Stockholders' Equity | 8. Stockholders’ Equity Reverse Stock Split Effective as of 4:30 p.m. Eastern Time on September 11, 2020 (the “Effective Time”), the Company amended its charter to effect a reverse stock split at a ratio of 1-for-5 (the “Split Ratio”). No fractional shares were issued in connection with the reverse stock split. Stockholders of record otherwise entitled to receive fractional shares of common stock received cash (without interest or deduction) in lieu of such fractional share interests. The reverse stock split reduced the total number of shares of the Company’s common stock outstanding as of the Effective Time from approximately 210.9 million shares to approximately 42.2 million shares. The par value per share and other terms of the Company’s common stock were not affected by the reverse stock split, and the number of authorized shares of the Company’s common stock remains at 225,000,000. The reverse stock split resulted in a proportionate adjustment in the number of shares reserved for issuance under the 2020 Equity Plan, such that a total of 7,000,000 shares of the Company’s common stock were reserved for issuance under the 2020 Equity Plan following the Effective Time. In addition, proportionate adjustments were made to the number of shares covered by, and the exercise price applicable to, each outstanding stock option award under the 2012 Equity Plan and outstanding warrants issued by the Company, in each case to give effect to the Split Ratio and the reverse stock split. The reverse stock split was accounted for retroactively and is reflected in the Company’s common stock, stock option and warrant activity as of and during the years ended December 31, 2020 and 2019. Unless stated otherwise, all share data in this Annual Report on Form 10-K have been adjusted, as appropriate, to reflect the reverse stock split. Lincoln Park Capital Purchase Agreement On November 8, 2019, the Company entered into a purchase agreement (the “ELOC Purchase Agreement”) and a registration rights agreement with LPC, pursuant to which the Company had the right to sell to LPC up to $20,000,000 in shares of the Company’s common stock, $0.001 par value per share (the “Common Stock”), subject to certain limitations and conditions set forth in the ELOC Purchase Agreement. In connection with the signing of the ELOC Purchase Agreement on November 8, 2019, the Company issued 141,318 shares of its common stock to LPC. The issuance of the shares was recorded as debt issuance costs in Common stock and Additional paid-in capital with no net effect on Stockholders’ equity (deficit). During the months of December 2019 and January 2020, the Company issued a total of 140,000 shares for aggregate proceeds of $0.3 million under the ELOC Purchase Agreement. On June 2, 2020, following completion of the Private Placement described below, the Company notified LPC of its decision to terminate the ELOC Purchase Agreement. The termination of the ELOC Purchase Agreement became effective on June 3, 2020. 2020 Private Placement On June 1, 2020, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”) to complete a private placement of our common stock (the “Private Placement”). The closing of the Private Placement occurred on June 2, 2020 (the “Closing Date”). At the closing, the Company issued and sold 16,505,743 shares of its common stock (the “Shares”) at a purchase price of $4.35 per share, for aggregate gross proceeds of approximately $71.8 million. The Company used a portion of the proceeds to retire certain indebtedness, as further described in Note 6 - Debt. See Note 12 for information regarding two complaints filed against us in connection with the Private Placement. On the Closing Date, the Company and the Investors also entered into a registration rights agreement (the “Registration Rights Agreement”) pursuant to which the Company agreed to prepare and file a registration statement (the “Resale Registration Statement”) for the resale of the Shares with the Securities and Exchange Commission. Subject to certain limitations and an overall cap, the Company may be required to pay liquidated damages to the investors at a rate of 2% of the invested capital for each occurrence (and continuation for 30 consecutive days thereafter) of a breach by the Company of certain of its obligations under the Registration Rights Agreement. The Purchase Agreement also required that the Company use its commercially reasonable efforts to achieve a listing of the Common Stock on a national securities exchange, subject to certain limitations set forth in the Purchase Agreement. On July 6, 2020, the Company applied to have its common stock approved for listing on the Nasdaq Capital Market. On September 18, 2020, the Company’s common stock commenced trading on the Nasdaq Capital Market under the symbol “HGEN.” 2020 Underwritten Public Offering On September 17, 2020, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with J.P. Morgan Securities LLC and Jefferies LLC, as representatives of the several underwriters, in connection with the public offering of 8,000,000 of the Company’s shares of common stock. Pursuant to the Underwriting Agreement, the Company granted the underwriters a 30-day option to purchase an additional 1,200,000 shares of common stock, which option was exercised in full by the underwriters on September 18, 2020 As a result of the pricing of the public offering, the Company’s common stock commenced trading on the Nasdaq Capital Market under the symbol “HGEN.” The aggregate gross proceeds from the sale of the full 9,200,000 shares in the offering were approximately $78.2 million. The Company expects to use the proceeds from the offering to support its manufacturing, production and commercial preparation activities relating to lenzilumab as a potential therapy for COVID-19 patients and for working capital and other general corporate purposes. The Company has reserved the following shares of common stock for issuance as of December 31, 2020: Warrants to purchase common stock 51,238 Options: Outstanding under the 2020 Equity Incentive Plan 637,286 Outstanding under the 2012 Equity Incentive Plan 3,090,821 Outstanding under the 2001 Equity Incentive Plan 42 Available for future grants under the 2020 Equity Incentive Plan 6,349,911 10,129,298 Controlled Equity Offering On December 31, 2020, the Company entered into a Controlled Equity Offering SM 2020 Equity Plan On July 27, 2020, the Board unanimously approved, and recommended that the Company’s stockholders approve, the 2020 Equity Plan, to ensure that the Board and its compensation committee (the “Compensation Committee”) will be able to make the types of awards, and covering the number of shares, as necessary to meet the Company’s compensatory needs. On July 29, 2020, the 2020 Equity Plan was approved by the holders of approximately 63% of the Company’s outstanding shares of common stock on that date. The 2020 Equity Plan became effective on September 11, 2020 following the Effective Time of the reverse stock split. Immediately following the Effective Time, a total of 7,000,000 shares of the Company’s common stock were reserved for issuance under the 2020 Equity Plan. The Board or Compensation Committee may grant the following types of awards under the 2020 Equity Plan: stock options, stock appreciation rights, restricted stock, stock awards, restricted stock units, performance shares, performance units, cash-based awards and substitute awards. The 2020 Equity Plan will remain in effect until the tenth anniversary of its effective date, unless terminated earlier by the Board. As of December 31, 2020, there were 6,349,911 shares available for grant under the 2020 Equity Incentive Plan. 2012 Equity Plan The 2020 Equity Plan replaced the 2012 Equity Plan, under which no further grants will be made. However, any outstanding awards under the 2012 Equity Plan will continue in accordance with the terms of the 2012 Equity Plan and any award agreement executed in connection with such outstanding awards. At the Effective Time of the reverse stock split, proportionate adjustments were made to the number of shares covered by, and the exercise price applicable to, each outstanding stock option award under the 2012 Equity Plan to give effect to the Split Ratio and the reverse stock split. Under the 2012 Equity Plan, the Company could grant shares, stock units, stock appreciation rights, performance cash awards and/or options to employees, directors, consultants, and other service providers. For options, the per share exercise price could not be less than the fair market value of a Company common share on the date of grant. Awards generally vest and become exercisable over three to four years and expire 10 years from the date of grant. Options generally become exercisable as they vest following the date of grant. As of December 31, 2020, there were no shares available for grant under the 2012 Equity Incentive Plan. 2001 Equity Incentive Plan Under the Company’s 2001 Stock Plan (the “2001 Plan”), the