| STOCKHOLDERS' EQUITY | NOTE
9 – STOCKHOLDERS’ EQUITY Preferred
Stock At
December 31, 2016, we had 10,000,000 shares of preferred stock, par value $0.001, authorized for issuance, of which no shares
of preferred stock were issued or outstanding. Common
Stock At
December 31, 2016, we had 350,000,000 shares of Common Stock authorized for issuance, of which 196,688,222 shares of our Common
Stock were issued and outstanding. Issuances
During 2016 On
January 6, 2016, we entered into an underwriting agreement with Goldman Sachs & Co. and Cowen and Company, LLC, as the representatives
of the several underwriters, or the Underwriters, relating to an underwritten public offering of 15,151,515 shares of our Common
Stock at a public offering price of $8.25 per share. Under the terms of the underwriting agreement, we granted the Underwriters
a 30-day option to purchase up to an aggregate of 2,272,727 additional shares of Common Stock, which option was exercised in full.
The net proceeds to us from the offering were approximately $134.9 million, after deducting underwriting discounts and commissions
and other estimated offering expenses payable by us. The offering closed on January 12, 2016 and we issued 17,424,242 shares of
our Common Stock. During
the year ended December 31, 2016, certain individuals exercised stock options to purchase 525,362 shares of Common Stock for $989,060
in cash. Also during the same period, stock options to purchase 127,109 shares of Common Stock were exercised pursuant to the
options’ cashless exercise provisions, wherein 87,833 shares of Common Stock were issued. Issuances
During 2015 On
July 9, 2015, we entered into an underwriting agreement with Stifel, Nicolaus & Company, Incorporated and Guggenheim Securities,
LLC, as the representatives of the several underwriters, or the Stifel Underwriters, relating to an underwritten public offering
of 3,846,154 shares of Common Stock at a public offering price of $7.80 per share. Under the terms of the underwriting agreement,
we granted the Stifel Underwriters a 30-day option to purchase up to an aggregate of 576,923 additional shares of Common Stock,
which option was exercised in full. The net proceeds to us from the offering were approximately $32.2 million, after deducting
underwriting discounts and commissions and other estimated offering expenses payable by us. The offering closed on July 15, 2015
and we issued 4,423,077 shares of our Common Stock. On
February 10, 2015, we entered into an underwriting agreement, or the Cowen Agreement, with Cowen and Company, LLC, as the representative
of the several underwriters, or the Cowen Underwriters, relating to an underwritten public offering of 13,580,246 shares of Common
Stock, at a public offering price of $4.05 per share. Under the terms of the Cowen Agreement, we granted the Cowen Underwriters
a 30-day option to purchase up to an aggregate of 2,037,036 additional shares of Common Stock, which option was exercised in full.
The net proceeds from the offering were approximately $59.1 million, after deducting underwriting discounts and commissions and
other estimated offering expenses payable by us. The offering closed on February 17, 2015 and we issued 15,617,282 shares of our
Common Stock. During
the year ended December 31, 2015, certain individuals exercised stock options to purchase 612,867 shares of Common Stock for $1,232,579
in cash. Also during the same period, stock options to purchase 417 shares of Common Stock were exercised pursuant to the options’
cashless exercise provisions, wherein 114 shares of Common Stock were issued. Issuances
During 2014 On
July 29, 2014, we entered into an underwriting agreement with Goldman Sachs & Co, or Goldman Sachs, as the representative
of the underwriters named therein, or the Goldman Sachs Underwriters, relating to an underwritten public offering of 8,565,310
shares of Common Stock. The price to the public in the offering was $4.67 per share. Under the terms of the underwriting agreement,
we granted the Goldman Sachs Underwriters a 30-day option to purchase up to an additional 1,284,796 shares of Common Stock. On
July 30, 2014, the Goldman Sachs Underwriters exercised their option to purchase the additional 1,284,796 shares of Common Stock.
Net proceeds from this offering were approximately $42.8 million, after deducting underwriting discounts and commissions and other
offering expenses. The offering closed on August 4, 2014 and we issued 9,850,106 shares of our Common Stock. During
the year ended December 31, 2014, certain individuals exercised stock options to purchase 860,800 shares of our Common Stock.
Stock options to purchase shares of our Common Stock were exercised as follows: (i) 724,193 options for $345,746 in cash and (ii)
136,607 options, pursuant to the stock options’ cashless provision, wherein 130,380 shares of Common Stock were issued.
