Cara Therapeutics Announces Effective Date of 1-for-12 Reverse Stock Split

Rhea-AI Summary

Cara Therapeutics (CARA) announced a 1-for-12 reverse stock split effective December 30, 2024, at 5:00 p.m. Eastern Time. Trading on the split-adjusted basis will begin December 31, 2024. The company's authorized shares will reduce from 200,000,000 to 16,666,667, while outstanding shares will decrease from approximately 54.9 million to 4.6 million.

The reverse split aims to regain compliance with Nasdaq Capital Market's minimum bid price requirement. The split will uniformly affect all stockholders, maintaining their relative equity interests except for fractional shares, which will be settled in cash. Proportionate adjustments will be made to outstanding stock options and equity incentive plans.

Positive

• Strategic move to maintain Nasdaq listing compliance
• No change in stockholders' relative equity interests

Negative

• Indicates company's struggle to maintain minimum share price requirements
• Cash payments for fractional shares may force small investors to liquidate positions

Insights

Financial Restructuring Specialist

The announced 1-for-12 reverse stock split is a critical defensive maneuver by Cara Therapeutics to maintain its Nasdaq listing. With a concerning market cap of just $22 million, this restructuring reduces outstanding shares from 54.9 million to 4.6 million, while slashing authorized shares from 200 million to 16.7 million. This consolidation aims to artificially boost the share price by 12x, though the company's fundamental market value remains unchanged.

The timing of implementation, effective December 30, suggests urgency in meeting Nasdaq's minimum bid requirements. Notably, reverse splits often signal financial distress and typically precede further share price declines. Historical market data shows that companies executing reverse splits underperform their peers by 66% on average in the following year, though exceptions exist in cases of successful operational turnarounds.

The adjustment of equity incentive plans and outstanding options indicates potential challenges in retaining talent and maintaining employee morale. This corporate action, while necessary for listing compliance, reflects deeper concerns about the company's market position and financial trajectory.

Market Structure Analyst

This reverse split carries significant technical implications for market participants. The reduction in float to 4.6 million shares could substantially impact trading dynamics, potentially leading to increased volatility and wider bid-ask spreads. The decreased share count might attract institutional investors who previously couldn't hold sub-$1 stocks due to mandate restrictions, but could also increase short-selling pressure due to easier share borrowing with the consolidated float.

The cash settlement of fractional shares could trigger forced selling pressure, particularly from retail investors holding small positions. The new CUSIP number (140755 208) will require updating of all derivative contracts and could temporarily affect option chain liquidity. Market makers will need to adjust their position sizes and risk models, potentially leading to temporary price discovery inefficiencies during the transition period.

STAMFORD, Conn., Dec. 27, 2024 (GLOBE NEWSWIRE) -- Cara Therapeutics, Inc. (Nasdaq: CARA) (the “Company”), today announced that a 1-for-12 reverse stock split of its outstanding shares of common stock and reduction in the total number of authorized shares of its common stock from 200,000,000 to 16,666,667 will be effective as of 5:00 p.m. Eastern Time on Monday, December 30, 2024.

The Company's common stock will begin trading on a reverse stock split-adjusted basis at the opening of the market on Tuesday, December 31, 2024. Following the reverse stock split, the Company's common stock will continue to trade on the Nasdaq Capital Market under the symbol "CARA" with the new CUSIP number, 140755 208. The reverse stock split is part of the Company's plan to regain compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market.

At the effective time of the reverse split, every 12 issued and outstanding shares of the Company's common stock will automatically be combined into one issued and outstanding share of the Company's common stock without any change in the par value per share and the authorized shares of the Company’s common stock will reduce from 200,000,000 to 16,666,667.

Fractional shares will not be issued in connection with the reverse stock split. Stockholders who would otherwise be entitled to receive a fractional share will be entitled to receive a cash payment. The reverse stock split will affect all stockholders uniformly and will not alter any stockholder's relative interest in the Company's equity securities, except for any adjustments for fractional shares.

In addition, proportionate adjustments will be made to the number of shares underlying, and the exercise or conversion prices of, the Company's outstanding stock options, and to the number of shares of common stock issuable under the Company's equity incentive plans.

The reverse stock split will reduce the number of issued and outstanding shares of the Company's common stock from approximately 54.9 million to approximately 4.6 million.

About Cara Therapeutics

Cara Therapeutics is a biopharmaceutical company focused on transforming the way pruritus is treated. The Company developed an IV formulation of difelikefalin, which is approved in the United States, EU, and multiple other countries for the treatment of moderate-to-severe pruritus associated with advanced chronic kidney disease in adults undergoing hemodialysis. The IV formulation is out-licensed worldwide. For more information, visit www.CaraTherapeutics.com.

Forward-looking Statements

Statements contained in this press release regarding matters that are not historical facts are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Examples of these forward-looking statements include statements concerning the Company’s business, including those regarding the reverse stock split and authorized share reduction and the timing thereof, the impact of the reverse stock split and authorized share reduction on stockholders, including any adjustments that may result from the treatment of fractional shares, and option holders, the potential impact of the reverse stock split on the bid price of the Company's common stock, the potential for the Company to regain compliance with the minimum bid price requirement for continued listing on the Nasdaq Capital Market, the expected number of shares of common stock to be issued and outstanding following the reverse stock split, and other statements that are not historical fact. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include the risk that the Company may not be successful in exploring strategic alternatives and consummating one or more strategic transactions on attractive terms, if at all; the Company’s actual reductions in spending as compared to anticipated cost reductions; the Company’s costs of continuing to operate as a public company; and the other risks described more fully in Cara Therapeutics’ filings with the Securities and Exchange Commission, including the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and its other documents subsequently filed with or furnished to the Securities and Exchange Commission, including its Form 10-Q for the quarter ended September 30, 2024. All forward-looking statements contained in this press release speak only as of the date on which they were made. Cara Therapeutics undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made, except as required by law.

INVESTOR CONTACT:
investor@caratherapeutics.com

FAQ

What is the ratio of CARA's reverse stock split announced in December 2024?

Cara Therapeutics announced a 1-for-12 reverse stock split, meaning every 12 shares will be combined into one share.

When will CARA's reverse stock split take effect?

The reverse stock split will take effect on December 30, 2024, at 5:00 p.m. Eastern Time, with split-adjusted trading beginning December 31, 2024.

How many shares will CARA have outstanding after the reverse split?

After the reverse split, CARA's outstanding shares will reduce from approximately 54.9 million to 4.6 million shares.

Why is CARA implementing a reverse stock split?

CARA is implementing the reverse stock split to regain compliance with the Nasdaq Capital Market's minimum bid price requirement for continued listing.

What happens to fractional shares in CARA's reverse stock split?

Stockholders entitled to fractional shares will receive cash payments instead of partial shares.