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STOCKHOLDERS' EQUITY | 12 Months Ended
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Dec. 31, 2015
Stockholders' Equity: |
STOCKHOLDERS' EQUITY | NOTE 10 – STOCKHOLDERS’ EQUITY Preferred Stock At December 31, 2015, 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, 2015, we had 350,000,000 shares of Common Stock authorized for issuance, of which 177,928,041 shares of our Common Stock were issued and outstanding. During the year ended December 31, 2015, our stockholders’ approved an amendment to our articles of incorporation to increase the number of authorized shares of Common Stock from 250,000,000 to 350,000,000. 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. Subsequent to December 31, 2015, we issued 17,424,242 shares of our Common Stock in an underwritten public offering at a public offering price of $8.25 per share. In January 2016, certain individuals exercised stock options to purchase 281,657 shares of our Common Stock for approximately $758,000 in cash. In addition, warrants to purchase 500,000 shares of our Common Stock were exercised for approximately $1,285,000 in cash. See Note 16 - Subsequent Events for more details. 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. Issuances During 2013 On March 14, 2013, we entered into an underwriting agreement with Jefferies LLC as the representative of the underwriters named therein, or the Jefferies Underwriters, relating to the issuance and sale of 29,411,765 shares of our Common Stock. The price to the public in the offering was $1.70 per share. In addition, under the terms of the underwriting agreement, we granted the Jefferies Underwriters a 30-day option to purchase up to an additional 4,411,765 shares of our Common Stock. The offering closed on March 20, 2013. On April 12, 2013, the Jefferies Underwriters exercised their option to purchase an additional 1,954,587 shares of our Common Stock, which were issued on April 18, 2013. The net proceeds to us from this offering were approximately $48.5 million, after deducting underwriting discounts and commissions and other offering expenses payable by us. On September 25, 2013, we entered into an underwriting agreement with Stifel, Nicolaus & Company, Incorporated, as the representative of the underwriters named therein, relating to the issuance and sale of 13,750,000 shares of our Common Stock. The price to the public in the offering was $2.40 per share. The net proceeds to us from this offering were approximately $30.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by us. The offering closed on September 30, 2013. During the year ended December 31, 2013, certain individuals exercised options to purchase an aggregate of 75,423 shares of our Common Stock for approximately $31,000. Warrants to Purchase Common Stock As of December 31, 2015, we had warrants outstanding to purchase an aggregate of 12,722,431 shares of our Common Stock with a weighted-average contractual remaining life of 1.7 years, and exercise prices ranging from $0.24 to $6.35 per share, resulting in a weighted average exercise price of $1.93 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 and the term of the warrant. 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. The grant date fair value of this warrant was $3.27. During the year ended December 31, 2015, we recorded $139,142 as non-cash compensation in the accompanying consolidated financial statements related to this warrant. In January 2013, we issued warrants to purchase 1,250,000 shares of our Common Stock in connection with the issuance of the Revolving Credit Note, or the Plato Warrant (see NOTE 9 above for more details). 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, 2015, 2014 and 2013, $0, $260,027 and $1,451,934, 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 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 2015, 2014 and 2013, we recorded $154,068, $154,068 and $77,034, respectively, as non-cash compensation in the accompanying consolidated financial statements related to this warrant. As of December 31, 2015, there was a remaining balance of $77,026 related to this warrant which was included in other current assets in the accompanying consolidated financial statements; 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 December 2016.
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. 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, 2015, we had $257,796 reported as prepaid expense-short term and $128,898 recorded as prepaid expense-long term associated with these warrants. During the years ended December 31, 2015, 2014 and 2013, we recorded $257,796, $309,165 and $360,528, 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, 2015, unamortized costs associated with the SCI warrants issued in 2013 and 2012 totaled approximately $464,000 and will be recognized over a period of eighteen months. Warrant exercises 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. Summary of our Warrant activity during the year ended December 31, 2015:
|  | Number of Shares Under Warrants |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Life in Years |  |  | Aggregate Intrinsic Value |
Balance at December 31, 2014 |  |  | 13,927,916 |  |  | $ | 1.82 |  |  |  | 3.0 |  |  | $ | 36,623,875 |
Granted |  |  | 50,000 |  |  | $ | 6.35 |  |  |  |  |  |  |  |  |
Exercised |  |  | (1,255,485 | ) |  | $ | 0.79 |  |  |  |  |  |  | $ | 7,282,404 |
Expired |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  |
Cancelled/Forfeited |  |  | — |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at December 31, 2015 |  |  | 12,722,431 |  |  | $ | 1.93 |  |  |  | 1.7 |  |  | $ | 107,344,752 |
Vested and Exercisable at December 31, 2015 |  |  | 12,422,432 |  |  | $ | 1.92 |  |  |  | 1.6 |  |  | $ | 104,909,091 |
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, 2015, 2014 and 2013 are set forth in the table below.
