| Stockholders' Equity | Note 7. Stockholders’ Equity Convertible Preferred Stock The Company is authorized to issue 10,000,000 shares of Preferred Stock. Public Offering of Common Stock and Concurrent Private Placement of Common Stock and Pre-Funded Warrants On October 2, 2023, the Company closed an underwritten public offering of 3,450,000 shares of its common stock at a public offering of $ 20.00 per share, which included the exercise in full by the underwriters of their option to purchase additional shares. The gross proceeds of the public offering were $ 69.0 million, before deducting the underwriting discount and other offering expenses. Concurrently, the Company also completed the closing of 1,825,000 shares of its common stock and 1,175,000 pre-funded warrants in a private offering pursuant to a securities purchase agreement with certain investors, including entities affiliated with existing stockholders, at a price per share of common stock equal to the public offering price of $ 20.00 and a price per per-funded warrant of $ 19.99 , for total gross proceeds of approximately $ 60.0 million. In aggregate, the Company received $ 129.0 million of gross proceeds less offering costs of $ 8.2 million The Company is not required under any circumstance to settle any of the pre-funded warrants for cash, and therefore classified the pre-funded warrants as permanent equity. Securities Purchase Agreement On December 16, 2022, the Company entered into a Securities Purchase Agreement for a private placement (Private Placement) with certain entities and members of management (collectively, Purchasers). Pursuant to the Securities Purchase Agreement, the Company agreed to sell to the Purchasers warrants to purchase up to an aggregate of 22,598,870 shares of the Company’s common stock, at a purchase price of $ 0.4425 per warrant. The closing of the Private Placeme nt occurred on May 8, 2023 (the Issue Date), following the satisfaction of certain closing conditions, including the completion of enrollment in the randomized withdrawal period of Study C602. The Company received gross proceeds of $ 10.0 million for the sale and issuance of warrants to purchase common stock. The warrants were separated into two tranches with 8,598,870 Tranche A Warrants with an exercise price of $ 1.75 per share and an aggregate proceeds of up to approximately $ 15.0 million, and 14,000,000 Tranche B Warrants with an exercise price of $ 2.50 per share and an aggregate proceeds of up to $ 35.0 million . The Tranche A warrants were immediately exercisable and were required to be exercised within 30 days of announcement of positive top-line data from the randomized withdrawal period of Study C602. On September 26, 2023, the Company announced positive top-line data and subsequently received $ 15.0 million from the exercise of the Tranche A warrants. The Tranche B warrants are also immediately exercisable and expire upon the earlier of 3.5 years from the date of issuance or 30 days following receipt of FDA approval of DCCR for the treatment of PWS. Through March 31, 2024 , certain investors had exercised their Tranche B warrants and the Company has received $ 18.5 million. The receipt of the aggregate exercise price of up to $ 16.5 million for the remaining Tranche B warrants is contingent upon the exercise of such warrants . Underwritten Public Offering On March 31, 2022, the Company sold 2,666,667 shares of its common stock at a public offering price of $ 3.75 per share, and for certain investors, in lieu of common stock, pre-funded warrants (the 2022 pre-funded warrants) to purchase 1,333,333 shares of its common stock at a public offering price $ 3.60 per pre-funded warrant, which represents the per share public offering price for the common stock less the $ 0.15 per share exercise price for each 2022 pre-funded warrant. The March 2022 pre-funded warrants are immediately exercisable and may be exercised at any time until all of the March 2022 pre-funded warrants are exercised in full. Each share of common stock or March 2022 pre-funded warrant was sold together with one, immediately exercisable, common warrant (the 2022 common warrants) with a five-year term to purchase one share of common stock at an exercise price of $ 4.50 per share. The net proceeds of the offering were $ 13.8 million, after deducting the underwriting discount and other offering expenses. The Company is not required under any circumstance to settle any of the 2022 pre-funded warrants or the 2022 common warrants for cash, and therefore classified both types of warrants as permanent equity. Through March 31, 2024, 2,190,932 of the March 2022 common warrants had been exercised for gross proceeds of $ 9.8 million and all 1,280,965 of the March 2022 pre-funded warrants were exercised in 2023 using the cashless exercise option with no additional proceeds received by the Company. Other Common Stock Warrants As of March 31, 2024, the Company had 6,804 common stock warrants outstanding from the 2010/2012 convertible notes, with an exercise price of $ 365.25 and a term of 10 years expiring in November 2024 . The Company also had 1,100 common stock warrants issued to the underwriter in the Company’s IPO, with an exercise price of $ 535.50 and a term of 10 years, expiring in November 2024 . As of March 31, 2024 and December 31, 2023, the following table summarizes the Company's outstanding common stock warrants:
