Note 6 - Stockholders' Equity and Stock-based Compensation

9 Months Ended

Sep. 30, 2024

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

6. Stockholders’ Equity and Stock-Based Compensation

2024 Rights Offering and Subscription Rights

On March 28, 2024, the Company announced that its Board of Directors ("Board") unanimously approved plans to initiate a rights offering, whereby the Company would distribute non-transferable subscription rights at no charge to all holders of the Company's common stock, par value $0.001 per share (the "Common Stock"), as of the close of business on a record date to be determined. On May 20, 2024, the Company announced that the Board had set May 31, 2024 as the record date (the "Record Date"). All holders of Common Stock as of the Record Date received non-transferable subscription rights to purchase up to an aggregate of six million units (the “2024 Units”) with an aggregate offering value of up to $60 million (the "2024 Rights Offering") at a price per 2024 Unit equal to the lesser of: (i) $10 (the “Initial Price”) and (ii) the volume weighted average price of the Common Stock for the ten trading day period through and including the expiration date, June 26, 2024 (the "Expiration Date"), of the Rights Offering (the “Alternate Price”). Each subscription right entitled the holder to purchase 0.10864186 2024 Units for each share of Common Stock owned as of the Record Date. Each 2024 Unit consisted of one share of Common Stock and two warrants, each being a warrant to purchase one-half of one share of Common Stock. The subscription rights were to expire and have no value if they were not exercised prior to the Expiration Date. The Company determined that the equity-classified subscription rights represent a pro-rata distribution issued to existing stockholders as of the Record Date, which is based on a purchase price of $10 per 2024 Unit as compared to (1) the price of $11.55 per one share of Common Stock on the Record Date, plus (2) the value of the warrants on the Record Date. The Company determined the fair value of the equity-classified subscription rights as of the Record Date, which involved the use of a Monte Carlo simulation to value the underlying warrants. The Monte Carlo simulation was based on certain significant unobservable inputs, such as a risk-free interest rate, stock price volatility, dividend yield, and expected term of the rights offering. The fair value of the equity-classified subscription rights was $47.7 million and was recorded in equity on the balance sheet as part of additional paid-in capital. The deemed pro-rata distribution to shareholders of $47.7 million was reflected as an offsetting reduction in additional paid-in capital. The Company is in an accumulated deficit position and has elected a policy of recognizing the deemed pro-rata distribution to shareholders as a reduction to additional paid-in capital rather than a further increase to its accumulated deficit. 

On July 3, 2024, the Company announced the closing of its 2024 Rights Offering. The 2024 Rights Offering resulted in the sale of six million 2024 Units, at a price of $10.00 per 2024 Unit. Each 2024 Unit consisted of one share of the Company’s common stock, par value $0.001 per share, and two warrants, each being a warrant to purchase one-half of one share of common stock. The common stock and warrants comprising the 2024 Units separated upon the closing of the 2024 Rights Offering and were issued individually. A total of 5,999,998 shares of common stock and warrants to acquire up to approximately an additional six million shares of common stock were issued in the offering. The Company received aggregate gross proceeds from the 2024 Rights Offering of $60 million. If exercised, additional gross proceeds of up to $66 million may be received through the exercise of warrants issued in the 2024 Rights Offering. See 2024 Rights Offering Warrants below for additional details of the warrants. Robert W. Duggan, the Company’s majority stockholder and Co-Chairman, purchased approximately 88% of the units offered through the 2024 Rights Offering.

Private Placement Securities Purchase Agreement

On  April 30, 2023, the Company entered into a Securities Purchase Agreement with Robert W. Duggan, the Company’s majority stockholder and Co-Chairman, pursuant to which the Company agreed to issue and sell to Mr. Duggan 10,022,937 shares of the Company’s common stock, par value $0.001 per share, in a Private Placement, at a price per share of $6.51. The parties completed the Private Placement on  May 9, 2023, after satisfying all pre-closing conditions, and the Company issued the full number of shares to Mr. Duggan. The shares were paid for through the cancellation of the principal sum of $65.0 million borrowed by the Company pursuant to the 2022 Loan Agreement (See Note 7), together with all accrued and unpaid interest outstanding owed at the time of closing. 

