, use, and sell Cara's potential product candidates; or - there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of available patent protection both inside and outside the United States for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of Cara's patent applications and the enforcement or defense of Cara's issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent Office has developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, including and in particular, the first to file provisions, became effective on March 16, 2013. The Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of Cara's currently pending and future patent applications and the enforcement or defense of Cara's issued patents, all of which could have a material adverse effect on Cara's business and financial condition. Patent applications in the United States are generally maintained in confidence for at least 18 months after their earliest effective filing date and in certain circumstances not until granted when no foreign counterpart patent applications are filed. Furthermore, published patent applications may issue at a later date with new and/or amended claims substantially different from those published earlier. Consequently, Cara cannot be certain it was the first to invent or the first to file patent applications on difelikefalin or, should Cara resume development activities in the future, any other product candidates that Cara may develop, license or acquire. Until recent changes to the U.S. Patent Laws, patents and patent applications relating to substantially similar claimed inventions were potentially subject to interference proceedings to determine the first applicant to invent the claimed subject matter. For an interference to be declared against Cara's patents and patent applications, any such interference would be under the 1952 law which was eliminated by the America Invents Act, or AIA, enacted in 2011 and fully effective in 2013. Such an interference would therefore have to relate to a patent or application with an effective filing date before March 16, 2013. No interference with such a patent or application has been declared to date. Therefore, it seems extremely unlikely that Cara may have to participate in interference proceedings declared by the USPTO to determine priority of invention in the United States against one or more parties claiming the same or similar invention. However, in the unlikely event that such interference was to be declared, the costs of these proceedings could be substantial and it is possible that Cara's efforts would be unsuccessful, resulting in a material adverse effect on Cara's U.S. patent position. The results of these types of proceedings could reduce the scope of, or invalidate, Cara's patent rights, allow third parties to commercialize Cara's technology or products and compete directly with it, without payment to Cara, or result in Cara's inability to manufacture or commercialize products without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by Cara's patents and patent applications is threatened, it could dissuade companies from collaborating with Cara to license, develop or commercialize product candidates. Such results could have a material adverse effect on Cara's results of operations. In addition, the patentability of claims in pending patent applications covering KORSUVA injection or other difelikefalin-based product can be challenged by third parties during prosecution in the USPTO under the new AIA law of 2013, for example by third party observations and derivation proceedings, and the validity of claims in issued patents can be challenged by third parties in various post-grant proceedings such as Post-Grant Review, Inter-partes Reexamination, and Inter-partes Review proceedings. Furthermore, Cara may not have identified all U.S. and foreign patents or published applications that affect Cara's business either by blocking its ability to commercialize its drugs or by covering similar technologies that affect the drug market. In addition, some countries, including many in Europe, do not grant patent claims directed to methods of treating humans, and in these countries patent protection may not be available at all to protect Cara's product candidates. Even if patents issue, Cara cannot guarantee that the claims of those patents will be valid and enforceable or provide Cara with any significant protection against competitive products, or otherwise be commercially valuable to Cara. Cara also relies on trade secrets to protect Cara's technology, particularly where Cara does not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. While Cara uses reasonable efforts to protect Cara's trade secrets, Cara's licensors, employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose Cara's information to competitors. Enforcing a claim that a third party illegally obtained and is using Cara's trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, Cara's competitors may independently develop equivalent knowledge, methods and know-how. If Cara fails to obtain or maintain patent protection or trade secret protection for difelikefalin or, should Cara resume development activities in the future, any other product candidate that Cara may develop, license or acquire, third parties could use Cara's proprietary information, which could impair Cara's ability to compete in the market and adversely affect Cara's ability to generate revenues and achieve profitability. Even if Cara's patent applications issue as patents, they may not issue in a form that will provide Cara with any meaningful protection, prevent competitors from competing with it or otherwise provide it with any competitive advantage. Cara's competitors may be able to circumvent Cara's owned or licensed patents by developing similar or alternative technologies or products in a non-infringing manner. The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and Cara's owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit Cara's ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of Cara's technology and products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized. As a result, Cara's owned and licensed patent portfolio may not provide it with sufficient rights to exclude others from commercializing products similar or identical to Cara's.

