Stockholders’ Equity

Preferred Stock



			Shares Outstanding as of December 31,
	Shares Authorized	Shares Issued	2018	2017
Series C Preferred Stock, par $0.001	1,091	1,091	23	23

The shares of the Company’s Series C Preferred Stock have the following pertinent rights and privileges, as set forth in the Company’s Amended and Restated Certificate of Incorporation and its Certificates of Designations, Rights and Preferences related to the various series of preferred stock.

Rights on Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company (a “liquidation event”), before any distribution of assets of the Company shall be made to or set apart for the holders of common stock, the holders of Series C Preferred Stock, pari passu, are entitled to receive payment of such assets of the Company in an amount equal to $10,000 per share of such series of preferred stock, plus any accumulated and unpaid dividends thereon (whether or not earned or declared).

If the assets of the Company available for distribution to stockholders exceed the aggregate amount of the liquidation preferences payable with respect to all shares of each series of preferred stock then outstanding, then, after the payment of such preferences is made or irrevocably set aside, the holders of the Company’s common stock are entitled to receive a pro rata portion of such assets based on the aggregate number of shares of common stock held by each such holder. The holders of the Company’s outstanding preferred stock shall participate in such a distribution on a pro-rata basis, computed based on the number of shares of common stock which would be held by such preferred holders if immediately prior to the liquidation event all of the outstanding shares of the preferred stock had been converted into shares of common stock at the then current conversion value applicable to each series.

A Change of Control of the Company (as defined in the Certificates of Designations, Rights and Preferences) is not a liquidation event triggering the preferences described above, and is instead addressed by separate terms in the Series C Certificates of Designations, Rights, and Preferences.

Although the liquidation preferences are in excess of the par value of $0.001 per share of the Company’s preferred stock, these preferences are equal to or less than the stated value of such shares based on their original purchase price.

Voting Rights

The holders of Series C Preferred Stock have full voting rights and powers equal to the voting rights and powers of holders of the Company’s common stock and are entitled to notice of any stockholders’ meeting in accordance with the Company’s Bylaws. Holders are entitled to vote on any matter upon which holders of the Company’s common stock have the right to vote, including, without limitation, the right to vote for the election of directors together with the holders of common stock as one class. Series C Preferred holders are entitled to 368 votes for each share of Series C Preferred Stock held.

Holder Optional Conversion Right

The holder of any share or shares of Series C Preferred Stock has the right at any time, at such holder’s option, to convert all or any lesser portion of such holder’s shares of the Preferred Stock into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing (i) the aggregate Liquidation Preference applicable to the particular series of preferred shares, plus accrued and unpaid dividends thereon by (ii) the applicable Conversion Value (as defined in the relevant series’ Certificate of Designations, Rights and Preferences) then in effect for such series of preferred shares. As of December 31, 2018, the Conversion Value was $27.20, such that the outstanding shares of Series C Preferred Stock were convertible into 8,456 shares of common stock. The Company is not obligated to issue any fractional shares or scrip representing fractional shares upon such conversion and instead shall pay the holder an amount in cash equal to such fraction multiplied by the current market price per share of the Company’s common stock.

Company Mandatory Conversion Option

The Company has the option upon thirty (30) days prior written notice, to convert all of the outstanding shares of the Series C Preferred Stock into such number of fully paid and non-assessable shares of common stock as is determined by dividing (i) the aggregate Liquidation Preference of the shares of the relevant series of preferred stock to be converted, plus accrued and unpaid dividends thereon by (ii) the applicable Conversion Value (as defined in the relevant series’ Certificate of Designations, Rights and Preferences) then in effect, if the following triggering events have occurred:

(i) the price of the Company’s common stock exceeds $72.00 per share for 20 out of 30 consecutive trading days; and

(ii) the average daily trading volume (subject to adjustment for stock dividends, subdivisions and combinations) of the common stock exceeds 6,250 shares for at least 20 out of 30 consecutive trading days.

Common Stock

In May 2018, the Company entered into an At-the-Market Equity Offering Sales Agreement (the “Sales Agreement”) with an outside placement agent (the “Placement Agent”) to sell shares of its common stock with aggregate gross proceeds of up to $100.0 million, from time to time, through an “at-the-market” equity offering program under which the Placement Agent will act as sales agent. Under the Sales Agreement, the Company will set the parameters for the sale of shares, including the number of shares to be issued, the time period during which sales are requested to be made, limitation on the number of shares that may be sold in any one trading day and any minimum price below which sales may not be made. The Sales Agreement provides that the Placement Agent will be entitled to compensation for its services in an amount equal to up to 3.0% of the gross proceeds from the sales of shares sold through the Placement Agent under the Sales Agreement. The Company has no obligation to sell any shares under the Sales Agreement, and may at any time suspend solicitation and offers under the Sales Agreement.