2022 Rights Offering

On  June 9, 2022, the Company completed a rights offering (the “2022 Rights Offering") resulting in the sale of 7,317,072 units (the “2022 Units”), at a price of $2.05 per 2022 Unit, with each 2022 Unit consisting of one share of the Company’s common stock, par value $0.001 per share, and one warrant (the “2022 Rights Offering Warrants”) to purchase one share of common stock at a price of $2.05 per share. The common stock and warrants comprising the 2022 Units separated upon the closing of the 2022 Rights Offering and were issued individually. 7,317,072 shares of common stock and warrants to acquire up to an additional 7,317,072 shares of common stock were issued in the 2022 Rights Offering. The Company received aggregate gross proceeds from the 2022 Rights Offering of $15 million. In  May 2023, the Company delivered an irrevocable notice of redemption to warrant holders and, on  June 16, 2023, it redeemed the last of the outstanding 2022 Rights Offering Warrants at a price of $0.01 per warrant share. See the Common Stock Warrants section below for further details. Robert W. Duggan, the Company’s majority stockholder and Co-Chairman, purchased approximately 56% of the shares offered through the 2022 Rights Offering.

Common Stock Warrants

2024 Rights Offering Warrants

In connection with the 2024 Rights Offering, the Company issued 2024 Rights Offering Warrants to purchase a total of 5,999,999 shares of its common stock at an exercise price of $11.00 per whole share, which equals 110% of the subscription price for the Units. The aggregate number of shares of our common stock issuable upon the exercise of each set of warrants included in a given subscription for Units was rounded up to the nearest whole share. Warrants are exercisable immediately and will expire on the fifth anniversary of the closing of the 2024 Rights Offering. Half of the warrants issued in the rights offering are redeemable for $0.01 per underlying share of common stock, on not less than thirty days’ written notice, if the volume weighted average price of the Company’s common stock equals or exceeds 150% of the exercise price for the warrants, or $16.50, for twenty consecutive trading days. The other half of the warrants issued in the rights offering are redeemable for $0.01 per underlying share of common stock, on not less than thirty days’ written notice, if the volume weighted average price of the Company’s common stock equals or exceeds 200% of the exercise price for the warrants, or $22.00, for twenty consecutive trading days. In both cases the Company can not redeem the warrants prior to the date that is three months after the issuance date. As of September 30, 2024, there were 2024 Rights Offering Warrants to purchase up to 5,857,680 shares of common stock, in aggregate, outstanding.

2022 Rights Offering Warrants

In connection with the 2022 Rights Offering, the Company issued 2022 Rights Offering Warrants to purchase a total of 7,317,072 shares of its common stock at an exercise price of $2.05. The 2022 Rights Offering Warrants were subject to redemption by the Company for $0.01 per underlying share of common stock, on not less than 30 days written notice, if the volume weighted average price of the Company’s common stock equaled or exceeded 200% of the exercise price for the warrants, subject to adjustment, per share, for 20 consecutive trading days, provided that the Company could not redeem the warrants prior to the date that was three months after the issuance date. On May 10, 2023, the Company issued a press release announcing that on May 9, 2023 the terms for warrant redemption had been met. Pursuant to the redemption, the Company redeemed 66,175 warrants on the redemption date, June 16, 2023. Prior to the redemption date, warrants to purchase 7,250,897 shares were exercised, generating approximately $14.9 million of total gross proceeds to the Company. As of September 30, 2024, there were no 2022 Rights Offering Warrants outstanding.

Equity Plans

2017 Equity Incentive Plan and 2017 Inducement Equity Incentive Plan

The Board previously adopted, and the Company’s stockholders approved, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”).

The 2017 Plan has a 10-year term and provides for the grant of stock options, stock appreciation rights, restricted stock, RSUs, performance units, and performance shares to employees, directors and consultants of the Company and any parent or subsidiary of the Company, as the Compensation Committee of the Board  may determine. Subject to an annual evergreen increase and adjustment in the case of certain capitalization events, the Company initially reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to awards under the 2017 Plan. In addition, shares remaining available under the Company’s 2015 Equity Incentive Plan, as amended (the “2015 Plan”), and shares reserved but not issued pursuant to outstanding equity awards that expire or terminate without being exercised or that are forfeited or repurchased by the Company will be added to the shares of common stock available for issuance under the 2017 Plan. The 2017 Plan is administered by the Board’s Compensation Committee. Effective at both January 1, 2024 and 2023, the number of shares of common stock available under the 2017 Plan increased by 1,200,000, respectively, pursuant to the evergreen provision of the 2017 Plan. Under the evergreen provision of the 2017 Plan, the share increase is determined based on the least of (i) 1,200,000 shares, (ii) 4% of the Company’s common stock outstanding at  December 31 of the immediately preceding year, or (iii) such number of shares as determined by the Board. Additionally, the number of shares of common stock available under the 2017 Plan increased by 1,375,000 shares as a result of a stockholder vote held at a special meeting of stockholders in December 2023. As of September 30, 2024, a total of 78,490 shares of common stock remained available for issuance under the 2017 Plan.

