Common Stock and Stockholders’ Equity

Common Stock

As of December 31, 2019, there were 21,018,663 shares of common stock outstanding. Each share of common stock is entitled to one vote. The holders of the common stock are also entitled to receive dividends whenever funds are legally available and when declared by our Board of Directors.

2019 Equity Incentive Plan

On June 15, 2019 the Company's board of directors approved, and on August 1, 2019 the Company's stockholders approved, the Company's 2019 Equity Incentive Plan (the "2019 Plan"). The 2019 Plan is intended as the successor to and continuation of the Company's 2012 Equity Incentive Plan. As of December 31, 2019, 403,939 shares of common stock were available for new equity award grants under the 2019 Plan and 3,226,804 shares of common stock are reserved for issuance pursuant to equity awards outstanding as of December 31, 2019. The number of shares authorized for issuance under the 2019 Plan may be increased by (a) the shares subject to outstanding stock awards granted under the Company’s 2009 Equity Incentive Plan (the “2009 Plan”) and the Company’s 2012 Equity Incentive Plan (together the with 2009 Plan, the “Prior Plans”) that on or after the effective date of the 2019 Plan (i) expire or terminate for any reason prior to exercise or settlement; (ii) are forfeited because of the failure to meet a contingency or condition required to vest such shares or otherwise return to the Company, or (iii) are reacquired, withheld (or not issued) to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award. No further grants will be made under the Prior Plans. In addition, on January 22, 2020, an additional 4,166,860 shares of common stock became available for issuance under the 2019 Plan pursuant to the Milestone Closing of the May 2019 SPA. Further, on January 1^st of each year, for a period of not more than ten years, beginning on January 1, 2021 and continuing through January 1, 2029, the number of shares authorized for issuance under the 2019 Plan will increase by 5.0% of the total number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by our Board of Directors.

Private Placement of Common Stock, Non-Voting Preferred Stock and Warrants

On May 3, 2019, we entered into the May 2019 SPA with certain institutional and other accredited investors, including certain directors, executive officers and employees of the Company (the “Purchasers”), pursuant to which we agreed to sell and issue shares of our common stock, shares of our newly designated non-voting convertible preferred stock, and warrants to purchase common stock, in up to two closings, in a private placement transaction (the “Private Placement”).

At an initial closing under the May 2019 SPA that occurred on May 7, 2019 (the “Initial Closing”), we sold and issued to the Purchasers (i) 9,730,534 shares of common stock and accompanying warrants to purchase up to an aggregate of 9,730,534 shares of common stock at a combined purchase price of $1.205 per share, and (ii) 415,898 shares of non-voting Class A-1 convertible preferred stock, in lieu of shares of common stock, at a price of $10.80 per share, and accompanying warrants to purchase an aggregate of 4,158,980 shares of common stock at a price of $0.125 for each share of common stock underlying such warrants. Total gross proceeds from the Initial Closing were approximately $16.7 million, which does not include any proceeds that may be received upon exercise of the warrants. Each share of non-voting Class A-1 convertible preferred stock is convertible into 10 shares of Common Stock, subject to certain beneficial ownership conversion limitations. The warrants are exercisable for a period of five years following the date of issuance and have an exercise price of $1.08 per share, subject to proportional adjustments in the event of stock splits or combinations or similar events. The warrants are exercisable on a net exercise "cashless" basis. An aggregate of 526,083 shares of common stock and warrants to purchase up to 526,083 shares of common stock were purchased for $0.6 million by certain directors and executive officers of the Company under the Initial Closing.