In addition, during 2014, we issued 50,000 shares of Common Stock to an employee upon the vesting of restricted stock units that
were granted in December 2013. Warrants
to Purchase Common Stock As
of December 31, 2016, we had warrants outstanding to purchase an aggregate of 12,060,071 shares of our Common Stock with a weighted-average
contractual remaining life of 1.0 years, and exercise prices ranging from $0.24 to $8.20 per share, resulting in a weighted average
exercise price of $2.08 per share. The
valuation methodology used to determine the fair value of our warrants is the Black-Scholes Model. The Black-Scholes Model requires
the use of a number of assumptions, including volatility of the stock price, the risk-free interest rate, dividend yield and the
term of the warrant. During
the year ended December 31, 2016, we granted warrants to purchase 245,000 shares of Common Stock to outside consultants at the
weighted average price of $7.90 per share. These warrants vest and have expiration dates as follows: warrants to purchase 75,000
shares of Common Stock vested on April 21, 2016 and have an expiration date of April 21, 2021, warrants to purchase 50,000 shares
of Common Stock vest ratably over a 24-month period and have an expiration date of April 21, 2021, and warrants to purchase 120,000
shares of Common Stock vest ratable over a 12-month period and have an expiration date of January 21, 2021. During the year ended
December 31, 2015, we granted warrants to purchase 50,000 shares of Common Stock to an outside consultant at an exercise price
of $6.35 vesting ratably over a 12 month period, with an expiration date of April 6, 2020. We recorded share-based compensation
expense related to warrants previously issued of $936,974, $139,142 and $36,284 for the years ended December 31, 2016, 2015, and
2014, respectively, in the accompanying consolidated financial statements. Summary
of our Warrant activity during the year ended December 31, 2016:
Number
of Shares Under Warrants Weighted
Average Exercise Price Weighted
Aggregate
Balance at December 31, 2015 12,722,431 $ 1.93 1.7 $ 107,344,752
Granted 245,000 $ 7.90
Exercised (722,744 ) $ 1.90 $ 3,988,343
Expired (184,616 ) $ 0.41
Cancelled/Forfeited —
Balance at December 31, 2016 12,060,071 $ 2.08 1.0 $ 45,063,867
Vested and Exercisable
at December 31, 2016 11,733,410 $ 2.06 1.0 $ 43,998,535
Unvested at December 31, 2016 326,661 $ 2.81 1.7 $ 1,065,332 The
weighted average fair value per share of warrants issued and the assumptions used in the Black-Scholes Model during the years
ended December 31, 2016, 2015 and 2014 are set forth in the table below.
2016 2015 2014
Weighted average price $7.90 $6.35 n/a
Weighted average grant date fair value $4.78 $3.27 n/a
Risk-free interest rate 1.04-1.28% 1.02% n/a
Volatility 74.10-74.15% 60.59% n/a
Term (in years) 5 5 n/a
Dividend yield 0.00% 0.00% n/a
The
risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period
is appropriate for the term. Estimated volatility is a measure of the amount by which our stock price is expected to fluctuate
each year during the term of the instrument. The estimated volatility is an average of the historical volatility of the stock
prices of our peer entities whose stock prices were publicly available. Our calculation of estimated volatility is based on historical
stock prices over a period equal to the term of the instrument as we have insufficient historical information regarding our stock
options to provide a basis for estimate. The expected volatility of warrants was estimated based on a historical volatility analysis
of peers that were similar to the Company with respect to industry, stage of life cycle, market capitalization, and financial
leverage. In
January 2013, we issued warrants to purchase 1,250,000 shares of our Common Stock in connection with the issuance of a Multiple
Advance Revolving Credit Note to Plato and Associates, LLC, or the Plato Warrant. The Plato Warrant has an exercise price of $3.20
per share. The Plato Warrant vested on October 31, 2013 and may be exercised prior to its expiration on January 31, 2019. The
Plato Warrant, with a fair value of approximately $1,711,956, was valued on the date of the grant using a term of six years; a
volatility of 44.29%; risk free rate of 0.88%; and a dividend yield of 0%. During the years ended December 31, 2016, 2015, 2014,
and 2013, $0, $0, and $260,027, respectively, was recorded as financing costs in connection with the issuance of the Plato Warrant
on the accompanying consolidated financial statements. In
May 2013, we entered into a consulting agreement with Sancilio and Company, Inc., or SCI, to develop drug platforms to be used
in our hormone replacement drug candidates. These services include support of our efforts to successfully obtain U.S. Food and
Drug Administration, or the FDA, approval for our drug candidates, including a vaginal capsule for the treatment of vulvar and
vaginal atrophy, or VVA. In connection with the agreement, SCI agreed to forfeit its rights to receive warrants to purchase 833,000
