On December 16, 2022, the Company entered into a Securities Purchase Agreement for a private placement (“Private Placement”) with certain entities and members of management (collectively, “Purchasers”). Pursuant to the Securities Purchase Agreement, the Company agreed to sell to the Purchasers warrants to purchase up to an aggregate of 22,598,870 shares of the Company’s common stock, at a purchase price of $0.4425 per warrant. The closing of the Private Placement is expected to occur in the second quarter of 2023 (“Issue Date”), subject to the satisfaction of certain closing conditions, including the completion of enrollment in the randomized withdrawal period of Study C602, an ongoing open-label extension study of DCCR for the treatment of PWS.

The warrants are separated into two tranches with 8,598,870 Tranche A Warrants and 14,000,000 Tranche B Warrants. The Tranche A warrants are exercisable for $1.75 per share, with an aggregate exercise price of up to approximately $15.0 million, and the Tranche B warrants are exercisable for $2.50 per share, with an aggregate exercise price of up to $35.0 million. The Tranche A warrants are immediately exercisable and must be exercised within 30 days of announcement of positive top-line data from the randomized withdrawal period of Study C602 and will expire if positive top-line data is not announced prior to the 3.5 year anniversary of the date of issuance. The Tranche B warrants are also immediately exercisable and expire upon the earlier of 3.5 years from the date of issuance or 30 days following receipt of U.S. Food and Drug Administration approval of DCCR for the treatment of PWS.

On March 31, 2022, the Company sold 2,666,666 shares of its common stock at a public offering price of $3.75, and for certain investors, in lieu of common stock, pre-funded warrants (the 2022 pre-funded warrants) to purchase 1,333,333 shares of its common stock at a public offering price $3.60 per pre-funded warrant, which represents the per share public offering price for the common stock less the $0.15 per share exercise price for each 2022 pre-funded warrant. The 2022 pre-funded warrants are immediately exercisable and may be exercised at any time until all of the 2022 pre-funded warrants are exercised in full. Each share of common stock or 2022 pre-funded warrant was sold together with one, immediately exercisable, common warrant (the 2022 common warrants) with a five-year term to purchase one share of common stock at an exercise price of $4.50 per share. The net proceeds of the offering were $13.8 million, after deducting the underwriting discount and other offering expenses. The Company is not required under any circumstance to settle any of the 2022 pre-funded warrants or the 2022 common warrants for cash, and therefore classified both types of warrants as permanent equity.

In July 2021, the Company entered into a Controlled Equity Offering Sales Agreement under which the Company may sell shares of its common stock having an aggregate offering price of up to $25.0 million from time to time in any method permitted by law deemed to be an “at the market” Rule 415 under the Securities Act of 1933, as amended. As of December 31, 2022, we have sold 104,773 shares of common stock through the at the market program, totaling $0.3 million in net proceeds.

As of December 31, 2022, the Company had 6,804 common stock warrants outstanding from the 2010/2012 convertible notes, with an exercise price of $365.25 and a term of 10 years expiring in November 2024. The Company also had outstanding 1,100 common stock warrants issued to the underwriter in the Company’s IPO, with an exercise price of $535.50 and a term of 10 years, expiring in November 2024.

The Company has the 2014 Equity Incentive Plan (the 2014 Plan). Under the 2014 Plan the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance units or performance shares to employees, directors, advisors, and consultants. Options granted under the 2014 Plan may be incentive stock options (ISOs) or nonqualified stock options (NSOs). ISOs may be granted only to Company employees, including officers and directors.

The Board has the authority to determine to whom stock options will be granted, the number of options, the term, and the exercise price. Options are to be granted at an exercise price not less than fair value. For individuals holding more than 10% of the voting rights of all classes of stock, the exercise price of an option will not be less than 110% of fair value. The vesting period for service-based stock options is normally monthly over a period of 4 years from the vesting date. Performance-based grants have vesting contingent upon the achievement of certain performance criteria related to the Company’s commercialization of its therapeutics. The contractual term of an option is no longer than five years for ISOs for which the grantee owns greater than 10% of the voting power of all classes of stock and no longer than ten years for all other options. The terms and conditions governing restricted stock units is at the sole discretion of the Board.

As of December 31, 2022, a total of 16,930 shares were available for future grant under the 2014 Plan.

The Company maintains the 2020 Inducement Equity Incentive Plan (the Inducement Plan). The Inducement Plan provides for the grant of equity-based awards, including non-statutory stock options, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the Company’s 2014 Equity Incentive Plan.

In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees or non-employee directors of the Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals’ entry into employment with the Company, or, to the extent permitted by Rule 5635(c)(3) of the Nasdaq Listing Rules, in connection with a merger or acquisition.

As of December 31, 2022, a total of 85,668 shares were available for future grant under the Inducement Plan.

The Company recognized stock-based compensation expense related to options and restricted stock units granted to employees, directors and consultants for the years ended December 31, 2022 and 2021 of $2.5 million and $3.3 million, respectively. The compensation expense is allocated on a departmental basis, based on the classification of the option holder. No income tax benefits have been recognized in the statements of operations for stock-based compensation arrangements during the year ended December 31, 2022 and December 31, 2021.

Stock compensation expense was allocated between departments as follows (in thousands):


	Year ended
	December 31, 2022		December 31, 2021
Research and development	$	692	$	734
General and administrative		1,838		2,542
Total	$	2,530	$	3,276

The Company granted options to purchase 283,919 and 230,854 of the Company’s common stock during the years ended December 31, 2022 and 2021, respectively. Of the total options granted during the year ended December 31, 2021, 47,250 were performance-based options, and no performance options were granted in 2022. The fair value of each award granted was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

The Black-Scholes option-pricing model requires the use of highly subjective assumptions to estimate the fair value of stock-based awards. These assumptions include the following estimates:

The following table summarizes stock option and restricted stock unit transactions for the years ended December 31, 2022 and 2021 as issued under the 2014 Plan and the Inducement Plan:


	Number of Options			Weighted- Average Exercise Price per		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	Outstanding			Share		(in years)		(in thousands)
Balance at December 31, 2020		189,142		$	62.63		7.62
Options granted		230,854			31.95
Options canceled/forfeited		(11,667	)		28.65
Balance at December 31, 2021		408,329		$	46.28		7.94
Options granted		283,919			3.56
Options canceled/forfeited		(5,674	)		19.31
Balance at December 31, 2022		686,574		$	28.83		7.93	$	—
Options exercisable at December 31, 2022		357,573		$	39.54		7.21	$	—
Options vested and expected to vest at December 31, 2022		663,616		$	28.67		7.93	$	—

The weighted-average grant date fair value of employee options granted was $2.62 and $25.5 per share for the years ended December 31, 2022 and December 31, 2021, respectively. At December 31, 2022 total unrecognized employee stock-based compensation for options that are expected to vest was $3.2 million, which is expected to be recognized over the weighted-average remaining vesting period of 1.8 years.

There were 8,965 and 11,863 restricted stock units granted by the Company during the years ended December 31, 2022 and December 31, 2021, respectively, to employees and directors. The shares granted to directors were 100% vested on the grant date and represent compensation for past board services. The shares granted to employees typically vest annually over a period of four years. The shares were valued based on the Company’s common stock price on the grant date.

The following table summarizes restricted stock unit transactions for the years ended December 31, 2022 and 2021 as issued under the 2014 Plan:


	Number of Restricted Stock Units			Weighted- Average Grant-Date Fair Value per Share
Outstanding at December 31, 2020		38,733		$	57.75
Restricted stock units granted		11,863			15.75
Restricted stock units vested		(21,546	)		34.65
Outstanding at December 31, 2021		29,050		$	57.75
Restricted stock units granted		8,965			5.33
Restricted stock units vested		(18,646	)		32.55
Restricted stock units cancelled/forfeited		(301	)		57.85
Outstanding at December 31, 2022		19,068		$	57.75

The weighted-average grant-date fair value of all restricted stock units granted was $5.33 and $15.68 per share during the year ended December 31, 2022 and 2021, respectively. The fair value of all restricted stock units vested during the year ended December 31, 2022 and 2021 was $0.1 million and $0.3 million, respectively. At December 31, 2022 total unrecognized employee stock-based compensation related to restricted stock units was $0.6 million, which is expected to be recognized over the weighted-average remaining vesting period of 1.1 years.

The Company’s board of directors and stockholders have adopted the 2014 Employee Stock Purchase Plan (the ESPP). The ESPP has become effective, and the board of directors will implement commencement of offers thereunder in its discretion. A total of 1,864 shares of the Company’s common stock has been made available for sale under the ESPP. In addition, the ESPP provides for annual increases in the number of shares available for issuance under the plan on the first day of each year beginning in the year following the initial date that the board of directors authorizes commencement, equal to the least of: