Shareholders’ Equity

9 Months Ended

Sep. 30, 2014

Equity [Abstract]

Shareholders’ Equity

Shareholders’ Equity

Common Stock

Amendments to Articles of Incorporation

On August 27, 2014 at the Company's annual meeting of shareholders (the "2014 Annual Meeting"), the shareholders approved an amendment to the Company's articles of incorporation to reduce the number of authorized common shares available for issuance to 100,000,000 shares from 12,000,000,000 shares.

2014 Common Stock Offering

In July 2014, the Company entered into an underwriting agreement, in which the Company agreed to issue and sell an aggregate of 4,800,000 shares of its common stock. The shares were sold at a public offering price of $10.50 per share, with gross proceeds of approximately $56.6 million. Under the terms of the underwriting agreement, the Company granted the underwriters an option for 30 days to purchase up to an additional 720,000 shares of the Company's common stock. On July 23, 2014, the underwriters partially exercised their option to purchase an additional 595,000 shares of the Company's common stock. This transaction closed on July 28, 2014, and the Company received total net proceeds of approximately $53.1 million, net of approximately $3.5 million in underwriting commissions, discounts and other issuance costs.

2014 Reverse Stock Split

The Board of Directors of the Company enacted a reverse split of the Company's outstanding common stock, which became effective on January 14, 2014. The 2014 Reverse Stock Split was approved by the shareholders on June 5, 2013. As a result of the 2014 Reverse Stock Split, every 50 shares of the Company’s issued and outstanding common stock were automatically combined into one share of the Company’s common stock. No fractional shares were issued in connection with the 2014 Reverse Stock Split. Shareholders who were entitled to fractional shares instead became entitled to receive a cash payment in lieu of receiving fractional shares (after taking into account and aggregating all shares of the Company’s common stock then held by such shareholder) equal to the fractional share interest. The 2014 Reverse Stock Split affected all of the holders of the Company’s common stock uniformly. Shares of the Company’s common stock underlying outstanding options were proportionately reduced, and the exercise prices of outstanding options were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of the Company’s common stock underlying outstanding convertible preferred stock were proportionately reduced, and the conversion rates were proportionately decreased in accordance with the terms of the agreements governing such securities.

Preferred Stock

As of September 30, 2014, the Company is authorized to issue 8,000,000 shares of preferred stock, with a par value of $0.0001 per share, in one or more series, of which 11,000 are designated Series C-1² Convertible Preferred Stock and 10,000 are designated Series F Convertible Preferred Stock. During the nine months ended September 30, 2014, the Company issued 5,341,670 shares of common stock upon the conversion of Series C-1² Convertible Preferred Stock and 129,105 shares of common stock upon the conversion of Series F Convertible Preferred Stock. The Series C-1² Convertible Preferred Stock is convertible into common stock at a rate 1,724 shares of common stock for each share of Series C-1² Convertible Preferred Stock, and the Series F Convertible Preferred Stock is convertible into common stock at a rate of 286 shares of common stock for each share of Series F Convertible Preferred Stock. As of September 30, 2014, 3,917 shares of Series C-1² Convertible Preferred Stock and 2,798 shares of Series F Convertible Preferred Stock were issued and outstanding. As such, as of September 30, 2014, the issued and outstanding Series C-1² Convertible Preferred Stock and Series F Convertible Preferred Stock were convertible into 6,752,908 and 800,228 shares of common stock, respectively.

Share-Based Compensation

2013 Equity Incentive Plan

In September 2013, the Company adopted an equity compensation plan entitled the 2013 Equity Incentive Plan (the “2013 Equity Plan”). The 2013 Equity Plan is an omnibus equity compensation plan that permits the issuance of various types of equity-based compensation awards, including options, stock awards, stock appreciation rights and restricted stock units, as well as cash awards, to employees, directors and eligible consultants of the Company. The 2013 Equity Plan has a ten-year term and permits the issuance of incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended. The administrator under the plan has broad discretion to establish the terms of awards, including the size, term, exercise price (if applicable) and applicable vesting conditions. Generally, grants to employees vest over four years, with 25% vesting on the one-year anniversary, and the remainder vesting either quarterly or monthly thereafter; grants to non-employee directors vest over three years, with 33% vesting on the one-year anniversary, and the remainder vesting either quarterly or monthly thereafter.