shares of our Common Stock that were to be granted pursuant to the terms of a prior consulting agreement dated May 17, 2012. As
consideration under the agreement, we agreed to issue to SCI a warrant to purchase 850,000 shares of our Common Stock at $2.01
per share that has vested or will vest, as applicable, as follows:
1. 283,333 shares were
earned on May 11, 2013 upon acceptance of an Investigational New Drug application by the FDA for an estradiol-based drug candidate
in a softgel vaginal capsule for the treatment of VVA; however, pursuant to the terms of the consulting agreement, the shares
did not vest until June 30, 2013. The fair value of $405,066 for the shares vested on June 30, 2013 was determined by using
the Black-Scholes Model on the date of vesting using a term of 5 years; a volatility of 45.89%; risk free rate of 1.12%; and
a dividend yield of 0%. We recorded the entire $405,066 as non-cash compensation as of June 30, 2013;
2. 283,333 shares vested
on June 30, 2013. The fair value of $462,196 for these shares was determined by using the Black-Scholes Model on the date
of vesting using a term of 5 years; a volatility of 45.84%; risk free rate of 1.41%; and a dividend yield of 0%. During the
years ended December 31 2016, 2015, and 2014, we recorded $77,026, $154,068, and $154,068, respectively, as non-cash compensation
in the accompanying consolidated financial statements related to this warrant. As of December 31, 2016 this warrant was fully
amortized; and
3. 283,334 shares will
vest upon the receipt by us of any final FDA approval of a drug candidate that SCI helped us design. It is anticipated that
this event will not occur before May 2017. In
May 2012, we issued warrants to purchase an aggregate of 1,300,000 shares of Common Stock to an unaffiliated entity for services
to be rendered over approximately five years beginning in May 2012. The warrants vested upon issuance. Services provided are to
include (a) services in support of our drug development efforts, including services in support our ongoing and future drug development
and commercialization efforts, regulatory approval efforts, third-party investment and financing efforts, marketing efforts, chemistry,
manufacturing and controls efforts, drug launch and post-approval activities, and other intellectual property and know-how transfer
associated therewith; (b) services in support of our efforts to successfully obtain New Drug Approval; and (c) other consulting
services as mutually agreed upon from time to time in relation to new drug development opportunities. The warrants were valued
at $1,532,228 on the date of the issuance using an exercise price of $2.57; a term of five years; a volatility of 44.71%; risk
free rate of 0.74%; and a dividend yield of 0%. At December 31, 2016, we had $128,898 reported as prepaid expense-short term associated
with these warrants. During the years ended December 31, 2016, 2015, and 2014, we recorded $257,796, $257,796, and $309,165, respectively
as non-cash compensation with respect to these warrants in the accompanying consolidated financial statements. The contract will
expire upon the commercial manufacture of a drug product. We have determined that the process will take approximately five years. As
of December 31, 2016, unamortized costs associated with the SCI warrants issued in 2013 and 2012 totaled approximately $128,898
and will be recognized over a period of six months. Warrant
exercises During
the year ended December 31, 2016, certain individuals exercised warrants to purchase 722,744 shares of Common Stock for $1,373,000
in cash. During
the year ended December 31, 2015, certain individuals and an entity exercised warrants to purchase 1,255,485 shares of Common
Stock as follows: (i) 945,485 shares of Common Stock were issued for $366,000 in cash and (ii) warrants to purchase 310,000 shares
of Common Stock were exercised pursuant to the warrants’ cashless exercise provisions, wherein 232,197 shares of Common
Stock were issued. During
the year ended December 31, 2014, certain individuals exercised warrants to purchase 365,583 shares of Common Stock for $181,000
in cash. Subsequent
to December 31, 2016, certain individuals exercised warrants to purchase 1,800,000 shares of our Common Stock for approximately
$2,436,000 in cash. Options
to Purchase Common Stock of the Company In
2009, we adopted the 2009 Long Term Incentive Compensation Plan, or the 2009 Plan, to provide financial incentives to employees,
directors, advisers, and consultants of our company who are able to contribute towards the creation of or who have created stockholder
value by providing them stock options and other stock and cash incentives, or the Awards. The Awards available under the 2009
Plan consist of stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock, performance
units, and other stock or cash awards as described in the 2009 Plan. There are 25,000,000 shares authorized for issuance thereunder.