Competitors may infringe on Cara's issued patents or other intellectual property. To counter infringement or unauthorized use, Cara may be required to file infringement claims, which can be expensive and time consuming. Any claims Cara asserts against perceived infringers could provoke these parties to assert counterclaims against Cara alleging that Cara infringes their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent's claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that Cara's patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of Cara's patents at risk of being invalidated or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of Cara's confidential information could be compromised by disclosure during this type of litigation. Most of Cara's competitors are larger than Cara is and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex patent litigation longer than Cara could. In addition, should Cara resume development activities in the future, the uncertainties associated with litigation could have a material adverse effect on Cara's ability to raise the funds necessary to continue its clinical trials, continue its internal research programs, in-license needed technology, or enter into development partnerships that would help it bring any product candidate to market.

Cara's ability to develop, manufacture, market and sell difelikefalin or, should Cara resume development activities in the future, any potential future product candidate will depend upon Cara's ability to avoid infringing the proprietary rights of third parties, and Cara's commercial success will depend upon Cara's ability, and the ability of its collaborators, to develop, manufacture, market and sell its product candidates and use its proprietary technologies without infringing the proprietary rights of third parties. There is considerable intellectual property litigation in the biotechnology and pharmaceutical industries. Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the general field of pain management and cover the use of numerous compounds and formulations in Cara's targeted markets. Third parties may assert infringement claims against Cara based on existing patents or patents that may be granted in the future. Because of the uncertainty inherent in any patent or other litigation involving proprietary rights, Cara and its licensors may not be successful in defending intellectual property claims by third parties, which could have a material adverse effect on Cara's results of operations. Regardless of the outcome of any litigation, defending the litigation may be expensive, time-consuming and distracting to management. In addition, because patent applications can take many years to issue, there may be currently pending applications, unknown to Cara, which may later result in issued patents that current or potential future product candidates may infringe. There could also be existing patents of which Cara is not aware that its current or potential future product candidates may inadvertently infringe. There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries generally. If a third-party claims that Cara infringes on their products or technology, Cara could face a number of issues, including: - infringement and other intellectual property claims which, with or without merit, can be expensive and time consuming to litigate and can divert management's attention from Cara's core business;- substantial damages for past infringement which Cara may have to pay if a court decides that Cara's product infringes on a competitor's patent;- a court prohibiting Cara from selling or licensing its product unless the patent holder licenses the patent to Cara, which it would not be required to do;- if a license is available from a patent holder, Cara may have to pay substantial royalties or grant cross licenses to Cara's patents; and - redesigning Cara's processes so they do not infringe, which may not be possible or could require substantial funds and time. If Cara is found to infringe on a third party's intellectual property rights, Cara could be required to obtain a license from such third party to continue developing and marketing its products and technology. However, Cara may not be able to obtain any required license on commercially reasonable terms or at all. Even if Cara were able to obtain a license, it could be non-exclusive, thereby giving Cara's competitors access to the same technologies licensed to it. Cara could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, Cara could be found liable for monetary damages, including treble damages and attorneys' fees if Cara is found to have willfully infringed a patent. A finding of infringement could prevent Cara from commercializing its product candidate or force Cara to cease some of its business operations, which could materially harm Cara's business. Claims that Cara has misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on Cara's business.

Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and Cara's intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, Cara may not be able to prevent third parties from practicing its inventions in all countries outside the United States, or from selling or importing products made using its inventions in and into the United States or other jurisdictions. Competitors may use Cara's technologies in jurisdictions where Cara has not obtained patent protection to develop their own products and further, may export otherwise infringing products to territories where Cara has patent protection, but enforcement rights are not as strong as those in the United States. These products may compete with Cara's product candidate, should Cara resume development activities, and Cara's patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries do not favor the enforcement of patents and other intellectual property protection, which could make it difficult for Cara to stop the infringement of its patents generally. Proceedings to enforce Cara's patent rights in foreign jurisdictions could result in substantial costs and divert Cara's efforts and attention from other aspects of its business, could put its patents at risk of being invalidated or interpreted narrowly and its patent applications at risk of not issuing and could provoke third parties to assert claims against it. Cara may not prevail in any lawsuits that it initiates and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, Cara's efforts to enforce its intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that Cara develops or licenses.