| 2015 |  | 2014 |  | 2013
Weighted average fair value | $6.35 |  | n/a |  | $2.83
Risk-free interest rate | 1.02% |  | n/a |  | 0.88-1.12%
Volatility | 60.59% |  | n/a |  | 44.29-45.89%
Term (in years) | 5 |  | n/a |  | 5-6
Dividend yield | 0.00% |  | n/a |  | 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 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 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. We have used the historical volatility of peer entities due to the lack of sufficient historical data of our stock price during 2011-2015. 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. Prior to the merger with VitaMed, no Awards had been issued under the 2009 Plan. As of December 31, 2015, there were non-qualified stock options to purchase 17,856,851 shares of Common Stock outstanding under the 2009 Plan. As of December 31, 2015, there were 3,607,852 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, 2015, there were non-qualified stock options to purchase 2,868,474 shares of Common Stock outstanding under the 2012 Plan. As of December 31, 2015, there were 7,050,000 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, 2015, 2014 and 2013 are set forth in the table below.
| 2015 |  | 2014 |  | 2013
Risk-free interest rate | 1.47-1.67% |  | 0.07-1.77% |  | 0.65-1.71%
Volatility | 58.78-62.94% |  | 68.05-82.29% |  | 33.35-45.76%
Term (in years) | 5.27-6.25 |  | 5-6.25 |  | 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. We used the historical volatility of our peer entities due to the lack of sufficient historical data on our stock price. The average expected life is based on the contractual terms of the stock option using the simplified method. A summary of activity under the 2009 and 2012 Plans and related information during the year ended December 31, 2015 is as follows:
|  | Number of Shares Under Options |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Life in Years |  |  | Aggregate Intrinsic Value |
Balance at December 31, 2014 |  |  | 16,792,443 |  |  | $ | 1.88 |  |  |  | 6.9 |  |  | $ | 43,996,311 |
Granted |  |  | 4,685,000 |  |  | $ | 8.14 |  |  |  |  |  |  |  |  |
Exercised |  |  | (613,284 | ) |  | $ | 2.01 |  |  |  |  |  |  |  |  |
Expired |  |  | (102,500 | ) |  | $ | 2.68 |  |  |  |  |  |  |  |  |
Cancelled/Forfeited |  |  | (36,334 | ) |  | $ | 4.02 |  |  |  |  |  |  |  |  |
Balance at December 31, 2015 |  |  | 20,725,325 |  |  | $ | 3.28 |  |  |  | 6.5 |  |  | $ | 146,864,184 |
Vested and Exercisable at December 31, 2015 |  |  | 15,461,986 |  |  | $ | 1.86 |  |  |  | 5.5 |  |  | $ | 131,523,505 |
Unvested at December 31, 2015 |  |  | 5,263,339 |  |  | $ | 7.46 |  |  |  | 9.4 |  |  | $ | 15,340,679 |
At December 31, 2015, our outstanding options had exercise prices ranging from $0.10 to $8.92 per share. The weighted average grant date fair value per share of options granted during the year ended December 31, 2015 was $4.45. The total intrinsic value of options exercised during the year ended December 31, 2015 was $3,186,371. Share-based compensation expense related to options recognized in our results of operations for the years ended December 31, 2015, 2014 and 2013 was $6,621,658, $4,393,455 and $3,200,655, 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, 2015, total unrecognized estimated compensation expense related to unvested options was approximately $19.8 million, which may be adjusted for future changes in forfeitures. This cost is expected to be recognized over a weighted-average period of 1.7 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 years ended December 31, 2014 and 2013, we recorded $53,428 and $180,072, respectively, of non-cash compensation related to the RSU on the accompanying consolidated financial statements. The RSU was issued in June 2014.

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