During November 2017, the Board adopted the 2017 Inducement Equity Incentive Plan (the “Inducement Plan”) and reserved 1,000,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan was adopted without stockholder approval.

The Inducement Plan has a 10-year term and provides for the grant of equity-based awards, including non-statutory stock options, RSUs, restricted stock, stock appreciation rights, performance shares, and performance units, and its terms are substantially similar to the 2017 Plan, including with respect to treatment of equity awards in the event of a “merger” or “change in control” as defined under the Inducement Plan. Options issued under the Inducement Plan  may have a term up to ten years and have variable vesting provisions. New hire grants to non-executive employees generally vest 25% per year starting upon the first anniversary of the grant. New hire grants to executive employees generally consist of both time-vesting and performance-vesting options. Equity-based awards issued under the Inducement Plan are only issuable to individuals not previously engaged as employees or individuals returning to employment with the Company following a bona-fide period of non-employment. In  May 2021, the Board approved an amendment to the Inducement Plan to reserve an additional 1,000,000 shares of the Company’s common stock for issuance pursuant to the Inducement Plan. And, in  March 2024, the Board approved a second amendment to the Inducement Plan to reserve an additional 2,000,000 shares of the Company’s common stock for issuance pursuant to the Inducement Plan. As of September 30, 2024, 1,642,626 shares of common stock remained available for issuance under the Inducement Plan.

A summary of stock option activity under the 2015 Plan, 2017 Plan, and Inducement Plan for the nine-months ended  September 30, 2024 is presented below:

	Stock Options Outstanding
	Number of shares			Weighted average exercise price		Weighted average remaining life (in years)
Balances — December 31, 2023		9,466,036		$	9.01		7.78
Options granted		3,017,643			10.38
Options exercised		(110,847	)		4.49
Options canceled		(9,542	)		15.19
Options expired		(35,958	)		19.82
Balances — September 30, 2024		12,327,332		$	9.35		7.67
Exercisable — September 30, 2024		4,178,088		$	13.32		5.06

Time-based Options

The Company awards time-based options which vest and become exercisable, subject to the individual’s continued employment or service through the applicable vesting date. Time-based options can have various vesting schedules, most commonly new hire grants which generally vest 25% per year starting upon the first anniversary of the grant.

A summary of the time-based stock option activity under the 2015 Plan, 2017 Plan and Inducement Plan for the nine-months ended  September 30, 2024 is presented below:

	Stock Options Outstanding
	Number of shares			Weighted average exercise price		Weighted average remaining life (in years)
Balances — December 31, 2023		6,141,906		$	10.48		7.07
Options granted		2,123,643			11.3
Options exercised		(100,897	)		4.65
Options canceled		(6,542	)		20.82
Options expired		(34,958	)		20.3
Balances — September 30, 2024		8,123,152		$	10.71		7.18
Exercisable — September 30, 2024		3,745,410		$	13.97		4.84

The fair value of the time-based options granted during the nine-month period ended  September 30, 2024 was $18.7 million.

Performance-based Options

Certain stock options awarded by the Company contain performance conditions related to certain financial measures and achievements of strategic and operational milestones. Once a specific performance condition is fulfilled, the associated options will fully vest and become exercisable.

A summary of the performance-based option activity under the 2017 Plan and Inducement Plan for the nine-months ended  September 30, 2024 is presented below:

	Stock Options Outstanding
	Number of shares			Weighted average exercise price		Weighted average remaining life (in years)
Balances — December 31, 2023		1,224,130		$	5.51		8.53
Options granted		39,000			8.44
Options exercised		(9,950	)		2.92
Options canceled		(3,000	)		2.92
Options expired		(1,000	)		2.92
Balances — September 30, 2024		1,249,180		$	5.63		7.84
Exercisable — September 30, 2024		432,678		$	7.69		6.98

The fair value of the performance-based options granted during the nine-month period ended  September 30, 2024 was $0.3 million.

Market-based Options

Certain stock options awarded by the Company contain market conditions related to achievement of certain market capitalization targets. The options will vest and become exercisable once the specific market capitalization targets are fulfilled. 

A summary of the market-based option activity under the 2017 Plan for the nine-months ended  September 30, 2024 is presented below:

	Stock Options Outstanding
	Number of shares		Weighted average exercise price		Weighted average remaining life (in years)
Balances — December 31, 2023		2,100,000	$	6.78		9.44
Options granted		855,000		8.16
Options exercised		—		—
Options canceled		—		—
Options expired		—		—
Balances — September 30, 2024		2,955,000	$	7.18		8.95
Exercisable — September 30, 2024		—		—		—

The fair value of the market-based options granted during the nine-month period ended  September 30, 2024 was $5.3 million.

The Company estimates the fair value of time-based and performance-based stock options on the grant date using the Black-Scholes option pricing model. The estimated fair value of these employee stock options is amortized on a straight-line basis over the requisite service period of the awards. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The fair value of time-based and performance-based stock options was estimated using the following weighted-average assumptions:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Expected term in years		5.0 - 6.3		5.0		5.0 - 6.3		5.0 - 6.3
Expected volatility		93% - 97%		93%		91% - 97%		89% - 94%
Risk-free interest rate		4.5%		3.7%		4.0% - 4.5%		3.7% - 3.8%
Dividend yield		—		—		—		—

The Company estimates the fair value of market-based stock options on the grant date using a Monte Carlo simulation model. The estimated fair value of these employee stock options is amortized over the requisite service period for each tranche of the awards. The requisite service period is the service period derived from the Monte Carlo simulation model. If the market capitalization targets are met sooner than the derived service period, the Company will accelerate the recognition of stock-based compensation expense to reflect the cumulative expense associated with the vested shares. The fair value of market-based stock options was estimated using the following weighted-average assumptions:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Expected term in years		2.2 - 4.2		4.0 - 6.3		2.2 - 5.8		4.0 - 6.3
Expected volatility		90%		90%		90%		90%
Risk-free interest rate		3.9%		3.7 - 3.8%		3.9% - 4.4%		3.4 - 3.8%
Dividend yield		—		—		—		—

2017 Employee Stock Purchase Plan

The Board previously adopted, and the Company's stockholders approved, the Company’s 2017 Employee Stock Purchase Plan (the “2017 ESPP”).

The 2017 ESPP is a broad-based plan that provides employees of the Company and its designated affiliates with the opportunity to become stockholders through periodic payroll deductions that are applied towards the purchase of Company common shares at a discount from the then-current market price. Subject to adjustment in the case of certain capitalization events, a total of 250,000 common shares of the Company were available for purchase at adoption of the 2017 ESPP. Pursuant to the 2017 ESPP, the annual share increase pursuant to the evergreen provision is determined based on the least of (i) 450,000 shares, (ii) 1.5% of the Company’s common stock outstanding at December 31 of the immediately preceding year, or (iii) such number of shares as determined by the Board. In 2024, the Company reserved an additional 450,000 shares under the 2017 ESPP pursuant to the evergreen provision. In 2023, the Board waived the evergreen provision and no additional shares were reserved under the 2017 ESPP. During the nine months ended September 30, 2024, the Company issued 117,539 shares of common stock under the 2017 ESPP. As of September 30, 2024, 445,779 shares of common stock remained available for issuance under the 2017 ESPP.

The Company estimates the fair value of ESPP grants on their grant date using the Black-Scholes option pricing model. The estimated fair value of ESPP grants is amortized on a straight-line basis over the requisite service period of the grants. The Company reviews, and when deemed appropriate, updates the assumptions used on a periodic basis. The Company utilizes its estimated volatility in the Black-Scholes option pricing model to determine the fair value of ESPP grants. The fair value of ESPP grants was estimated using the following weighted-average assumptions:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Expected term in years		0.5 - 1.0		0.5 - 1.0		0.5 - 1.0		0.5 - 1.0
Expected volatility		98%		83%		98%		83%
Risk-free interest rate		4.4% - 5.3%		5.4% - 5.5%		4.9% - 5.3%		5.1% - 5.5%
Dividend yield		—		—		—		—

Stock-based Compensation

Total stock-based compensation expense consisted of the following (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Research and development		1,108		982		3,058		1,758
General and administrative		1,874		816		3,735		2,079
Total stock-based compensation expense	$	2,982	$	1,798	$	6,793	$	3,837

As of September 30, 2024, not all of the performance conditions of the performance options are probable to be achieved. Compensation expense has only been recognized for those conditions that are assumed to be probable.

Total stock-based compensation expense by award type was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Time-based options	$	2,131	$	1,200	$	4,609	$	2,754
Performance-based options		5		87		27		292
Market-based options		788		464		1,978		622
ESPP		58		47		179		169
Total stock-based compensation expense	$	2,982	$	1,798	$	6,793	$	3,837