As of March 31, 2024 As of December 31, 2023
Number of Common Warrant Shares Weighted Average Exercise Price per Share Number of Common Warrant Shares Weighted Average Exercise Price per Share Expiration Date
Common stock warrants 7,904 $ 388.94 7,904 $ 388.94 November 2024
March 2022 Common warrants 1,809,068 $ 4.50 1,929,066 $ 4.50 March 2027
May 2023 Tranche A pre-funded warrants 2,258,281 $ 0.01 2,758,281 $ 0.01 November 2026
May 2023 Tranche B warrants 6,600,000 $ 2.50 6,750,000 $ 2.50 November 2026 (1)
May 2023 Tranche B pre-funded warrants 451,632 $ 0.01 451,632 $ 0.01 November 2026
October 2023 pre-funded warrants 300,000 $ 0.01 1,175,000 $ 0.01 N/A
Total 11,426,885 13,071,883
(1) Subject to earlier expiration as described above. Equity Incentive Plans 2014 Plan The Company maintains the 2014 Equity Incentive Plan (the 2014 Plan). Under the 2014 Plan the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance units or performance shares to employees, directors, advisors, and consultants. Options granted under the 2014 Plan may be incentive stock options (ISOs) or nonqualified stock options (NSOs). ISOs may be granted only to Company employees, including officers and directors. The Board has the authority to determine to whom stock options will be granted, the number of options, the term, and the exercise price. Options are to be granted at an exercise price not less than fair value. For individuals holding more than 10 % of the voting rights of all classes of stock, the exercise price of an option will not be less than 110 % of fair value. Performance-based grants have vesting contingent upon the achievement of certain performance criteria related to the Company’s commercialization of its therapeutics. The contractual term of an option is no longer than five years for ISOs for which the grantee owns greater than 10% of the voting power of all classes of stock and no longer than ten years for all other options. The terms and conditions governing restricted stock units is at the sole discretion of the Board. On January 17, 2024, the Company filed a Registration Statement on Form S-8 which registered an additional 1,000,000 shares automatically available for issuance under the 2014 Plan as of December 31, 2023. As of March 31, 2024, a total of 392,044 shares are available for future grant under the 2014 Plan. Inducement Plan The Company maintains the 2020 Inducement Equity Incentive Plan (the Inducement Plan). The Inducement Plan provides for the grant of equity-based awards, including non-statutory stock options, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the 2014 Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees or non-employee directors of the Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals’ entry into employment with the Company, or, to the extent permitted by Rule 5635(c)(3) of the Nasdaq Listing Rules, in connection with a merger or acquisition. On January 31, 2024, the Company filed a Registration Statement on Form S-8 which registered 500,000 shares available for issuance under the Inducement Plan, which became available for issuance following approval of the Board of Directors on January 24, 2024. As of March 31, 2024, a total of 452,868 shares are available for future grant under the Inducement Plan. Stock-based compensation expense The Company recognizes stock-based compensation expense related to options and restricted stock units granted to employees, directors and consultants. The compensation expense is allocated on a departmental basis, based on the classification of the award holder. No income tax benefits have been recognized in the condensed consolidated statements of operations and comprehensive loss for stock-based compensation arrangements during any of the periods presented. Stock-based compensation expense was recognized in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
Three Months Ended March 31,
2024 2023
Research and development $ 2,461 $ 182
General and administrative 3,984 449
Total $ 6,445 $ 631 Stock Options The Company granted options to purchase 736,680 and 240,000 shares of the Company’s common stock to employees and a consultant during the three months ended March 31, 2024 and 2023, respectively. There were no performance-based options granted during the three months ended March 31, 2024 and 2023, respectively. The fair value of each award granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
