NOTE 11—STOCKHOLDERS’ EQUITY

Private Placement and Related Warrants

On August 1, 2017, the Company entered into the a securities purchase agreement with Longitude Venture Partners III, L.P. and certain other accredited investors (the “Longitude Securities Purchase Agreement”), pursuant to which the Company sold an aggregate of 5,793,063 units (the “Units”) having an aggregate purchase price of $40.0 million (“PIPE Financing”), each such Unit consisting of (i) one (1) share (the “Shares”) of our common stock and (ii) a warrant (the “Private Placement Warrants”) to purchase 0.5 shares of our common stock (the “Private Placement”). The Private Placement was pursuant to equity commitment letter agreements entered into by and between the Company and investors in March and June 2017. The purchase price per Unit was $6.9048. The Warrants will be exercisable for a period of seven years from the date of their issuance at a per-share exercise price of $6.8423 (which exercise price shall be payable in cash or through a cashless exercise mechanic), subject to certain adjustments as specified in the Warrants.  At December 31, 2019, there were warrants outstanding under this agreement to purchase 2,896,528 shares of common stock. The warrants were valued at $16.3 million using the Black-Scholes model, and recorded in additional paid-in capital. The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 147%, risk free interest rate of 2.07%, and expected term of 7.0 years. The warrants were exercisable upon issuance and expire August 1, 2024.

In December 2015, the Company entered into an agreement with Wedbush (“Wedbush Agreement”), which was subsequently amended in December of 2017, related to Wedbush’s services associated with the equity financing under the Longitude Securities Purchase Agreement. As part of the Wedbush Agreement, the Company issued warrants to purchase 57,930 shares of our common stock (the “Wedbush Warrants”). The Wedbush Warrants are exercisable for a period of seven years from the date of their issuance at a per-share exercise price of $6.8423 (which exercise price shall be payable in cash or through a cashless exercise mechanic), subject to certain adjustments as specified in the Warrants.  At December 31, 2019, there were Wedbush warrants outstanding to purchase 57,930 shares of common stock. The Wedbush Warrants were valued at $0.4 million using the Black-Scholes model.  The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 108%, risk free interest rate of 2.3%, and expected term of 7.0 years. The warrants were exercisable upon issuance and expire December 1, 2024.  

Subsequent Private Placements  

In connection with the execution of the Takeda Multi-Target Agreement, the Company entered into the Takeda Stock Purchase Agreement. Pursuant to the Takeda Stock Purchase Agreement, following the consummation of the Private Placement, Takeda purchased 2,922,993 shares of the Company common stock, at a price per share of $6.8423, for an aggregate purchase price of $20.0 million.

In connection with the execution of the Vertex Collaboration Agreement, the Company entered into the Vertex Stock Purchase Agreement. Pursuant to the Vertex Stock Purchase Agreement, Vertex purchased 1,666,666 shares of the Company common stock, at a price per share of $9.00, for an aggregate purchase price of $15.0 million. See Note 3 “Research and Development Agreements” for more information.

Public Offerings

On September 25, 2018, the Company closed its underwritten public offering (the “2018 Public Offering”) of 9,430,000 shares of its common stock, which included the exercise in full by the underwriters of their option to purchase 1,230,000 additional shares of common stock, at a price to the public of $5.50 per share. The net proceeds to the Company from the 2018 Public Offering, after deducting the underwriting discounts and commissions and offering expenses payable by the Company, were approximately $48.1 million.

On November 25, 2019, the Company closed its underwritten public offering (the “2019 Public Offering”) of 6,900,000 shares of its common stock at a price to the public of $8.00 per share, and 250 shares of newly designated Series A Convertible Preferred Stock (“Series A Preferred Stock”) at a price to the public of $8,000 per share. The offering included the exercise in full by the underwriters of their option to purchase up to 900,000 additional shares of common stock.  The net proceeds to the Company from the offering, after deducting the underwriting discounts and commissions and offering expenses payable by the Company, were approximately $53.4 million. Each share of Series A Preferred Stock is convertible to 1,000 shares of Common Stock, provided that the holder of Series A Preferred Stock will be prohibited from converting the Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. In the event of the Company’s liquidation, dissolution, or winding up, holders of Series A Preferred Stock will receive a payment equal to $0.001 per share of Series A Preferred Stock before any proceeds are distributed to the holders of the Company’s common stock and pari passu with any distributions to the holders of the Company’s Series A Preferred Stock. Series A Preferred Stock participate in earnings equally with Common Stock shareholders, with the same dividend rate, but do not participate in losses as discussed in Note 2 “Net Loss per Common Share”. The Series A Preferred Stock has no voting rights, except as required by law and except that the consent of the Series A Preferred Stockholders will be required to amend the terms of the Series A Preferred Stock. Based on the guidance in ASC 470-20-20, the Company determined that a BCF existed, as the effective conversion price for the Series A Preferred Stock at issuance was less than the fair value of the common stock which the preferred shares are convertible into. The BCF based on the intrinsic value of the date of issuances for the Series A Preferred Stock was $0.7 million.

Subsequent Common Stock Warrants

On February 28, 2018, in connection with the Perceptive Credit Facility, the Company issued warrants to purchase 190,000 shares of the Company’s common stock with an exercise price of $9.58 (the “2018 Warrants”). The 2018 Warrants are exercisable for a period of seven years from the date of issuance, subject to certain adjustments as specified in the Warrants. The 2018 Warrants were classified as equity and recorded in additional paid-in capital.  They were valued at $1.5 million using the Black-Scholes model.  The Black-Scholes inputs used were: expected dividend rate of 0%, expected volatility of 105%, risk free interest rate of 2.8%, and expected term of 7.0 years.  See Note 8, “Borrowing Arrangements”, for further detail about the Perceptive Credit Facility.