Should Cara resume development activities in the future, in the event that oral difelikefalin or any potential future product candidate is approved by the FDA, one or more third parties may challenge the patents covering these products and product candidates, which could result in the invalidation of, or render unenforceable, some or all of the relevant patent claims. For example, if a third party files an Abbreviated New Drug Application, or ANDA, for a generic drug product containing difelikefalin, and relies in whole or in part on studies conducted by or for Cara, the third party will be required to certify to the FDA that either: (1) the patents listed in the Orange Book have expired; (2) the listed patents have not expired, but will expire on a particular date and approval is sought after patent expiration; or (3) the listed patents are invalid or will not be infringed by the manufacture, use or sale of the third-party's generic drug product. A certification that the new product will not infringe the Orange Book-listed patents for difelikefalin, or that such patents are invalid, is called a paragraph IV certification. If the third party submits a paragraph IV certification to the FDA, a notice of the paragraph IV certification must also be sent to Cara once the third-party's ANDA is accepted for filing by the FDA. Cara may then initiate a lawsuit to defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45 days of receipt of the notice automatically prevents the FDA from approving the third-party's ANDA until the earliest of 30 months or the date on which the patent expires, the lawsuit is settled, or the court reaches a decision in the infringement lawsuit in favor of the third party. If Cara does not file a patent infringement lawsuit within the required 45-day period, the third-party's ANDA will not be subject to the 30-month stay. Litigation or other proceedings to enforce or defend intellectual property rights are often very complex in nature, may be very expensive and time-consuming, may divert Cara management's attention from its core business, and may result in unfavorable results that could adversely impact Cara's ability to prevent third parties from competing with its products.

In international markets, reimbursement and health care payment systems vary significantly by country, and many countries have instituted price ceilings on specific products and therapies. In some countries, particularly the countries of the EU, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. Should Cara resume development activities in the future, to obtain coverage and reimbursement or pricing approval in some countries, Cara may be required to conduct a clinical trial that compares the cost-effectiveness of a product candidate to other available therapies. There can be no assurance that Cara's products will be considered cost-effective by third-party payers, that an adequate level of reimbursement will be available or that the third-party payers' reimbursement policies will not adversely affect Cara's ability to sell its products profitably. If reimbursement of Cara's products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, Cara's business could be harmed, possibly materially.

