Annual report pursuant to Section 13 and 15(d)

Stock Plan and Stock-Based Compensation

v3.10.0.1
Stock Plan and Stock-Based Compensation
12 Months Ended
Dec. 31, 2018
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock Plans and Stock-Based Compensation

9. Stock Plan and Stock-Based Compensation

Stock Plan

In September 2013, the Company’s stockholders approved the 2013 Equity Incentive Plan (the 2013 Plan), under which shares of common stock are reserved for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other stock awards by the Company. These awards may be granted to employees, members of the Board of Directors, and consultants. The 2013 Plan has a term of ten years and replaced the 2003 Equity Incentive Plan, which had similar terms. The 2013 Plan permits the Company to (i) grant incentive stock options to directors and employees at not less than 100% of the fair value of common stock on the date of grant; (ii) grant nonqualified options to employees, directors, and consultants at not less than 85% of fair value; (iii) award stock bonuses; and (iv) grant rights to acquire restricted stock at not less than 85% of fair value. Options generally vest over a four year period and have a term of ten years. Options granted to 10% stockholders have a maximum term of five years and require an exercise price equal to at least 110% of the fair value on the date of grant. The exercise price of all options granted to date has been at least equal to the fair value of common stock on the date of grant. The share reserve under the 2013 Plan will automatically increase on January 1st of each year, for a period of not more than ten years, in an amount equal to 5% of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year, unless the Board determines otherwise prior to December 31st of such calendar year.

Stock Plan Activity

As of December 31, 2018, there were 1,268,662 shares available for grant under the 2013 Plan. In accordance with the provisions of the 2013 Plan, the Board of Directors reduced the automatic increase in the share reserve to 2,378,259 shares, which were automatically available for issuance on January 1, 2019.

The following table summarizes activity in the Company’s stock option grants, including performance options:

 

 

 

Shares

Subject to

Outstanding

Options

 

 

Weighted

Average

Exercise

Price of

Options

 

 

Weighted

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Intrinsic

Value (in thousands)

 

Outstanding as of December 31, 2017

 

 

4,356,441

 

 

$

5.15

 

 

 

 

 

 

 

 

 

Options granted

 

 

2,167,272

 

 

 

11.84

 

 

 

 

 

 

 

 

 

Options exercised

 

 

(750,852

)

 

 

4.76

 

 

 

 

 

 

 

 

 

Options forfeited

 

 

(179,729

)

 

 

8.81

 

 

 

 

 

 

 

 

 

Outstanding as of December 31, 2018

 

 

5,593,132

 

 

$

7.68

 

 

 

8.04

 

 

$

11,096

 

Vested and expected to vest as of

   December 31, 2018

 

 

5,593,132

 

 

 

7.68

 

 

 

8.04

 

 

 

11,096

 

Exercisable as of December 31, 2018

 

 

2,627,819

 

 

$

5.65

 

 

 

7.07

 

 

$

7,799

 

 

The total intrinsic value of options exercised was $4.9 million and $2.5 million for the years ended December 31, 2018 and 2017, respectively. No options were exercised during the year ended December 31, 2016. 

Vested and Unvested Awards

The total fair value of options vested including performance options, was $7.0 million, $3.9 million, and $2.2 million for the years ended December 31, 2018, 2017 and 2016, respectively.

As of December 31, 2018, unamortized employee and non-employee stock-based compensation expense of $16.6 million is expected to be recognized over a weighted average period of 2.8 years.

Performance Options

In July 2016, the Company granted 327,000 performance-based stock options (PSOs) to executives and senior officers. PSOs represent a contingent right to purchase the Company’s common stock upon the achievement of specific conditions. Specifically, these PSOs vest upon the achievement of certain clinical development and capital raising milestones that must occur before December 31, 2016. In December 2016, the PSOs were modified by extending the term by one month to January 31, 2017.

 

   Upon achievement of the clinical development and capital raising milestones, related expense of $0.2 million was recognized in each of the years ended December 31, 2017 and 2016, respectively. The modification to extend the term of the PSOs did not have a material impact on the Company’s consolidated financial statements. There was no expense in 2018 associated with these awards.  