Pursuant to the May 2019 SPA, in the event our Board of Directors unanimously resolves to recommence our Phase 1 multiple ascending dose clinical trial of our RGLS4326 product candidate for the treatment of ADPKD") (the “Phase 1 Trial”) based on correspondence from the U.S. Food and Drug Administration’s Division of Cardiovascular and Renal Products, and thereafter but on or before December 31, 2019 we make a public announcement of our plan to recommence the Phase 1 Trial (the “Public Announcement”), we may sell and the Purchasers may purchase, at a second closing under the May 2019 SPA (“Milestone Closing”), shares of our non-voting convertible preferred stock and accompanying warrants to purchase shares of Common Stock (collectively, “Milestone Securities”). On December 15, 2019, the Company’s Board of Directors unanimously resolved to recommence the Phase 1 Trial based on correspondence from the U.S. Food & Drug Administration’s Division of Cardiovascular and Renal Products and on December 16, 2019, we made the related Public Announcement, triggering the Milestone Closing, which occurred on December 24, 2019. At the Milestone Closing, we sold and issued to the Purchasers 3,288,390 shares of non-voting Class A-2 convertible preferred stock and accompanying warrants to purchase an aggregate of 32,883,900 shares of common stock for an aggregate purchase price of approximately $26.0 million. Net proceeds to the Company from the Milestone Closing were approximately $24.6 million. Each share of non-voting Class A-2 convertible preferred stock is convertible into 10 shares of Common Stock, subject to certain beneficial ownership conversion limitations. The warrants will be exercisable for a period of five years following the date of issuance and have an exercise price of $0.666 per share, subject to proportional adjustments in the event of stock splits or combinations or similar events. The warrants are exercisable on a net exercise “cashless” basis. An aggregate of 121,581 shares of Class A-2 convertible preferred stock and warrants to purchase up to 1,215,810 shares of common stock were purchased for approximately $1.0 million by certain directors and executive officers of the Company under the Milestone Closing.

We evaluated the non-voting Class A-1 convertible preferred stock and common stock warrants sold in the Initial Closing and the Class A-2 convertible preferred stock and common stock warrants sold in the Milestone Closing under ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, and determined permanent equity treatment was appropriate for these freestanding financial instruments. The Initial Closing and Milestone Closing did not include any embedded features that required bifurcation. The non-voting Class A-2 convertible preferred stock and warrants issuable under the Milestone Closing were not subject to accounting recognition until the Milestone Closing occurred, as the terms of the Milestone Closing did not provide a right or an obligation on either the Company nor the Purchasers.

Exchange Offer

On October 15, 2018, we filed a tender offer statement on Schedule TO with the Securities and Exchange Commission related to an offer by us to certain eligible optionholders, subject to specified conditions, to exchange some or all of their outstanding options to purchase shares of our common stock for new RSUs (the "Exchange Offer").

The exchange ratio for each option eligible for exchange was determined using the Black-Scholes option pricing model and was based on, among other things, the fair market value of a share of our common stock, the volatility of our common stock, U.S. treasury rates, the exercise prices of such options, the remaining terms of such options and the term of the new RSUs. There were a total of 915,009 options eligible for exchange in the Exchange Offer by 31 eligible optionholders, all of which were exchanged for 603,058 RSUs. Of the 603,058 RSUs issued in the Exchange Offer, 514,955 contain certain performance conditions requisite for vesting commencement. Incremental stock-based compensation cost associated with the Exchange Offer was $0.4 million.

ATM Offering

On December 12, 2018, we entered into a Common Stock Sales Agreement (the “Stock Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”), pursuant to which we may sell and issue shares of our common stock from time to time through HCW, as our sales agent (the “ATM Offering”). We have no obligation to sell any shares of common stock in the ATM Offering, and may at any time suspend offers under the Stock Sales Agreement or terminate the Stock Sales Agreement. Subject to the terms and conditions of the Stock Sales Agreement, HCW will use its commercially reasonable efforts to sell shares of our common stock from time to time based upon our instructions (including any price, time or size limits or other parameters or conditions the we may impose, subject to certain restrictions). We pay HCW a commission of 3.0% of the gross sales price of any shares sold under the Stock Sales Agreement. A total of 1,903,880 shares were sold for proceeds of $2.1 million (net of approximately $0.1 million in commissions) under the ATM Offering during the year ended December 31, 2019. No shares were sold during the year ended December 31, 2018.