During the year ended December 31, 2018, the Company sold a total of 5,354,075 shares of common stock under the Sales Agreement. The sales were made at a weighted average price of $5.27 per share resulting in aggregate net proceeds of $27.7 million. The Company may sell up to an additional $71.8 million in shares of its common stock under the Sales Agreement. The registration statement that registered with the SEC the shares that may be sold under the Sales Agreement expires on June 8, 2021.

In June 2016, the Company entered into an At-the-Market Equity Offering Sales Agreement (the “Prior Sales Agreement”) with the same placement agent. The registration statement that registered with the SEC the shares sold under the Prior Sales Agreement expired on June 5, 2018, and no further sales will be made under the Prior Sales Agreement. The Company sold an aggregate of 3,911,104 shares of common stock under the Prior Sales Agreement resulting in aggregate net proceeds of $32.1 million. During the period beginning January 1 and ending June 5, 2018, the Company sold a total of 314,950 shares of common stock under the Prior Sales Agreement. The sales were made at a weighted average price of $5.07 per share resulting in aggregate net proceeds of $1.6 million. During the year ended December 31, 2017, the Company sold a total of 2,937,406 shares of common stock under the Prior Sales Agreement. The sales were made at a weighted average price of $8.41 per share resulting in aggregate net proceeds of $24.2 million.

On July 25, 2017, the Company closed an underwritten public offering of 12,500,000 shares of common stock at a public offering price of $6.00 per share. The net proceeds to the Company, after deducting the underwriters' discounts and commissions and other offering expenses, were $70.1 million.

Warrants

During the year ended December 31, 2018, warrants to purchase 284,091 shares of the Company's common stock were exercised, with net proceeds to the Company of $902,000. No common stock warrants were exercised during the year ended December 31, 2017.

As of December 31, 2018 there were no common stock warrants outstanding. Previously, the Company accounted for the common stock warrants issued in March 2013 under the authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, on the understanding that in compliance with applicable securities laws, the registered warrants required the issuance of registered securities upon exercise and did not sufficiently preclude an implied right to net cash settlement. The Company classified registered warrants on the consolidated balance sheet as a current liability which was revalued at each balance sheet date subsequent to the initial issuance. Changes in the fair market value of the warrants were reflected in the consolidated statement of operations as change in fair value of common stock warrants.

The following table summarizes the warrants outstanding as of December 31, 2018 and 2017:



				As of December 31, 2018			As of December 31, 2017
Issued in Connection With:	Exercise Price		Expiration Date	Number of Warrants	Common Stock Warrant Liability		Number of Warrants	Common Stock Warrant Liability
March 2013 financing	$	3.17	September 12, 2018	—	$	—	284,091	$	360,795
Total				—	$	—	284,091	$	360,795

Stock Options and Restricted Stock Units

The Company has a stock-based incentive plan, the 2016 Omnibus Incentive Plan (the "2016 Incentive Plan"), pursuant to which the Company may grant stock options, restricted stock awards, restricted stock units and other stock-based awards or short-term cash incentive awards to employees, directors and consultants.

The 2016 Incentive Plan was approved by the Company's stockholders on May 13, 2016. The maximum number of shares of the Company’s common stock available for issuance over the term of the 2016 Incentive Plan may not exceed 6,000,000 shares, provided that commencing with the first business day of each calendar year beginning January 1, 2018, such maximum number of shares shall be increased by 2,000,000 shares of common stock unless the Board determines, prior to January 1 for any such calendar year, to increase such maximum amount by a fewer number of shares or not to increase the maximum amount at all for such year. On January 1, 2018, the maximum number of shares to be issued was increased by 2,000,000. At December 31, 2018, there were 8,000,000 shares of common stock reserved for issuance upon exercise of incentive awards granted and to be granted at future dates under the 2016 Incentive Plan. At December 31, 2018, the Company had 3,039,566 shares of common stock available for future grant under the 2016 Incentive Plan, 1,519,187 shares underlying outstanding but unvested restricted stock units and options outstanding to purchase 3,062,183 shares of common stock under the 2016 Incentive Plan. The awards granted and available for future grant under the 2016 Incentive Plan generally vest over three years and have a maximum contractual term of ten years. The 2016 Incentive Plan terminates by its terms on March 9, 2026.