Three Months Ended March 31,
2024 2023
Expected life (years) 5.8 - 6.1 6.0
Risk-free interest rate 4.0 %- 4.1 % 3.5 %- 4.0 %
Volatility 122 %- 124 % 98 %- 99 %
Dividend rate — % — % The Black-Scholes option-pricing model requires the use of highly subjective assumptions to estimate the fair value of stock-based awards. These assumptions include the following estimates: • Expected life: The expected life of stock options represents the period of time that the options are expected to be outstanding. Due to the lack of historical exercise history, the expected life of the Company’s service-based stock options has been determined utilizing the “simplified method”, based on the average of the contractual term of the options and the weighted-average vesting period. The expected life for the performance-based options was determined based on consideration of the contractual term of the stock options, an estimate of the date the performance criteria would be met and expectations of employee behavior. • Risk-free interest rate: The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected life of the stock options. • Volatility: The estimated volatility rate is based on the volatilities of the Company’s common stock for a historical period equal to the expected life of the stock options. • Dividend rate: The Company has never declared or paid any cash dividends and does not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero . The following table summarizes stock option transactions for the three months ended March 31, 2024 which were for awards issued under the 2014 Plan and the Inducement Plan:
Number of Weighted- Weighted Aggregate Intrinsic Value
Outstanding Share (in years) (in thousands)
Balance at January 1, 2024 2,369,665 $ 11.56 8.72 $ 70,834
Options granted 736,680 41.61
Options exercised — —
Options canceled/forfeited ( 3,489 ) 5.14
Balance at March 31, 2024 3,102,856 $ 18.70 8.80 $ 78,661
Options exercisable at March 31, 2024 949,919 $ 16.59 7.74 $ 27,528
Options vested and expected to vest at March 31, 2024 3,079,898 $ 18.59 8.81 $ 78,661 The weighted-average grant date fair value of options granted was $ 36.70 and $ 1.88 per share for the three months ended March 31, 2024 and 2023, respectively. At March 31, 2024, total unrecognized employee stock-based compensation related to stock options that are likely to vest was $ 33.1 million, which is expected to be recognized over the weighted-average remaining vesting period of 2.7 years. Restricted Stock Units There were 359,030 restricted stock units granted to employees by the Company during the three months ended March 31, 2024. During the three months ended March 31, 2024, there were 10,000 performance-based restricted stock units granted by the Company to a consultant. There were no restricted stock units granted during the three months ended March 31, 2023. The shares were valued based on the Company’s common stock price on the grant date. The following table summarizes restricted stock unit transactions for the three months ended March 31, 2024 as issued under the 2014 Plan:
Number of Weighted-
Outstanding at January 1, 2024 15,534 $ 43.92
Restricted stock units granted 369,030 $ 36.96
Restricted stock units vested ( 85,284 ) $ 38.79
Restricted stock units canceled/forfeited - $ 0.00
Outstanding at March 31, 2024 299,280 $ 36.80 The weighted-average grant-date fair value of all restricted stock units granted during the three months ended March 31, 2024 was $ 36.96 . There were no restricted stock units granted during the three months ended March 31, 2023. The fair value of all restricted stock units vested during the three months ended March 31, 2024 and 2023 was $ 3.7 million and $ 23,000 , respectively. At March 31, 2024, total unrecognized employee stock-based compensation related to restricted stock units was $ 10.4 million, which is expected to be recognized over the weighted-average remaining vesting period of 0.6 years. 2014 Employee Stock Purchase Plan The Company’s board of directors and stockholders have adopted the 2014 Employee Stock Purchase Plan (ESPP). The ESPP has become effective, and the board of directors will implement commencement of offers thereunder in its discretion. A total of 1,864 shares of the Company’s common stock has been made available for sale under the ESPP. In addition, the ESPP provides for annual increases in the number of shares available for issuance under the plan on the first day of each year beginning in the year following the initial date that the board of directors authorizes commencement, equal to the least of: • 1.0 % of the outstanding shares of the Company’s common stock on the first day of such year; • 3,729 shares; or • such amount as determined by the board of directors. As of March 31, 2024, there were no purchases by employees under this plan. |
