Stock-based Compensation

Equity Incentive Plans

In March 2010, our board of directors (the "Board") and stockholders approved the 2010 Equity Incentive Award Plan (the "2010 Plan"), which became effective upon the completion of our initial public offering in April 2010. The number of shares of our common stock available for issuance under the 2010 Plan is equal to 1,100,000 shares plus any shares of common stock reserved for future grant or issuance under our 2002 Stock Plan (the “2002 Plan”) that remained unissued at the time of completion of the initial public offering. The 2010 Plan also provides for automatic annual increases in the number of shares reserved for future issuance. All grants will reduce the 2010 Plan reserve by one share for every share granted. As of December 31, 2018, total shares remaining available for issuance under the 2010 Plan were approximately 7.9 million shares.

The 2010 Plan provides for the grant of incentive stock options, non-statutory stock options, RSUs, RSAs, PSUs, PBOs, stock appreciation rights, and stock purchase rights to our employees, non-employee directors and consultants.

Stock Options

The option exercise price for incentive stock options must be at least 100% of the fair value of our common stock on the date of grant and the option exercise price for non-statutory stock options is 85% of the fair value of our common stock on the date of grant, as determined by the Board. If, at the time of a grant, the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all of our outstanding capital stock, the exercise price for these options must be at least 110% of the fair value of the underlying common stock. Stock options granted to employees generally have a maximum term of 10 years and vest over 4 years from the date of grant, of which 25% vest at the end of one year, and 75% vest monthly over the remaining three years. We may grant options with different vesting terms from time to time. Unless an employee's termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier.

Restricted Stock Units (RSUs)

We also grant employees RSUs, which generally vest over either a three year period with one-third of the shares subject to the RSUs vesting on each yearly anniversary of the vesting commencement date or over a four year period with 25% of the shares subject to the RSU vesting on each yearly anniversary of the vesting commencement date, in each case contingent upon such employee’s continued service on such vesting date. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. We may grant RSUs with different vesting terms from time to time.

Performance-contingent Restricted Stock Units (PSUs) and Performance Based Options (PBOs)

The compensation committee of the Board approved, solely in respect of non-executive employees, delegated to our Chief Executive Officer the authority to approve grants of PSUs. The compensation committee of the Board also approved grants of PBOs and PSUs to our executives. The PSUs and PBOs vest based upon both the successful achievement of certain corporate operating milestones in specified timelines and continued employment through the applicable vesting date. When the performance goals are deemed to be probable of achievement for these types of awards, recognition of stock-based compensation expense commences. Once the number of shares eligible to vest is determined, those shares vest in two equal installments with 50% vesting upon achievement and the remaining 50% vesting on the first anniversary of achievement, in each case, subject to the recipient’s continued service through the applicable vesting date. If the performance goals are achieved at the threshold level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to half the number of PSUs granted and one-quarter the number of shares underlying the PBOs granted. If the performance goals are achieved at the target level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to the number of PSUs granted and half of the shares underlying the PBOs granted. If the performance goals are achieved at the superior level, the number of shares eligible to vest in respect of the PSUs would be equal to two times the number of PSUs granted and equal to the number of PBOs granted. The number of shares issuable upon achievement of the performance goals at the levels between the threshold and target levels for the PSUs and PBOs or between the target level and superior levels for the PSUs would be determined using linear interpolation. Achievement below the threshold level would result in no shares being eligible to vest in respect of the PSUs and PBOs.

In the first quarter of 2018, we awarded PSUs ("2018 PSUs") and PBOs ("2018 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including core business revenue growth, cash balance, new licensing collaborations, new research and development service revenue arrangements, technology advancement and novel therapeutic enzymes advancement. As of December 31, 2018, we estimated that the 2018 PSUs and 2018 PBOs performance goals would be achieved at 118% of the target level, and recognized expenses accordingly.

In 2017, we awarded PSUs ("2017 PSUs") and PBOs ("2017 PBOs"), each of which commence vesting based upon the achievement of various weighted performance goals, including revenue growth, fundraising, service revenue, new platform license revenue, and strategic advancement of biotherapeutics pipeline. In the first quarter of 2018, we determined that the 2017 PSU and PBO performance goals had been achieved at 134.2% of the target level, and recognized expenses accordingly. Accordingly, one-half of the shares underlying the 2017 PSUs and PBOs vested in the first quarter of 2018 and one-half of the shares underlying the 2017 PSUs and PBOs will vest in the first quarter of 2019, in each case subject to the recipient’s continued service on each vesting date.

In 2016, we awarded PSUs ("2016 PSUs") based upon the achievement of various weighted performance goals, including revenue growth, non-GAAP net income growth, new licensing collaborations, new research and development service revenue arrangements and novel therapeutic enzymes advancement. In the first quarter of 2017, we determined that the 2016 PSU performance goals had been achieved at 142.3% of the target level, and recognized expenses accordingly. Accordingly, one-half of the shares underlying the 2016 PSUs vested in the first quarter of each of 2017 and 2018, in each case subject to the recipient’s continued service on each vesting date. No PBOs were awarded in 2016.

Stock-Based Compensation Expense:

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



	Year Ended December 31,
	2018		2017		2016
Research and development	$	2,055	$	1,444	$	1,033
Selling, general and administrative	5,834		5,647		4,640
Total	$	7,889	$	7,091	$	5,673

The following table presents total stock-based compensation expense by security type included in the consolidated statements of operations (in thousands):



	Year Ended December 31,
	2018		2017		2016
Stock options	$	1,975	$	1,554	$	1,102
RSUs and RSAs	1,770		1,888		2,043
PSUs	1,511		1,792		2,528
PBOs	2,633		1,857		—
Total	$	7,889	$	7,091	$	5,673

Grant Award Activities:

Stock Option Awards

We estimated the fair value of stock options using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarize the ranges of weighted-average assumptions used to estimate the fair value of employee stock options granted:



	Year Ended December 31,
	2018		2017		2016
Expected life (years)	5.6		5.4		5.3
Volatility	60.0	%	62.2	%	64.2	%
Risk-free interest rate	2.7	%	2.0	%	1.3	%
Expected dividend yield	0.0	%	0.0	%	0.0	%

In October 2017, we granted an option to purchase 11,100 shares of common stock to a non-employee as compensation for services valued at $48 thousand with the following assumptions used to estimate the fair value of non-employee stock options: (i) volatility rate at 60.6%, risk-free interest rate of 2.4% and (ii) no expected dividend yield. The option vested over a period of six months with one-sixth of total number of shares subject to the option vesting on each one month anniversary of the grant date. During the year ended December 31, 2018 and December 31, 2016, we did not grant any options to purchase shares of common stock to non-employees.

The following tables summarizes stock option activities:



	Number of Shares		Weighted Average Exercise Price Per Share
	(In Thousands)
Outstanding at December 31, 2015	3,918		$	4.49
Granted	971		$	4.16
Exercised	(398	)	$	2.60
Forfeited/Expired	(601	)	$	5.76
Outstanding at December 31, 2016	3,890		$	4.40
Granted	856		$	4.57
Exercised	(86	)	$	3.10
Forfeited/Expired	(81	)	$	7.72
Outstanding at December 31, 2017	4,579		$	4.40
Granted	645		$	9.56
Exercised	(772	)	$	5.56
Forfeited/Expired	(340	)	$	6.66
Outstanding at December 31, 2018	4,112		$	4.81

Exercisable at December 31, 2018	2,876		$	3.83
Vested and expected to vest at December 31, 2018	3,954		$	4.69



	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In Thousands)			(In Years)	(In Thousands)
Outstanding at December 31, 2018	4,112	$	4.81	6.23	$	48,927
Exercisable at December 31, 2018	2,876	$	3.83	5.25	$	37,005
Vested and expected to vest at December 31, 2018	3,954	$	4.69	6.13	$	47,503

The weighted average grant date fair value per share of stock options granted in 2018, 2017 and 2016 were $5.34, $2.51 and $2.32, respectively. The total intrinsic value of options exercised in 2018, 2017 and 2016 were $7.6 million, $0.2 million and $0.6 million, respectively.

As of December 31, 2018, there was $3.5 million of unrecognized stock-based compensation cost related to non-vested options, which we expect to recognize over a weighted average period of 2.5 years.

Restricted Stock Awards (RSAs)

The following table summarizes RSA activities:



	Number of Shares		Weighted Average Grant Date Fair Value Per Share
	(In Thousands)
Non-vested balance at December 31, 2015	480		$	3.29
Granted	185		$	4.21
Vested	(435	)	$	3.40
Non-vested balance at December 31, 2016	230		$	3.82
Granted	143		$	4.75
Vested	(214	)	$	3.81
Non-vested balance at December 31, 2017	159		$	4.68
Granted	47		$	14.35
Vested	(151	)	$	4.71
Non-vested balance at December 31, 2018	55		$	12.83

The weighted average grant date fair value per share of RSAs granted in 2018, 2017 and 2016 were $14.35, $4.75 and $4.21, respectively. The total fair value of RSAs vested in fiscal 2018, 2017 and 2016 were $2.1 million, $1.0 million and $1.8 million respectively.