Generally, the options vest annually over four years or as determined by our board of directors, upon each option grant. Options
may be exercised by paying the price for shares or on a cashless exercise basis after they have vested and prior to the specified
expiration date provided and applicable exercise conditions are met, if any. The expiration date is generally ten years from the
date the option is issued. As of December 31, 2016, there were non-qualified stock options to purchase 17,899,380 shares of Common
Stock outstanding under the 2009 Plan. As of December 31, 2016, there were 2,952,128 shares available to be issued under 2009
Plan. In
2012, we adopted the 2012 Stock Incentive Plan, or the 2012 Plan, a non-qualified plan that was amended in August 2013. The 2012
Plan was designed to serve as an incentive for retaining qualified and competent key employees, officers, directors, and certain
consultants and advisors of our company. The Awards available under the 2012 Plan consist of stock options, stock appreciation
rights, restricted stock, restricted stock units, performance stock, performance units, and other stock or cash awards as described
in the 2012 Plan. Generally, the options vest annually over four years or as determined by our board of directors, upon each option
grant. Options may be exercised by paying the price for shares or on a cashless exercise basis after they have vested and prior
to the specified expiration date provided and applicable exercise conditions are met, if any. The expiration date is generally
ten years from the date the option is issued. There are 10,000,000 shares of Common Stock authorized for issuance thereunder.
As of December 31, 2016, there were non-qualified stock options to purchase 3,868,474 shares of Common Stock outstanding under
the 2012 Plan. As of December 31, 2016, there were 6,050,000 shares available to be issued under 2012 Plan. The
valuation methodology used to determine the fair value of stock options is the Black-Scholes Model. The Black-Scholes Model requires
the use of a number of assumptions including volatility of the stock price, the risk-free interest rate, and the expected life
of the stock options. The ranges of assumptions used in the Black-Scholes Model during the years ended December 31, 2016, 2015,
and 2014 are set forth in the table below.
2016 2015 2014
Risk-free interest rate 1.13-1.90% 1.47-1.67% 0.07-1.77%
Volatility 70.26-73.34% 58.78-62.94% 68.05-82.29%
Term (in years) 5.5-6.25 5.27-6.25 5-6.25
Dividend yield 0.00% 0.00% 0.00% The
risk-free interest rate assumption is based upon observed interest rates on zero coupon U.S. Treasury bonds whose maturity period
is appropriate for the expected term. Estimated volatility is a measure of the amount by which the price of our Common Stock is
expected to fluctuate each year during the term of an award. Our estimated volatility is an average of the historical volatility
of the stock prices of our peer entities whose stock prices were publicly available. Our calculation of estimated volatility is
based on historical stock prices over a period equal to the term of the awards as we have insufficient historical information
regarding our stock options to provide a basis for estimate. The expected volatility of share options was estimated based on a
historical volatility analysis of peers that were similar to us with respect to industry, stage of life cycle, market capitalization,
and financial leverage. The average expected life is based on the contractual terms of the stock option using the simplified method.
We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention to
pay cash dividends. Future stock-based compensation may significantly differ based on changes in the fair value of our common
stock and our estimates of expected volatility and the other relevant assumptions. A
summary of activity under the 2009 and 2012 Plans and related information during the year ended December 31, 2016 is as follows:
Number
of Shares Under Options Weighted
Average Exercise Price Weighted
Aggregate
Balance at December 31, 2015 20,725,325 $ 3.28 6.5 $ 146,864,184
Granted 1,732,500 $ 6.22
Exercised (652,471 ) $ 1.91 $ 3,828,358
Expired (5,750 ) $ 4.76
Cancelled/Forfeited (31,750 ) $ 6.38
Balance at December 31, 2016 21,767,854 $ 3.56 5.8 $ 60,495,730
Vested and Exercisable
at December 31, 2016 18,633,479 $ 3.09 5.3 $ 59,382,849
Unvested at December 31, 2016 3,134,375 $ 6.29 9.0 $ 1,112,881 At
December 31, 2016, our outstanding options had exercise prices ranging from $0.10 to $8.92 per share. The weighted average grant
date fair value of options granted during the year ended December 31, 2016 was $3.94 per share. Share-based
compensation expense related to options recognized in our results of operations for the years ended December 31, 2016, 2015, and
2014 was approximately $16,139,225, $6,621,658, and $4,393,455, respectively, and it is based on awards vested. We estimate forfeitures
at the time of grant and revise the forfeiture rate in subsequent periods if actual forfeitures differ from the estimates. At
December 31, 2016, total unrecognized estimated compensation expense related to unvested options was approximately $10,669,000,
which may be adjusted for future changes in forfeitures. This cost is expected to be recognized over a weighted-average period
of 2.6 years. No tax benefit was realized due to a continued pattern of operating losses. In
December 2013, we granted a restricted stock unit, or the RSU, under our 2012 Plan to an employee for 50,000 shares of our Common
Stock having a fair value of $233,500. During the year ended December 31, 2014 we recorded $180,072 of non-cash compensation related
to the RSU on the accompanying consolidated financial statements. The RSU was issued in June 2014. |
