On June 16, 2020, the Company’s certificate of incorporation was amended and restated to authorize 400,000,000 shares of common stock and 40,000,000 shares of undesignated preferred stock, each with a par value of $0.0001 per share.

On June 16, 2020, the Company completed its IPO in which it sold 16,560,000 shares of common stock at an offering price of $18.00 per share. Proceeds from the IPO, net of underwriting discounts, commissions and offering costs, were $274.1 million.

On April 1, 2019, Avidity LLC, a Delaware limited liability company, was converted into Avidity Biosciences, Inc., a Delaware corporation. The entire membership interests of Avidity LLC were converted into securities of Avidity Biosciences, Inc. as follows: (i) each outstanding common unit of Avidity LLC was converted into one share of Avidity Biosciences, Inc.’s common stock; (ii) each outstanding Series A convertible preferred unit of Avidity LLC converted into one share of Avidity Biosciences, Inc.’s Series A convertible preferred stock; and (iii) each outstanding Series B convertible preferred unit of Avidity LLC converted into one share of Avidity Biosciences, Inc.’s Series B convertible preferred stock. All the property, rights, privileges, powers and franchises of Avidity LLC vested in Avidity Biosciences, Inc., and all debts, liabilities and duties of Avidity LLC became debts, liabilities and duties of Avidity Biosciences, Inc. All references to the former members’ equity accounts in Avidity LLC have been adjusted to reflect the equivalent number of Avidity Biosciences, Inc.’s shares of common stock. Upon completion of the conversion, the Company reclassified an accumulated deficit of $44.1 million from predecessor deficit to additional paid-in capital.

In November 2019, the Company issued 17,915,525 shares of Series C convertible preferred stock, for cash, at a price of $4.2812 per share, for net proceeds of $72.6 million, net of issuance costs of $4.1 million. In addition, all outstanding principal and accrued interest under the Notes were automatically converted into 6,893,036 shares of Series C convertible preferred stock, at a stated discount pursuant to the original terms of the notes at issuance. In January 2020, the Company issued an additional 537,232 shares of Series C convertible preferred stock, for cash, at a price of $4.2812 per share, for net proceeds of $2.2 million, net of issuance costs of $100,000.

In connection with the completion of the IPO in June 2020, all of the outstanding shares of convertible preferred stock were converted into 17,921,069 shares of the Company’s common stock. As of December 31, 2019, the Company’s convertible preferred stock was classified as temporary equity on the accompanying balance sheet in accordance with authoritative guidance for the classification and measurement of potentially redeemable securities whose redemption is based upon certain change in control events outside of the Company’s control. The Company had determined not to adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares because the occurrence of any such change of control event was not probable.

As of December 31, 2019, convertible preferred stock consisted of the following (in thousands, except per share data):

Series	Shares Authorized		Shares Issued and Outstanding		Per Share Original Issue Price and Conversion Price		Liquidation Preference		Carrying Value
Series A		4,367		4,350	$	2.2615	$	9,838	$	9,773
Series B		8,108		8,108		2.8269		22,922		22,814
Series C		25,580		24,809		4.2812		106,210		102,133
Total		38,055		37,267			$	138,970	$	134,720

In January 2013, the Company adopted the 2013 Equity Incentive Plan (the 2013 Plan). The 2013 Plan provided for the issuance of incentive units to employees and nonemployees of the Company and non‑statutory unit options, restricted unit awards, unit appreciation rights, and unit bonuses to directors, employees and consultants of the Company. Under the 2013 Plan, 2,127,013 units were initially reserved for issuance. Upon the conversion of the Company to a C corporation, the 2013 Plan continued on the same terms and conditions. In 2019, the number of shares reserved under the 2013 Plan was increased to 4,771,615 shares.

In June 2020, the Board of Directors adopted, and the Company’s stockholders approved, the 2020 Incentive Award Plan (the 2020 Plan), which became effective in connection with the IPO. Pursuant to the 2020 Plan, the Company ceased granting awards under the 2013 Plan. Under the 2020 Plan, the Company may grant stock options, restricted stock, dividend equivalents, restricted stock units, stock appreciation rights, and other stock or cash-based awards to individuals who are then employees, officers, non-employee directors or consultants of the Company. A total of 3,900,000 shares of common stock were initially reserved for issuance under the 2020 Plan. In addition, the number of shares of common stock available for issuance under the 2020 Plan will be increased annually on the first day of each fiscal year during the term of the 2020 Plan, beginning with the 2021 fiscal year, by an amount equal to the lesser of (a) 5% of the shares of common stock outstanding on the final day of the immediately preceding calendar year or (b) such smaller number of shares as determined by the Company’s board of directors. At December 31, 2020, 2,851,824 shares remain available for issuance under the 2020 Plan.