The Amended and Restated 2007 Omnibus Incentive Plan (the "2007 Incentive Plan") was adopted on March 31, 2007 and terminated by its terms on March 31, 2017. At December 31, 2018, the Company had 168,830 shares underlying outstanding but unvested restricted stock units and options outstanding to purchase 5,690,494 shares of common stock under the 2007 Incentive Plan. The awards granted under the 2007 Incentive Plan generally vest over three years and have a maximum contractual term of ten years.

Total employee and director stock-based compensation expense recognized in the consolidated statement of operations for the years ended December 31, 2018, 2017 and 2016 was $10.2 million, $12.9 million and $10.2 million, respectively, of which $5.9 million, $5.8 million and $4.8 million was included in research and development expenses and $4.3 million, $7.1 million and $5.4 million was included in general and administrative expenses, respectively.

At December 31, 2018 and 2017, there was $5.2 million and $5.9 million, respectively, of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.7 years and 1.8 years, respectively.

At December 31, 2018 and 2017, there was $5.1 million and $5.3 million, respectively, of total unrecognized compensation expense related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 1.7 years and 1.8 years, respectively.

The fair value of stock options granted to non-employees at the measurement dates were estimated using the Black-Scholes pricing model. Total stock-based compensation expense for stock options and restricted stock units granted to non-employees for the years ended December 31, 2018, 2017 and 2016 was $302,000, $201,000 and $321,000, respectively. As of December 31, 2018, options to purchase 628,125 shares of common stock granted to non-employees remained outstanding.

The following table summarizes total stock options outstanding at December 31, 2018:



	Options Outstanding				Options Exercisable
Exercise Price	Shares Underlying Options Outstanding	Weighted-Average Remaining Contractual Life (in Years)	Weighted Average Exercise Price		Shares Underlying Options Exercisable	Weighted Average Exercise Price
$1.48-$3.00	879,321	3.7	$	2.26	879,321	$	2.26
$3.01-$6.00	2,558,453	7.9	$	4.38	974,723	$	4.44
$6.01-$9.00	4,394,357	6.7	$	7.11	3,408,953	$	7.20
$9.01-$12.00	257,836	6.9	$	9.79	228,788	$	9.81
$12.01-$15.00	662,710	5.2	$	12.96	662,710	$	12.96
	8,752,677	6.7	$	6.35	6,154,495	$	6.78

At December 31, 2018, the aggregate intrinsic value of options outstanding was $1.6 million, the aggregate intrinsic value of options exercisable was $1.6 million, and the weighted average remaining contractual term of options exercisable was 5.8 years.

At December 31, 2018, the aggregate intrinsic value of unvested restricted stock units was $6.8 million and the aggregate intrinsic value of restricted stock units which vested during the year ended December 31, 2018 was $2.4 million.

At December 31, 2018, options to purchase 8,752,677 shares of common stock and 1,688,017 restricted stock units were expected to vest.

Stock option activity under the Company’s equity incentive plans during the year ended December 31, 2018 was as follows:



	Number of Shares		Weighted-Average Exercise Price
Balance, December 31, 2017	7,694,870		$	6.77
Granted	2,176,935		4.32
Exercised	(472,762	)	3.21
Cancelled	(646,366	)	6.83
Balance, December 31, 2018	8,752,677		$	6.35

Restricted stock unit activity under the Company’s equity incentive plans during the year ended December 31, 2018 was as follows:



	Number of Shares		Weighted-Average Exercise Price
Balance, December 31, 2017	1,234,168		$	—
Granted	1,070,106		—
Vested	(539,468	)	—
Cancelled	(76,789	)	—
Balance, December 31, 2018	1,688,017		$	—

The weighted average exercise price per share was $5.17 for the 119,091 options which expired during the year ended December 31, 2018, $9.67 for the 200,501 options which expired during the year ended December 31, 2017 and $9.01 for the 69,570 options which expired during the year ended December 31, 2016.

The weighted average grant date fair value per share was $2.86, $4.33 and $4.59 for options granted during the years ended December 31, 2018, 2017 and 2016, respectively.

The weighted average grant date fair value was $4.31, $6.66 and $7.41 per share for restricted stock units granted during the years ended December 31, 2018, 2017 and 2016, respectively.

The Company received $1.5 million, $2.3 million and $1.8 million in proceeds from the exercise of stock options during the years ended December 31, 2018, 2017 and 2016, respectively. The aggregate intrinsic value of options exercised was $910,000, $519,000 and $3.5 million during the years ended December 31, 2018, 2017 and 2016, respectively.