Redeemable Convertible Preferred Stock

12 Months Ended

Dec. 31, 2022

Redeemable Convertible Preferred Stock

Redeemable Convertible Preferred Stock

Note 9. Redeemable Convertible Preferred Stock

Series B1 Preferred Stock

On December 23, 2019, the Company entered into a Securities Purchase Agreement (the “December 2019 Securities Purchase Agreement”) with institutional investors affiliated with Baker Brothers Advisors, LP (the “Purchasers”). Pursuant to the December 2019 Securities Purchase Agreement, the Company sold 23,684 shares of Series B1 convertible preferred stock (“Series B1 Preferred Stock”) and warrants to purchase 139,318 shares of the Company’s common stock at an exercise price of $25.84 per share (or, if the holder elected to exercise the warrants for shares of Series B1 Preferred Stock, 23,684 shares of Series B1 Preferred Stock at an exercise price of $2,584 per share) for aggregate gross proceeds of $3.9 million.

Due to the redeemable nature of the Series B1 Preferred Stock, the Series B1 Preferred Stock was classified as temporary equity and the carrying value was being accreted to its redemption value as of December 31, 2020 and while the Series B1 Preferred Stock was outstanding during 2021. During 2021, all the Company’s 23,684 shares of Series B1 Preferred Stock outstanding were converted into shares of the Company’s common stock.

The Series B1 warrants were classified as liabilities until their termination in March 2021 as the underlying shares were potentially redeemable and such redemption was deemed to be outside of the Company’s control.

Series B2, B3 and B4 Preferred Stock (Future Tranche Rights)

Pursuant to the December 2019 Securities Purchase Agreement, the Company agreed to sell to the Purchasers, at their option and subject to certain conditions, (i) 98,685 shares of the Company’s Series B2 convertible preferred stock (“Series B2 Preferred Stock”) and 580,500 warrants to purchase common stock at an exercise price of $25.84 per share (or, at the election of the holder, 98,685 shares of Series B2 Preferred Stock at an price of $2,584.00 per share), for aggregate gross proceeds of $15 million (the “Series B2 Tranche”), (ii) 82,418 shares of Series B3 convertible preferred stock (“Series B3 Preferred Stock”) and 387,849 warrants to purchase common stock at an exercise price of $30.94 per share (or, at the election of the holder, 65,934 shares of Series B3 Preferred Stock at a price of $3,094.00 per share), for aggregate gross proceeds of $15.0 million (the “Series B3

Tranche”), and (iii) 82,418 shares of Series B4 convertible preferred stock (“Series B4 Preferred Stock”) and 387,849 warrants to purchase common stock at an exercise price of $30.94 per share (or, at the election of the holder, 65,934 shares of Series B3 Preferred Stock at a price of $3,094.00 per share), for aggregate gross proceeds of $15.0 million (the “Series B4 Tranche”) (collectively, the “Future Tranche Rights”) over a period of up to 21 months following the Company’s 2020 Annual Meeting of Stockholders held on May 12, 2020. As consideration for the Future Tranche Rights, the Company received aggregate gross proceeds of $6.2 million in December 2019.

The purchase and sale of the securities issuable under the Series B2, B3, and B4 tranches described above were subject to three separate closings, each to be conducted at the purchasers’ discretion. As a result of the Purchasers not exercising the Series B2 Tranche prior to expiration, all Future Tranche Rights and outstanding warrants previously issued pursuant to the December 2019 Securities Purchase Agreement were terminated during the year ended December 31, 2021. Accordingly, the Company is no longer eligible to receive additional proceeds pursuant to the December 2019 Securities Purchase Agreement.

The Future Tranche Rights were classified as liabilities until their termination in March 2021. Changes to the fair value of the future tranche right liability each reporting period, including the derecognition of the liability during the year ended December 31, 2021, is included in Future Tranche Right Liability Revaluation Gain in the Company’s statements of operations.

Series Z Redeemable Preferred Stock

In connection with the Aceragen Acquisition, the Company issued 80,656 shares of Series Z Preferred Stock. The Series Z Preferred Stock did not have voting rights except for voting on specific corporate matters including (i) changes to the rights and preferences of the Series Z Preferred Stock, (ii) issuance of additional Series Z Preferred Stock, and (iii) enter into a fundamental transaction such as a sale of the Company. Certain provisions of the Series Z Preferred Stock are as follows:

● Conversion:  Upon obtaining stockholder approval at the Special Meeting, each share of Series Z automatically converted into 58.82 shares of common stock, subject to beneficial ownership limitations.

● Dividends:  Series Z Preferred Stock was eligible to participate in any dividends with common stockholders on an as-converted basis

● Liquidation:  In the event of the liquidation, dissolution, or winding up of the affairs of the Company (a “Liquidity Event”), prior to stockholder approval at the Special Meeting, the holders of Series Z Preferred Stock would have been entitled to receive a liquidation preference prior to any payment to the holders of common stock.

● Redemption: In the event the Company would have been unable to obtain an affirmative stockholder vote at the Special Meeting to permit conversion, each holder of Series Z Preferred Stock would have been entitled to elect, at the holder’s option, to have the shares of Series Z Preferred Stock be redeemed by the Company and equal to the estimated fair value of the Series Z Preferred Stock share at the time of redemption. Due to this redemption feature, as of December 31, 2022, the Series Z Preferred Stock was classified within temporary equity on the consolidated balance sheet.

The carrying value of the shares of Series Z is accreted to redemption value using the estimated fair value of the redemption value at each reporting period until the redeemable convertible preferred stock cease to be outstanding or the redemption right has expired. There was no accretion for the year ended December 31, 2022.

As more fully described in Note 19, “Subsequent Events”, in January 2023, following shareholder approval of the Merger Agreement Proposals at the Special Meeting, all outstanding Series Z Preferred Stock converted into shares of common stock.