Incentive Awards

In December 2013, January 2014, and April 2014, as permitted by the 2013 Plan, the Company issued certain incentive awards to directors, employees and a consultant which are subject to 252,752 shares of the Company’s common stock and are exercisable at a weighted average price of $5.21 per share when vested. The Company may determine at its option whether to settle exercised awards in shares of common stock or in cash. Each recipient’s incentive award defines the number of common shares that may be acquired upon exercise provided the Company chooses to settle in shares. For awards settled in cash, the Company must pay the recipient the excess of the fair market value of the Company’s common stock on the date of exercise over the exercise price paid by the recipient multiplied by the number of shares the recipient would be entitled to receive had the award been settled in shares of the Company’s common stock.

Pursuant to their terms, the incentive awards have a term of 10 years and were initially scheduled to vest 100% on the second anniversary of their grant date. However, as a result of the approval by the Company’s stockholders of a 500,000 share increase to the 2013 Plan’s share reserve in June 2014, the incentive awards were automatically modified to vest monthly over four years effective from their grant date. The Company recognized the value of the incentive awards over the remaining four year vesting period which ended in the first quarter of 2018.

The Company recorded an insignificant amount of stock based compensation expense in the year ended December 31, 2018 and $0.3 million of stock based compensation expense in the years ended December 31, 2017 and 2016, respectively, pertaining to its incentive awards. Incentive awards outstanding totaled 129,776 as of December 31, 2018 and 2017, respectively.

Options Granted to Nonemployees

The Company has issued options to purchase shares of common stock to certain scientific advisors and consultants. The stock options have various exercise prices, a term of ten years, and vest over periods up to forty-eight months. The Company granted to these advisors and consultants options to purchase 10,000 and 15,000 shares of common stock, in 2018 and 2017, respectively. As of December 31, 2018, options to purchase 22,793 shares of common stock remained unvested, and under current guidance compensation related to these stock options is subject to remeasurement each reporting period as the shares vest. In 2013, the Company also issued an incentive award for 2,335 shares to a scientific advisor, which was fully vested as of December 31, 2018. The Company recorded $0.1 million of expense in the years ended December 31, 2018 and 2017, respectively, and an insignificant amount in the year ended December 31, 2016, related to these options and awards.

Stock-Based Compensation Expense

Stock-based compensation expense is included in the consolidated statements of operations and comprehensive loss and is as follows (in thousands):

 

 

 

Year Ended

 

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Research and development

 

$

2,760

 

 

$

1,301

 

 

$

995

 

General and administrative

 

 

4,253

 

 

 

3,619

 

 

 

1,478

 

Total stock-based compensation expense

 

$

7,013

 

 

$

4,920

 

 

$

2,473

 

 

Valuation Assumptions

The following table presents the weighted-average assumptions the Company used in the Black-Scholes option-pricing model to derive the grant date fair values of stock options and performance-based stock options granted in each of the years presented along with the resulting estimated weighted-average grant date fair values per share:

 

 

 

Year Ended

December 31,

 

 

 

2018

 

 

2017

 

 

2016

 

Expected term

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

6.2 yrs

 

 

6.0 yrs

 

 

6.1 yrs

 

Performance options

 

 

 

 

 

 

 

5.1 yrs

 

Expected volatility

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

 

77

%

 

 

84

%

 

 

80

%

Performance options

 

 

 

 

 

 

 

 

85

%

Risk-free interest rate

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

 

2.62

%

 

 

2.15

%

 

 

1.57

%

Performance options

 

 

 

 

 

 

 

 

1.56

%

Expected dividend yield

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

 

 

 

 

 

 

 

 

Performance options

 

 

 

 

 

 

 

 

 

Weighted-average grant date fair value per share

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

$

8.14

 

 

$

3.36

 

 

$

0.89

 

Performance options

 

 

 

 

 

 

 

 

1.20

 

 

Expected Term

The Company does not believe it can currently place reliance on its historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term. Therefore, for stock option grants made during the years ended December 31, 2018, 2017 and 2016, the Company has opted to use the simplified method for estimating the expected term, which is an average of the contractual term of the options and its ordinary vesting period. The expected term represents the period of time that options are expected to be outstanding.

Expected Volatility

As the Company has limited trading history for its common stock, the expected stock price volatility for the Company’s common stock was estimated by considering the volatility rates of similar publicly traded peer entities within the life sciences 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.

Risk-Free Interest Rate

The risk-free interest rate assumption was based on U.S. treasury instruments with constant maturities whose term was consistent with the expected term of stock options granted by the Company.

Expected Dividend Yield

The Company has never declared or paid cash dividends and does not plan to pay cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero.