K.	Common Stock and Warrants

Authorized, Issued, and Outstanding Common Shares

As of

December 31, 2019

and

2018

, the Company had

authorized shares of common stock of

250,000,000

shares. Of the authorized shares,

36,350,785

and

26,455,352

shares of common stock were issued and outstanding as of

December 31, 2019

and

2018

, respectively.

As of

December 31, 2019

and

2018

, the Company had reserved authorized shares of common stock for future issuance as follows:

	December 31,
	2019		2018
Conversion of Deerfield Convertible Note		1,213,606		1,167,607
Conversion of 2021 Notes		175,336		4,481,182
Conversion of 2019 Notes not subject to the Deerfield Optional Conversion Feature		3,186,770		-
Outstanding awards under equity incentive plans		5,192,222		3,704,755
Outstanding common stock warrants		2,423,077		2,527,763
Conversion of Series A Preferred Stock		-		1,112,334
In exchange for the Deerfield Optional Conversion Feature*		26,439,015		-
Possible future issuances under the Prior Purchase Agreement		9,553,046		-
Possible future issuances under equity incentive plans		84,616		648,272
Total common shares reserved for future issuance		48,267,688		13,641,913

Common Stock Activity

The following table summarizes common stock activity for the years ended

December 31, 2019

and

2018

	Shares of
	Common Stock
Balance as of January 1, 2018		14,657,430
Common stock sold under First ATM Agreement		762,338
Common stock issued as a result of Deerfield Convertible Note principal and interest conversion		598,568
Common stock options exercised		23,682
Common stock sold under underwritten public offering		8,333,334
Common stock issued as a result of Series A Preferred Stock conversion		2,080,000
Balance as of December 31, 2018		26,455,352
Common stock issued under the Prior Purchase Agreement		3,521,471
Restricted stock vested during the period		101,739
Common stock issued as a result of 2021 Notes principal conversion		1,499,894
Common stock issued as a result of Series B-1 Preferred Stock conversion		1,659,996
Common stock issued as a result of Series A Preferred Stock conversion		1,112,333
Common stock issued as a result of Deerfield Optional Conversion Feature conversion		2,000,000
Balance as of December 31, 2019		36,350,785

September 2018,

the Company terminated the First ATM Agreement with Cowen. Prior to termination of the First ATM Agreement, the Company sold an aggregate of

762,338

shares of common stock under the First ATM Agreement resulting in gross proceeds to the Company of

$4.9

million. As of

December 31, 2019,

the Company has

not

sold any shares of common stock under the Second ATM Agreement. Refer to Note A for a further discussion of the First and Second ATM Agreements.

October

2018,

the Company entered into an underwriting agreement with RBCCM pursuant to which the Company issued and sold

8,333,334

shares of common stock of the Company in an underwritten public offering pursuant to the Company's registration statement on Form S-

Refer to Note A for a further discussion of the underwritten public offering.

Also in

October

2018,

the Company entered into the

October 2018

Exchange Agreement pursuant to which the Company issued to the Holders

9,577

shares of Series A Preferred Stock. As of

December 31, 2019,

9,577

shares of Series A Preferred Stock have been converted into

3,192,333

shares of common stock. Refer to Note G for a further discussion of the

October 2018

Exchange Agreement.

September 3,

2019,

the Company entered into the

September 2019

Exchange Agreement pursuant to which the Company issued to the Holders

1,499,894

shares of common stock and

1,576

shares of Series B-

Preferred Stock. As of

December 31, 2019,

1,576

shares of Series B-

Preferred Stock have been converted into

1,659,966

shares of common stock. Refer to Note G for a further discussion of the

September 2019

Exchange Agreement.

Warrants

During

2013,

the Company issued

$3.8

million of convertible notes and the warrants (the

“2013

Warrants”) to purchase

1,079,453

shares of equity securities in a future financing meeting specified requirements (a “Qualified Financing”). The

2013

Warrants allow the holders to purchase shares of the same class and series of equity securities issued in the Qualified Financing for an exercise price equal to the per share price paid by the purchasers of such equity securities in the Qualified Financing. When the Company entered into the Deerfield Facility Agreement, the

2013

Warrants became warrants to purchase

1,079,453

shares of Series D Preferred. Upon completion of the IPO, the

2013

Warrants automatically converted into warrants to purchase

143,466

shares of the Company’s common stock at an exercise price of

$5.85

per share. The

2013

Warrants expired on

June 2, 2019.

June 2, 2014,

pursuant to the terms of the Deerfield Facility Agreement, the Company issued the Deerfield Warrant to purchase

14,423,076

shares of Series D Preferred (Note G). The Company recorded the fair value of the Deerfield Warrant as a debt discount and a warrant liability. The Deerfield Warrant, if unexercised, expires on the earlier of

June 2, 2024,

or upon a liquidation event. Upon completion of the IPO, the Deerfield Warrant automatically converted into a warrant to purchase

1,923,077

shares of the Company’s common stock at an exercise price of

$5.85

per share. The Company is amortizing the debt discount over the term of the Deerfield Convertible Note and the expense is recorded as interest expense related to amortization of debt issuance costs and discount in the condensed statements of operations.

The Company determined that the

2013

Warrants and Deerfield Warrant should be recorded as a liability and stated at fair value at each reporting period upon inception. As stated above, upon completion of the IPO, the

2013

Warrants and the Deerfield Warrant automatically converted into warrants to purchase the Company’s common stock. The Company marked the

2013

Warrants to fair value and reclassified them to equity upon closing of the IPO. The Deerfield Warrant remains classified as a liability and is recorded at fair value at each reporting period since it can be settled in cash. Changes to the fair value of the warrant liability are recorded through the condensed statements of operations as a fair value adjustment (Note M).

In connection with a Collaboration and License Agreement (the “APADAZ License Agreement”) with KVK Tech, Inc. (“KVK”), in

October 2018,

the Company issued to KVK a warrant to purchase up to

500,000

shares of common stock of the Company at an exercise price of

$2.30

per share, which reflected the closing price of the Company’s common stock on the Nasdaq Global Market on the execution date of the APADAZ License Agreement (the “KVK Warrant”). The KVK Warrant is initially

not

exercisable for any shares of common stock. Upon the achievement of each of

four

specified milestones under the KVK Warrant, the KVK Warrant will become exercisable for an additional

125,000

shares, up to an aggregate of

500,000

shares of the Company’s common stock. The exercise price and the number and type of shares underlying the KVK Warrant are subject to adjustment in the event of specified events, including a reclassification of the Company’s common stock, a subdivision or combination of the Company’s common stock, or in the event of specified dividend payments. The KVK Warrant is exercisable until

October 24, 2023.

Upon exercise, the aggregate exercise price

may

be paid, at KVK’s election, in cash or on a net issuance basis, based upon the fair market value of the Company’s common stock at the time of exercise.

The Company determined that, since KVK qualifies as a customer under ASC

606,

the KVK Warrant should be recorded as a contract asset and recognized as contra-revenue as the Company recognizes revenue from the APADAZ License Agreement. In addition, the Company determined that the KVK Warrant qualifies as a derivative under ASC

815

and should be recorded as a liability and stated at fair value each reporting period. The Company calculates the fair value of the KVK Warrant using a probability-weighted Black-Scholes option pricing model. Changes in fair value resulting from changes in the inputs to the Black Scholes model are accounted for as changes in the fair value of the derivative under ASC

815

and are recorded as fair value adjustment related to derivative and warrant liability in the statements of operations. Changes in the number of shares that are expected to be issued are treated as changes in variable consideration under ASC

606

and are recorded as a change in contract asset in the balance sheets.