Options granted from the 2013 Plan and 2020 Plan are exercisable at various dates and will expire no more than ten years from their date of grant. Options generally vest over a two- to four-year period. Prior to the IPO, the exercise price of options was determined by the Company’s board of directors. Following the IPO, the Company grants options with an exercise price equal to the fair market value of the Company’s stock on the date of the option grant.

Stock option activity for employee and nonemployee awards and related information is as follows (in thousands, except per share and contractual term data):

	Number of Options			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2019		1,667		$	1.08
Granted		2,291			14.24
Exercised		(119	)		0.45
Forfeited		(51	)		1.24
Outstanding at December 31, 2020		3,788		$	9.06		9.1	$	65,082
Exercisable at December 31, 2020		556		$	1.24		8.3	$	13,491

The aggregate intrinsic values presented in the table above were calculated as the difference between the closing price of the Company’s common stock at December 31, 2020 and the exercise price of stock options that had strike prices below the closing price. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 were $0.5 million, $7,000 and $0, respectively. The total intrinsic values of options exercised were calculated as the difference between the fair value of the Company’s common stock/units at the time of the option exercise and the exercise price of that stock/unit option.

The weighted-average grant date fair value of options granted during the years ended December 31, 2020, 2019 and 2018 were $11.63, $3.46 and $0.30 per share/unit, respectively.

As of December 31, 2020 and 2019, 69,359 and 194,729, respectively, of the stock options exercised were unvested and subject to repurchase.

In June 2020, the Company adopted the ESPP, which permits participants to contribute up to 15% of their eligible compensation during defined rolling six-month periods to purchase the Company’s common stock. The purchase price of the shares will be 85% of the lower of the fair market value of the Company’s common stock on the first day of trading of the offering period or on the applicable purchase date. A total of 325,000 shares of common stock was initially reserved for issuance under the ESPP. The Company issued 28,979 shares of common stock under the ESPP during the year ended December 31, 2020. The Company had an outstanding liability of $35,000 at December 31, 2020, which is included in accounts payable and accrued liabilities on the balance sheet, for employee contributions to the ESPP for shares pending issuance at the end of the offering period.

The assumptions used in the Black-Scholes model to determine the fair value of the stock/unit option grants and the shares purchasable under the ESPP were as follows:

	Year Ended December 31,
Stock/Unit Option Grants	2020	2019	2018
Risk-free interest rate	0.3% - 1.5%	1.4% - 2.7%	2.4% - 2.9%
Expected volatility	88% - 92%	84% - 88%	83% - 84%
Expected term (in years)	5.4 - 6.1	2.0 - 6.1	2.0 - 6.1
Expected dividend yield	—%	—%	—%

	Year Ended December 31,
ESPP	2020	2019	2018
Risk-free interest rate	0.1% - 0.2%	N/A	N/A
Expected volatility	75% - 96%	N/A	N/A
Expected term (in years)	0.5	N/A	N/A
Expected dividend yield	—%	N/A	N/A

Risk-Free Interest Rate. The Company bases the risk-free interest rate assumption for equity awards on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

Expected Volatility. Due to the limited trading history of the Company’s common stock, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Expected Term. The Company has estimated the expected life of its stock options using the simplified method, whereby the expected life equals the average of the vesting term and the original contractual term of the option. The expected life assumption for employee stock purchases under the ESPP is six months to conform with the six-month ESPP offering period.

Expected Dividend Yield. The Company’s expected dividend yield assumption is zero as it has never paid dividends and has no present intention to do so in the future.

The allocation of stock-based compensation expense was as follows (in thousands):

	Year Ended December 31,
	2020		2019		2018
Research and development expense	$	1,895	$	84	$	26
General and administrative expense		2,415		322		34
Total stock-based compensation expense	$	4,310	$	406	$	60

As of December 31, 2020, the unrecognized compensation cost related to outstanding time-based options was $27.2 million, which is expected to be recognized over a weighted-average period of 3.2 years. As of December 31, 2020, the unrecognized compensation cost related to stock purchase rights under the ESPP was $0.2 million, which is expected to be recognized over a weighted-average period of 0.5 years.

Common stock reserved for future issuance consisted of the following (in thousands):

	December 31,
	2020		2019
Conversion of convertible preferred stock		—		17,666
Common stock options issued and outstanding		3,788		1,667
Equity awards available for future issuance under equity plans		2,852		1,601
Preferred and common stock warrants outstanding		—		17
Common stock authorized under the ESPP		296		—
Total		6,936		20,951