Stockholders' equity

12 Months Ended

Dec. 31, 2019

Federal Home Loan Banks [Abstract]

Stockholders' equity

8. Stockholders’ equity

(a) Common stock

The Company is authorized to issue 100,000,000 shares of common stock with a par value of $0.000001 per share (December 31, 2018—50,000,000). On November 12, 2019, the Company’s stockholders approved the increase in the number of authorized shares of common stock from 50,000,000 to 100,000,000. As of December 31, 2019, total number of shares of common stock issued and outstanding was 37,996,849 (December 31, 2018—23,537,368).

(b) Preferred stock

The Company is authorized to issue 5,000,000 shares of preferred stock with a par value of $0.000001 per share (December 31, 2018—5,000,000). As of December 31, 2019 and December 31, 2018, no shares of preferred stock were issued or outstanding.

(c) Merger with Former Neoleukin

On August 8, 2019, the Company issued 4,589,771 shares of common stock and 101,927 shares of non-voting convertible preferred stock as consideration in the Merger among Aquinox, Former Neoleukin and Apollo Merger Inc. (see Note 3). Each share of non-voting convertible preferred stock was convertible into 100 shares of common stock and was entitled to receive dividends, on an as-is converted to common stock basis, when dividends are paid to common stockholders. The holders of preferred stock were only entitled to vote when it impacts the rights of the preferred stockholder.

On November 12, 2019, the Company’s stockholders approved the conversion of 101,927 shares of non-voting convertible preferred stock into 10,192,700 shares of the Company’s common stock. As of December 31, 2019, the Company did not have any outstanding non-voting convertible preferred stock.

(d) Pre-funded common stock warrants

On December 17, 2019, Neoleukin entered into an exchange agreement (the “Exchange Agreement”) with certain stockholders, pursuant to which the Company exchanged an aggregate of 10,925,481 shares of common stock held by the stockholders for pre-funded warrants (the “Exchange Warrants”) to purchase an aggregate of 10,925,481 shares of common stock (subject to adjustment in the event of stock splits, recapitalizations and other similar events affecting common stock), with an exercise price of $0.000001 per share. The Exchange Warrants may be exercised at any time after the date of issuance, except that the Exchange Warrants cannot be exercised by the stockholders if, after giving effect thereto, the stockholders would beneficially own more than 9.99% of the outstanding common stock, subject to certain exceptions. The holders of the Exchange Warrants will not have the right to vote on any matter except to the extent required by Delaware law. 

As the Exchange Warrants meet the conditions for equity classification, the proceeds previously received for the shares of common stock will remain in additional paid-in capital. Upon the exercise of the warrants the proceeds received along with the exercise price will be recorded in common stock.

(e) Public offerings

On December 20, 2019, the Company completed an underwritten public offering of 10,263,750 shares of its common stock at a price to the public of $8.40 per share. The aggregate net proceeds received by the Company from the offering, net of underwriting discounts and commissions and offering costs of approximately $5.5 million, were $80.7 million.

(f) Stock option plan

In January 2014, the Company’s stockholders approved the 2014 Equity Incentive Plan (“2014 Plan”) which became effective in March 2014. The 2014 Plan is the successor to and continuation of the Joint Canadian Stock Option Plan (the “2006 Plan”). No further grants will be made under the 2006 Plan. The 2014 Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards, and other forms of equity awards to employees, directors, and consultants.

As of December 31, 2019, the maximum number of shares of common stock that may be issued under the 2014 Plan was 9,080,445. The number of shares of common stock reserved for issuance under the 2014 Plan will be increased by the number of shares subject to stock options granted under the 2006 Plan that would have otherwise returned to the 2006 Plan, such as upon the expiration or termination of a stock award prior to vesting. As of December 31, 2019, there were 88,627 shares subject to stock options granted under the 2006 Plan. Additionally, the number of shares of common stock reserved for issuance under the 2014 Plan will automatically increase on January 1 of each year for a period of up to 10 years, beginning on January 1, 2015 and ending on and including January 1, 2024, by 4% of the total number of shares of capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the board of directors. On November 12, 2019, the Company’s stockholders approved the increase in the number of shares reserved from issuance under the 2014 Plan by 4,500,000 shares.

At December 31, 2019, the number of shares available to be granted under the 2014 Plan was 6,556,534 (December 31, 2018—1,156,378).