Cara is subject to or affected by numerous domestic (both federal and state) and foreign laws and regulations, as well as regulatory guidance, contracts, industry standards, policies and other obligations governing the collection, use, disclosure, retention, security and other processing of personal data, such as information that Cara collects about participants and healthcare providers in connection with clinical trials in the United States and abroad. Obligations related to data privacy and security (and consumers' data privacy expectations) are quickly changing, becoming increasingly stringent, and creating uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. This evolving global data protection landscape may create uncertainty in Cara's business, affect Cara's or its service providers' ability to operate in certain jurisdictions or to collect, store, transfer use, share and otherwise personal data, result in liability or impose additional costs on Cara. The cost of compliance with these obligations is high and is likely to increase in the future and may necessitate changes to Cara's operations and to those of third parties that process personal data on its behalf. In many jurisdictions, enforcement actions and consequences for noncompliance are rising. In the United States, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization by entities subject to the rule, including health plans, healthcare clearinghouses, certain healthcare providers, and their business associates and covered subcontractors that perform services for them that involve the creation, use, maintenance or disclosure of, individually identifiable health information. In the event Cara is subject to HIPAA and Cara or its business associates or subcontractors fail to properly maintain the privacy and security of certain individually identifiable health information, or Cara or its business associates or subcontractors are responsible for an inadvertent disclosure or security breach of such individually identifiable health information, Cara could be subject to enforcement measures, including civil and criminal penalties and fines for violations of state and federal privacy or security standards, such as HIPAA and HITECH, and their respective implementing regulations. Additionally, certain states have adopted their own privacy and security laws and regulations for health information, some of which may be more stringent than HIPAA. In the past few years, numerous U.S. states, following California's enactment of the CCPA - including Virginia, Colorado, Connecticut, and Utah-have enacted comprehensive privacy laws that impose certain obligations on covered businesses, including providing specific disclosures in privacy notices and affording residents with certain rights concerning their personal data. As applicable, such rights may include the right to access, correct, or delete certain personal data, and to opt-out of certain data processing activities, such as targeted advertising, profiling, and automated decision-making. To the extent that Cara is or may become subject to these laws, the exercise of these rights may impact Cara's business and ability to provide its products and services. Similar laws are being considered in several other states, as well as at the federal and local levels, and Cara expects more states to pass similar laws in the future. These state laws may allow for statutory fines for noncompliance and private rights of action. While some of these laws may exempt some data processed in the context of clinical trials, these developments further complicate compliance efforts, and increase legal risk and compliance costs for Cara, and the third parties upon whom Cara relies. For example, Washington's My Health My Data Act ("MHMD") broadly defines consumer health data, places restrictions on processing consumer health data (including imposing stringent consent requirements), provides consumers certain rights with respect to their health data, and creates a private right of action to allow individuals to sue for violations of the law. Outside the United States, an increasing number of laws, regulations, and industry standards govern data privacy and security. For example, the EU GDPR and the UK GDPR impose strict requirements for processing personal data. GDPR may increase compliance burdens on Cara, including by mandating potentially burdensome documentation requirements and granting certain rights to individuals to control how Cara collects, uses, discloses, retains and otherwise processes personal data. The processing of sensitive personal data, such as physical health conditions, may also be subject to heightened compliance burdens under the GDPR. Under the GDPR, companies may face temporary or definitive bans on data processing and other corrective actions; fines of up to 20 million Euros under the EU GDPR, 17.5 million pounds sterling under the UK GDPR or, in each case, 4% of annual global revenue, whichever is greater; or private litigation related to processing of personal data brought by classes of data subjects or consumer protection organizations authorized at law to represent their interests. In addition, Cara may be unable to transfer personal data from Europe and other jurisdictions to the United States or other countries due to data localization requirements or limitations on cross-border data flows. Europe and other jurisdictions have enacted laws requiring data to be localized or limiting the transfer of personal data to other countries. In particular, the European Economic Area (EEA) and the United Kingdom (UK) have significantly restricted the transfer of personal data to the United States and other countries whose privacy laws it generally believes are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws. Although there are currently various mechanisms that may be used to transfer personal data from the EEA and UK to the United States in compliance with law, such as the EEA's standard contractual clauses, the UK's International Data Transfer Agreement/Addendum, and the EU-U.S. Data Privacy Framework and the UK extension thereto (which allows for transfers to relevant U.S.-based organizations who self-certify compliance and participate in the Framework), these mechanisms are subject to legal challenges, and there is no assurance that Cara can satisfy or rely on these measures to lawfully transfer personal data to the United States. If there is no lawful manner for Cara to transfer personal data from the EEA, the UK, or other jurisdictions to the United States, or if the requirements for a legally-compliant transfer are too onerous, Cara could face significant adverse consequences, including the interruption or degradation of its operations, the need to relocate part of or all of its business or data processing activities to other jurisdictions (such as Europe) at significant expense, increased exposure to regulatory actions, substantial fines and penalties, the inability to transfer data and work with partners, vendors and other third parties, and injunctions against its processing or transferring of personal data necessary to operate its business. Additionally, companies that transfer personal data out of the EEA and UK to other jurisdictions, particularly to the United States, are subject to increased scrutiny from regulators, individual litigants, and activities groups. Some European regulators have ordered certain companies to suspend or permanently cease certain transfers of personal data out of Europe for allegedly violating the GDPR's cross-border data transfer limitations. Regulators in the United States are also increasingly scrutinizing certain personal data transfers and have proposed and enacted certain data transfer requirements or prohibitions, for example, the Biden Administration's executive order Preventing Access to Americans' Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern. In addition to data privacy and security laws, Cara is or may become contractually subject to industry standards adopted by industry groups. Cara is also bound by other contractual obligations related to data privacy and security, and Cara's efforts to comply with such obligations may not be successful. Cara publishes privacy policies, marketing materials, and other statements, such as compliance with certain certifications or self-regulatory principles, regarding data privacy and security. If these policies, materials or statements are found to be deficient, lacking in transparency, deceptive, unfair, or misrepresentative of Cara's practices, Cara may be subject to investigation, enforcement actions by regulators, or other adverse consequences. Cara may at times fail (or be perceived to have failed) in its efforts to comply with its data privacy and security obligations. Moreover, despite Cara's efforts, its personnel or third parties on whom it relies may fail to comply with such obligations, which could negatively impact Cara's business operations. If Cara or the third parties on which Cara relies fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, Cara could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims) and mass arbitration demands; additional reporting requirements and/or oversight; bans on processing personal data; orders to destroy or not use personal data; and imprisonment of company officials. In particular, plaintiffs have become increasingly more active in bringing privacy-related claims against companies, including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory damages on a per violation basis, and, if viable, carry the potential for monumental statutory damages, depending on the volume of data and the number of violations. Any of these events could have a material adverse effect on Cara's reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in Cara's business operations (including, as relevant, clinical trials should Cara resume development activities in the future); inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize Cara's products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to Cara's business model or operations.