The 2013 Equity Plan previously allowed for automatic annual increases to the number of shares of common stock authorized for issuance under the plan on the first day of each year, with such increases based on 10% of the outstanding shares of the Company’s common stock as of the last day of the previous year end. On January 1, 2014, the total shares available for grant under the 2013 Equity Plan increased to 440,441. At the 2014 Annual Meeting, the shareholders approved and adopted an amendment to the 2013 Equity Plan to increase the number of shares of common stock authorized for issuance up to a total of 1,100,000 shares and eliminated the automatic annual increase on the first day of each year.

As of September 30, 2014, there were 576,304 shares available for future grants under the 2013 Equity Plan.

Share-Based Compensation Expense

The following table summarizes all share-based compensation expense related to stock options, restricted stock and restricted stock units by expense category (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Research and development:
Stock options	$	98	$	250	$	142	$	897
Restricted stock	147		7		652		51
Research and development share-based compensation expense	245		257		794		948
General and administrative:
Stock options	286		1,892		575		6,854
Restricted stock	1,212		593		5,226		714
Restricted stock units	—		—		—		52
General and administrative share-based compensation expense	1,498		2,485		5,801		7,620
Total share-based compensation expense included in expenses	$	1,743	$	2,742	$	6,595	$	8,568

Stock Options

During the three and nine months ended September 30, 2014, stock options representing the right to acquire a total of up to 137,000 shares and 466,900 shares of common stock were granted, respectively. The Company uses the Black-Scholes valuation model to calculate the fair value of its stock options. Share-based compensation expense is recognized over the vesting period using the straight-line method. The fair values of the stock options were estimated at the respective grant dates using the following weighted-average assumptions:

	Three Months Ended  September 30, 2014		Nine Months Ended  September 30, 2014
Dividend yield	—		—
Volatility	190.2	%	188.1	%
Risk-free interest rate	2.08	%	2.15	%
Expected life of options (years)	6.59		6.73

The grant date, weighted-average fair value per share of the stock options granted during the three and nine months ended September 30, 2014 was $8.38 and $9.49, respectively.

As of September 30, 2014, there was $4.0 million in unrecognized share-based compensation expense attributable to stock options to be recognized over the next 40 months. If there are any modifications or cancellations of underlying unvested stock options, we may be required to accelerate, increase or cancel the remaining unearned share-based compensation expense. Future share-based compensation expense and unearned share-based compensation will increase, to the extent that we grant additional stock options.

A summary of the Company’s stock option activity and related data for the nine months ended September 30, 2014 is as follows:

	Outstanding Stock Options
	Number of Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)
Balance at December 31, 2013	54,000	$	6.00	9.63
Granted	466,900	$	9.70
Balance at September 30, 2014	520,900	$	9.32	9.53

Restricted Stock

On January 25, 2014, the Company granted 2,976 shares of restricted stock to a consultant. The restricted stock vested immediately and was issued under the 2013 Equity Plan.

On March 31, 2014, restricted stock awards representing 39,811 shares of common stock were canceled upon forfeiture. The remaining unrecognized share-based compensation expense for the canceled restricted stock awards was expensed during the three months ended March 31, 2014. An additional 7,318 restricted stock awards were canceled upon forfeiture during the three months ended September 30, 2014.

The remaining unrecognized share-based compensation expense for research and development attributable to restricted stock to be recognized over the next 16 months is $1.9 million. The remaining unrecognized share-based compensation expense for general and administrative attributable to restricted stock to be recognized over the next 27 months is $8.5 million.