Company was able to grant shares and/or options to purchase up to 426,030 shares of common stock to employees, directors, consultants, and other service providers. In connection with the 2012 Plan taking effect, the 2001 Plan was terminated in August 2012. However, the awards under the 2001 Plan outstanding as of the termination of the 2001 Plan continued to be governed by their existing terms. Stock Option Activity The following table summarizes stock option activity for the years ended December 31, 2020 and 2019: Number of Weighted Average Price (per Weighted- Aggregate Outstanding at January 1, 2019 3,081,863 $ 4.75 Granted 294,191 3.90 Exercised (97,725 ) 3.35 Cancelled (forfeited) (101,984 ) 3.10 Cancelled (expired) (9 ) 48.40 Outstanding at December 31, 2019 3,176,336 4.75 Granted 981,164 7.35 Exercised (429,330 ) 3.55 Cancelled (expired) (21 ) 58.40 Outstanding at December 31, 2020 3,728,149 $ 5.57 7.6 $ 44,479 Options vested and expected to vest 3,715,473 $ 5.57 7.6 $ 44,328 Exercisable 2,999,502 $ 5.07 7.2 $ 10 ______________________ (1) The weighted average price per share is determined using exercise price per share for stock options. (2) The aggregate intrinsic value is calculated as the difference between the exercise price of the option and the fair value of the Company’s common stock for in-the-money options at December 31, 2020. The stock options outstanding and exercisable by exercise price at December 31, 2020 are as follows: Stock Options Outstanding Stock Options Exercisable Range of Exercise Prices Number Weighted- Weighted- Number of Weighted- $1.65 - $3.33 2,534,965 7.30 $ 3.14 2,372,837 $ 3.18 $4.20 - $9.05 343,065 8.95 $ 6.30 176,190 $ 4.92 $9.65 - $16.50 587,286 9.31 $ 10.57 187,642 $ 12.53 $16.90 - $16.90 252,604 5.62 $ 16.90 252,604 $ 16.90 $17.00 - $18.00 10,125 5.72 $ 17.01 10,125 $ 17.01 $58.40 - $86.80 42 0.09 $ 67.87 42 $ 67.87 $216.40 - $240.00 62 0.12 $ 225.92 62 $ 225.92 3,728,149 7.65 $ 5.57 2,999,502 $ 5.07 The total fair value of options vested for the years ended December 31, 2020 and 2019 was $2.2 million and $2.2 million, respectively. Stock-Based Compensation The Company’s stock-based compensation expense for stock options is estimated at the grant date based on the award’s fair value as calculated by the Black-Scholes option pricing model and is recognized as expense over the requisite service period. The Black-Scholes option pricing model requires various highly judgmental assumptions including expected volatility and expected term. The expected volatility is based on the historical stock volatilities of several of the Company’s publicly listed peers over a period equal to the expected terms of the options as the Company does not have a sufficient trading history to use the volatility of its own common stock. To estimate the expected term, the Company has opted to use the simplified method, which is the use of the midpoint of the vesting term and the contractual term. If any of the assumptions used in the Black-Scholes option pricing model changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period. In addition, the Company is required to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. The Company estimates the forfeiture rate based on historical experience and its expectations regarding future pre-vesting termination behavior of employees. The Company reviews its estimate of the expected forfeiture rate annually, and stock-based compensation expense is adjusted accordingly. The weighted-average fair value-based measurement of stock options granted under the Company’s stock plans in the years ended December 31, 2020 and 2019 was $7.35 and $3.95 per share, respectively. The fair value- based measurement of stock options granted under the Company’s stock plans was estimated at the date of grant using the Black-Scholes model with the following assumptions: Year Ended December 31, 2020 2019 Expected term 5 - 6 years 5 - 6 years Expected volatility 95% - 111% 96% - 99% Risk-free interest rate 0.28% - 1.57% 1.74% - 2.59% Expected dividend yield 0% 0% Total expense for stock option grants recognized was as follows: Year ended December 31, 2020 2019 Selling,general and administrative $ 1,773 $ 1,928 Reseach and development 337 97 Total stock-based compensation $ 2,110 $ 2,025 At December 31, 2020, the Company had $4.1 million of total unrecognized compensation expense, net of estimated forfeitures, related to outstanding stock options that will be recognized over a weighted-average period of 2.3 years. |