Stock option transactions and the number of stock options outstanding are summarized below:

	NUMBER OF SHARES			WEIGHTED AVERAGE EXERCISE PRICE		WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE (IN YEARS)		AGGREGATE INTRINSIC VALUE (IN THOUSANDS)
Outstanding at December 31, 2018		2,897,294		$	9.04		7.96	$	—
Options granted		4,016,500			2.91
Options exercised		(326,094	)		4.77
Options forfeited		(747,162	)		8.71
Outstanding at December 31, 2019		5,840,538		$	5.11		7.72	$	45,037
Exercisable as of December 31, 2019		1,805,043		$	9.85		3.36	$	7,264

During the year ended December 31, 2019, the Company granted 3,830,000 stock options to employees, 76,500 stock options to consultants and 110,000 stock options to non-employee directors. The stock options granted to employees during the year ended December 31, 2019 have exercise prices per share ranging from $2.71 to $5.30 and vest 25% one year after the beginning of the vesting period and thereafter ratably each month over the following thirty-six months. The stock options granted to consultants during the year ended December 31, 2019 have exercise prices per share ranging from $2.82 to $3.76 and have a vesting period of one year in equal monthly installments from the beginning of the vesting period for certain grants and a vesting period of 25% one year after the beginning of the vesting period and thereafter ratably each month over the following thirty-six months for other grants. In the event of a change in control, the unvested options of the August and November 2018 grants will vest immediately if the employee has been terminated without cause within twelve months prior to the change in control or if within twelve months of the change in control the employee is terminated without cause. If a change in control does not occur within the twelve months prior to an employee being terminated without cause, the options will continue to vest until the earlier of the change in control or one year from the date of being terminated without cause. The stock options granted to non-employee directors during the year ended December 31, 2019 have an exercise price per share of $2.82 and have a vesting period of three years in equal annual installments from the beginning of the vesting period. All stock options under the 2014 Plan are subject to a 10-year expiration period. 

During the year ended December 31, 2019, 326,094 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $1.3 million. During the year ended December 31, 2018, 64,938 shares of common stock were issued upon exercise of options with an aggregate intrinsic value of $0.3 million.

Restricted stock units

During the year ended December 31, 2019, the Company granted 72,000 restricted stock units to employees and consultants with a weighted average grant date fair value per share of $3.47. The restricted stock units vest 50% on the first anniversary of the grant and 50% on the second anniversary of the grant. All restricted stock units under the 2014 Plan are subject to a 10-year expiration period.

(g) Stock-based compensation

The fair value of stock options granted is estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

	YEARS ENDED DECEMBER 31,
	2019			2018			2017
Expected volatility		90	%		80	%		84	%
Expected dividends		0	%		0	%		0	%
Expected terms (years)		6.07			6.00			6.00
Risk free rate		1.43	%		2.80	%		1.90	%
Weighted average grant-date fair value of stock options	$	2.17		$	6.24		$	11.85

Stock options are granted with exercise prices as determined by the Board of Directors at the date of grant. The expected term represents the period that the Company’s stock-based awards are expected to be outstanding. As the Company does not have sufficient historical experience for determining the expected term of the stock option awards granted the Company has based its expected term for awards issued to employees on the simplified method, which represents the average period from vesting to the expiration of the stock option. In addition, the Company does not have sufficient trading history for the Company’s common stock, and therefore, the expected stock price volatility for the Company’s common stock was estimated by taking the average historical price volatility for industry peers. The Company has never declared or paid any cash dividends to common stockholders and does not presently plan to pay cash dividends in the foreseeable future. Consequently, the Company used an expected dividend yield of zero. The risk-free interest rate was based on the yields of treasury securities with maturities similar to the expected term of the options for each option group.

The Company recognizes as an expense the fair value of the stock options on a straight-line basis over the applicable requisite service periods of the awards, which is generally the vesting period. Stock-based compensation expense charged to research and development expenses was $0.5 million, $0.8 million and $1.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. Stock-based compensation expense charged to general and administration expenses was $7.2 million, $3.9 million and $2.7 million for the years ended December 31, 2019, 2018 and 2017, respectively. Total unrecognized compensation cost for all stock-based compensation plans was $8.4 million and $7.8 million as of December 31, 2019 and December 31, 2018, respectively, which is expected to be recognized over a weighted-average period of 3.53 years (December 31, 2018—2.79 years).