As of December 31, 2018, there was $0.3 million of unrecognized stock-based compensation cost related to non-vested RSAs, which we expect to recognize over a weighted average period of 0.4 years.

Restricted Stock Units (RSUs)

The following table summarizes RSU activities:



	Number of Shares		Weighted Average Grant Date Fair Value Per Share
	(In Thousands)
Non-vested balance at January 1, 2016	545		$	3.15
Granted	330		$	4.10
Vested	(243	)	$	3.11
Forfeited/Expired	(15	)	$	2.74
Non-vested balance at December 31, 2016	617		$	3.69
Granted	275		$	4.22
Vested	(302	)	$	3.40
Forfeited/Expired	(30	)	$	4.12
Non-vested balance at December 31, 2017	560		$	4.08
Granted	86		$	10.56
Vested	(290	)	$	4.09
Forfeited/Expired	(8	)	$	4.73
Non-vested balance at December 31, 2018	348		$	5.66

The weighted average grant date fair value per share of RSUs granted in 2018, 2017 and 2016 were $10.56, $4.22 and $4.10, respectively. The total fair value of RSUs vested in fiscal 2018, 2017 and 2016 were $2.9 million, $1.3 million and $1.0 million respectively.

As of December 31, 2018, there was $1.0 million of unrecognized stock-based compensation cost related to non-vested RSUs, which we expect to recognize over a weighted average period of 1.1 years.

Performance-Contingent Restricted Stock Units (PSUs)

The following table summarizes PSU activities:



	Number of Shares		Weighted Average Grant Date Fair Value Per Share
	(In Thousands)
Non-vested balance at January 1, 2016	989		$	2.94
Granted	629		$	4.10
Vested	(482	)	$	2.89
Forfeited/Expired	(305	)	$	2.82
Non-vested balance at January 1, 2017	831		$	3.88
Granted	276		$	4.25
Vested	(651	)	$	3.84
Forfeited/Expired	(27	)	$	3.65
Non-vested balance at January 1, 2018	429		$	4.20
Granted	306		$	6.71
Vested	(495	)	$	4.16
Non-vested balance at December 31, 2018	240		$	7.48

The weighted average grant date fair value per share of PSUs granted in 2018, 2017 and 2016 were $6.71, $4.25 and $4.10, respectively. The total fair value of PSUs vested in fiscal 2018, 2017, and 2016 were $5.4 million, $2.7 million, and $1.8 million, respectively.

As of December 31, 2018, there was $0.6 million of unrecognized stock-based compensation cost related to non-vested PSUs, which we expect to recognize over a weighted average period of 0.5 years.

Performance Based Options (PBOs)

We estimated the fair value of PBO using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarize the ranges of weighted-average assumptions used to estimate the fair value of employee stock options granted:



	Year Ended December 31,
	2018		2017		2016
Expected life (years)	5.63		5.33		—
Volatility	60.3	%	62.3	%	—
Risk-free interest rate	5.6	%	5.3	%	—
Expected dividend yield	0.0	%	0.0	%	—

The following table summarizes PBO activities in 2018:



	Number of Shares		Weighted Average Grant Date Fair Value Per Share
	(in thousands)
Outstanding at December 31, 2016	—		$	—
Granted	1,720		$	2.54
Outstanding at December 31, 2017	1,720		$	2.54
Granted	1,200		$	5.02
Exercised	(84	)	$	2.54
Forfeited	(1,254	)	$	3.73
Outstanding at December 31, 2018	1,582		$	3.47



	Number of Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In Thousands)			(In Years)	(In Thousands)
Exercisable at December 31, 2018	493	$	4.60	5.60	$	5,968
Vested and expected to vest at December 31, 2018	1,582	$	6.24	5.44	$	16,553

The total fair value of exercised PBOs was $0.2 million for 2018, zero for 2017 and zero for 2016. As of December 31, 2018, there was $1.2 million of unrecognized stock-based compensation cost related to non-vested PBOs, which we expect to recognize over a weighted average period of 0.9 years.