Should Cara resume development of its product candidate or any future product candidate, even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to the conditions of approval, including any requirement to implement a Risk Evaluation and Mitigation Strategies, or REMS. If a product candidate receives marketing approval, the accompanying label may limit the approved use of Cara's drug, which could limit sales of the product. The FDA or other regulatory authorities may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety or efficacy of the product. The FDA and other regulatory authorities closely regulate the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA and other regulatory authorities impose stringent restrictions on manufacturers' communications regarding off-label use and if Cara does not market its products for their approved indications, Cara may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act or equivalent regulations outside the United States relating to the promotion of prescription drugs may lead to investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws. In addition, later discovery of previously unknown AEs or other problems with its products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including: - restrictions on the products, manufacturers, manufacturing facilities or manufacturing process;- imposition of restrictions on operations, including costly new manufacturing requirements;- restrictions on the labeling or marketing of a product;- restrictions on product distribution or use;- requirements to conduct post-marketing studies or clinical trials;- warning letters;- withdrawal of the products from the market;- refusal to approve pending applications or supplements to approved applications that Cara submits;- recall of products and publicity requirements;- fines, restitution or disgorgement of profits or revenues;- suspension or withdrawal of marketing or regulatory approvals;- refusal to permit the import or export of Cara's products;- product seizure, detentions or import bans; or - injunctions or the imposition of civil or criminal penalties. The FDA's or other regulatory authorities' policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of any product candidates should Cara resume development of its product candidate or any future product candidate. If Cara is slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if Cara is not able to maintain regulatory compliance, Cara may lose any marketing approval that it may have obtained.

As a pharmaceutical company, even though Cara does not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers, certain federal and state healthcare laws and regulations pertaining to fraud and abuse, transparency and patients' rights may be applicable to Cara's business. The healthcare laws and regulations that may affect Cara's ability, and its partners' and collaborators' ability, to operate include, but are not limited to: - the federal Anti-Kickback Statute, which regulates, among other things, Cara's marketing practices, educational programs, pricing policies, and relationships with healthcare providers or other entities, by prohibiting, among other things, any person or entity from knowingly and willfully soliciting, receiving, offering or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, the purchase, recommendation, lease, order or furnishing of an item or service reimbursable, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs;- federal civil and criminal false claims laws, including without limitation the federal civil False Claims Act, and civil monetary penalties law, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment or approval from a federal health care program (including Medicare and Medicaid);- Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or to obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program, regardless of the payer (e.g., public or private) and knowingly and willfully falsifying, concealing, or covering up by any trick, scheme or device a material fact or making any materially false statements in connection with the delivery of, or payment for, health care benefits, items or services relating to healthcare matters;- federal transparency laws, including the federal Physician Payments Sunshine Act, that requires certain manufacturers of drugs, devices, biologics, and medical supplies for which payment is available under Medicare, Medicaid, or the Children's Health Insurance Program to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to payments and other transfers of value provided to physicians (defined to include doctors of medicine, dentists, optometrists, podiatrists and chiropractors), other healthcare professionals (such as physician assistants and nurse practitioners), and teaching hospitals, and applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members;- state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers;- state laws that require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources;- state laws that require drug manufacturers to report information related to the pricing of certain drugs, as well as payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and - state and local laws that require the registration of pharmaceutical sales representatives, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available under these laws, it is possible that some of Cara's business activities could be subject to challenge under one or more of such laws. Pharmaceutical and other healthcare companies continue to be prosecuted under the federal false claims laws for numerous activities, including those related to research, sales, marketing and promotional programs. In addition, recent health care reform legislation has strengthened these laws. For example, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010, or the Health Care Reform Law, among other things, amends the intent requirement of the federal Anti-Kickback Statute and certain other criminal healthcare fraud statutes. As a result, a person or entity no longer needs to have actual knowledge of these statutes or specific intent to violate them in order to commit a violation. Moreover, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. To the extent that any product Cara makes is sold in a foreign country, Cara may be subject to similar foreign laws and regulations. If Cara or its operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to it, Cara may be subject to significant penalties, including administrative, civil and criminal penalties, damages, fines, disgorgement, exclusion from participation in U.S. federal or state health care programs, contractual damages, reputational harm, imprisonment, diminished profits and future earnings, additional reporting requirements and/or oversight if Cara becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of Cara's operations, any of which could materially adversely affect Cara's ability to operate its business and its financial results. Although an effective compliance program can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against Cara for violation of these laws, even if Cara successfully defends against it, could cause Cara to incur significant legal expenses and divert Cara management's attention from the operation of its business. Moreover, achieving and sustaining compliance with applicable federal and state transparency and fraud and abuse laws may prove costly. If any of the physicians or other healthcare providers or entities with whom Cara does business, including its partners or collaborators, is found not to be in compliance with applicable laws, it may be subject to significant criminal, civil or administrative sanctions, including but not limited to, exclusions from participation in government healthcare programs, which could also materially affect Cara's business.

When the FDA or comparable foreign regulatory authorities issue regulatory approval for a product candidate, the regulatory approval is limited to those specific indications for which a product is approved. If Cara is not able to obtain FDA approval for any desired future indications for its products and product candidates, should Cara resume development of its product candidate or any future product candidate, Cara's ability to effectively market and sell its products may be reduced and its business may be adversely affected. While physicians may choose to prescribe drugs for uses that are not described in the product's labeling and for uses that differ from those tested in clinical studies and approved by the regulatory authorities, Cara is prohibited from marketing and promoting the products for indications that are not specifically approved by the FDA or other regulatory authorities. These "off-label" uses are common across medical specialties and may constitute an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the United States and other countries generally do not restrict or regulate the behavior of physicians in their choice of treatment within the practice of medicine. Regulatory authorities do, however, restrict communications by pharmaceutical companies on off-label use. If the FDA or other regulatory authorities determine that Cara or Cara's commercial partners' promotional activities constitute promotion of an off-label use, it could request that Cara modify its promotional materials. Further, off-label promotion could subject Cara to regulatory or enforcement actions by the FDA and other authorities, including issuance of warning letters or untitled letters, suspension or withdraw an approved product from the market, mandatory or voluntary recalls, civil fines, disgorgement of money, operating restrictions, additional reporting requirements and/or oversight if Cara becomes subject to a corporate integrity agreement or similar agreement, injunctions or criminal prosecution, any of which could significantly harm Cara's business.

In the past, securities class action or stockholder derivative litigation often follows certain significant business transactions, such as the sale of a business division or announcement of a merger. The combined company may become involved in this type of litigation in the future in connection with the Merger and the other Contemplated Transactions. As of the date of this Annual Report on Form 10-K, Cara has received five demand letters from purported stockholders relating to the Merger and the other Contemplated Transactions and the disclosures contained in the proxy statement/prospectus related to the Contemplated Transactions. Responding to these demands and litigation often is expensive and diverts management's attention and resources, which could adversely affect the combined company's business.

Cara is exposed to the risk of fraud or other misconduct by its employees, independent contractors, consultants and commercial partners. Misconduct by such individuals could include inadvertent or intentional failures to: - comply with FDA regulations and other similar foreign regulations;- provide true, complete and accurate information to the FDA;- comply with manufacturing standards;- comply with federal and state data privacy, security, fraud and abuse and other healthcare laws and regulations in the United States and similar foreign laws;- report financial information or data accurately; or - disclose unauthorized activities to Cara. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry, are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, including off label uses of Cara's products, structuring and commission(s), certain customer incentive programs, patient assistance programs, and other business arrangements generally. Third party misconduct could also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to Cara's reputation. It is not always possible to identify and deter such misconduct, and the precautions Cara takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting Cara from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against Cara, and Cara is not successful in defending itself or asserting its rights, those actions could have a significant impact on Cara's business and financial results, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, individual imprisonment, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if Cara becomes subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and curtailment or restructuring of Cara's operations, any of which could adversely affect Cara's ability to operate its business and its results of operations.