Shares Reserved for Future Issuance

The following shares of common stock were reserved for future issuance as of December 31, 2019 (in thousands):



Class A-1 convertible preferred stock outstanding (as-converted)	4,159
Class A-2 convertible preferred stock outstanding (as-converted)	32,884
Initial Closing warrants	13,890
Milestone Closing warrants	32,884
Common stock options outstanding	3,098
RSUs outstanding	129
Common stock available for future grant under the 2019 Equity Incentive Plan	404
Employee Stock Purchase Plan	192
Total common shares reserved for future issuance	87,640

The following table summarizes our stock option activity under all equity incentive plans for the year ended December 31, 2019 (shares and aggregate intrinsic value in thousands):



	Number of options		Weighted average exercise price		Weighted average remaining contractual term	Aggregate intrinsic value
Options outstanding at December 31, 2018	59		$	45.60
Granted	3,224		$	0.68
Exercised	(3	)	$	0.95
Canceled/forfeited/expired	(182	)	$	6.81
Options outstanding at December 31, 2019	3,098		$	1.17	9.6	$	703
Exercisable at December 31, 2019	237		$	6.78	8.5	$	35

The weighted average grant date fair value per share of employee stock options granted during the years ended December 31, 2019 and 2018 was $0.52 and $8.63, respectively.

The total intrinsic value of stock options exercised was less than $0.1 million for the years ended December 31, 2019, and 2018. Cash received from the exercise of stock options was less than $0.1 million for the years ended December 31, 2019 and 2018.

The total compensation cost related to stock options not yet recognized was $1.2 million as of December 31, 2019. The weighted-average period over which this expense is expected to be recognized is approximately 1.7 years.

The following table summarizes our RSU activity under all equity incentive plans for the year ended December 31, 2019 (shares and aggregate intrinsic value in thousands):



	Number of options		Weighted average grant date fair value		Weighted average remaining contractual term	Aggregate intrinsic value
RSUs outstanding at December 31, 2018	601		$	1.50
Granted	287		$	0.95
Vested	(559	)	$	1.27
Canceled/forfeited/expired	(200	)	$	1.34
RSUs outstanding at December 31, 2019	129		$	1.50	0.8	$	115

The total compensation cost related to non-vested RSUs not yet recognized was $0.4 million as of December 31, 2019. The weighted-average period over which this expense is expected to be recognized is approximately 0.8 years.

Stock-Based Compensation

The following table summarizes the weighted average assumptions used to estimate the fair value of stock options and performance stock awards granted to employees under our 2012 Equity Incentive Plan, 2015 Inducement Plan, 2019 Equity Incentive Plan and the shares purchasable under our Employee Stock Purchase Plan during the periods presented:



	Year ended December 31,
	2019		2018
Stock options
Risk-free interest rate	1.7	%	2.7	%
Volatility	94.6	%	87.8	%
Dividend yield	—		—
Expected term (years)	6.1		6.1
Performance stock options
Risk-free interest rate	2.6	%	2.7	%
Volatility	93.8	%	87.4	%
Dividend yield	—		—
Expected term (years)	6.1		5.7
Employee stock purchase plan shares
Risk-free interest rate	2.3	%	1.9	%
Volatility	110.5	%	100.6	%
Dividend yield	—		—
Expected term (years)	0.5		0.5

Risk-free interest rate - The risk-free interest rate assumption was based on observed interest rates appropriate for the expected term of the stock option grants.

Expected dividend yield - The expected dividend yield assumption was based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends.

Expected volatility - The expected volatility assumption was based on the historical volatility of the trading price of our common stock.

Expected term - The expected term represents the period of time that options are expected to be outstanding. Because we do not have sufficient historical exercise behavior data, we determine the expected life using the simplified method, which was an average of the contractual term of the option and its ordinary vesting period.

Forfeitures - We account for forfeitures as they occur.

The following table summarizes the allocation of our stock-based compensation expense for all stock awards during the periods presented (in thousands):



	Year ended December 31,
	2019		2018
Research and development	$	309	$	2,256
General and administrative	1,979		3,184
Total	$	2,288	$	5,440

Employee Stock Purchase Plan

In October 2012, we adopted the 2012 Employee Stock Purchase Plan (“2012 Purchase Plan”), which enables participants to contribute up to 15% of such participant’s eligible compensation during a defined six-month period to purchase our common stock. The purchase price of common stock under the 2012 Purchase Plan will be the lesser of: (i) 85% of the fair market value of our common stock at the inception of the enrollment period or (ii) 85% of the fair market value of our common stock at the applicable purchase date. As of December 31, 2019, 91,948 shares of our common stock had been issued under the 2012 Purchase Plan, with 4,035 shares of common stock issued for the year ended December 31, 2019. Under the 2012 Purchase Plan, 192,687 shares of our common stock were reserved for future issuance and have been authorized for purchase as of December 31, 2019.