Stockholders' Equity

12 Months Ended

Dec. 31, 2017

Stockholders' Equity

Stockholders' Equity

8. Stockholders’ Equity

In 2005, we adopted the 2005 Stock Option and Incentive Plan (2005 Plan) that authorizes us to grant options, restricted stock and other equity-based awards. As of December 31, 2017, 364,420 options to purchase shares of common stock were outstanding pursuant to grants in connection with the 2005 Plan.  No additional shares are available for issuance under the 2005 Plan.  The amount, terms of grants, and exercisability provisions are determined and set by our board of directors.

Effective August 2014, we adopted our 2014 Equity Incentive Plan (2014 Plan) that authorizes us to grant options, restricted stock, and other equity-based awards, subject to adjustment in accordance with the 2014 Plan.  As of December 31, 2017, 3,389,900 options to purchase shares of common stock and 239,800 restricted shares of common stock were outstanding pursuant to grants in connection with the 2014 Plan, and 187,100 shares of common stock were available for future issuance. The amount, terms of grants, and exercisability provisions are determined and set by our board of directors.  In accordance with the 2014 Plan, on January 1, 2018, shares of common stock available for future grants under the 2014 plan was increased to 2,187,100.

Stock Options

Total compensation cost recognized for all stock option awards in the statements of operations is as follows (in thousands):

	Year Ended
	Year Ended December 31,
	2017		2016		2015
Research and development	$	724	$	980	$	685
General and administrative		1,697		1,975		1,423
Total	$	2,421	$	2,955	$	2,108

Options issued under both the 2005 Plan and 2014 Plan may have a contractual life of up to 10 years and may be exercisable in cash or as otherwise determined by the board of directors. Vesting generally occurs over a period of not greater than four years.  A summary of activity for the years ended December 31, 2017, 2016 and 2015 is presented below (in thousands, except share and per share amounts):

		Weighted‑
		Average		Aggregate
		Exercise Price		Intrinsic
	Shares	Per Share		Value
Outstanding—December 31, 2014	1,670,574	$	4.37
Granted	585,800		12.56
Exercised	(327,098)		1.14
Forfeited	(44,950)		6.13
Expired	(85,100)		1.04
Outstanding—December 31, 2015	1,799,226		7.74
Granted	603,975		2.42
Exercised	(118,365)		1.04
Forfeited	(45,792)		12.08
Outstanding—December 31, 2016	2,239,044		6.57
Granted	1,884,800		4.02
Exercised	(98,402)		1.46
Forfeited	(141,358)		7.09
Expired	(129,764)		11.75
Outstanding—December 31, 2017	3,754,320	$	5.22	$	13,529
Exercisable—December 31, 2017	1,651,896	$	6.48	$	5,128
Exercisable and expected to vest—December 31, 2017	3,754,320	$	5.22	$	13,529

Included in the 2017 exercised shares above are options that were net shares settled for an exercise price of $49 thousand (7,893 shares).

The weighted average remaining contractual term of options outstanding and exercisable as of December 31, 2017 is 8.4 and 6.9 years, respectively.

Intrinsic value in the table above was determined by calculating the difference between the market value of our common stock on the last trading day of 2017 of $8.16 per share and the exercise price, multiplied by the number of in-the-money options.

The weighted‑average grant date fair value of options granted was $2.67,  $1.60 and $8.15 per share in 2017, 2016 and 2015, respectively, and was estimated at the date of grant using the Black‑Scholes option‑pricing model with the following ranges of weighted‑average assumptions:

	2017				2016				2015
Expected stock price volatility	74.45	-	83.29	%	74.69	-	87.67	%	73.64	-	81.21	%
Expected term of options	5.3	-	6.1	years	5.2	-	6.1	years	5.2	-	6.1	years
Risk‑free interest rate	1.78	-	2.18	%	1.07	-	1.86	%	1.44	-	1.92	%
Expected annual dividend yield			0	%			0	%			0	%

The weighted‑average valuation assumptions were determined as follows:

· Expected stock price volatility: The expected volatility is based on historical volatilities of similar entities within our industry which were commensurate with our expected term assumption as described in the SEC’s Staff Accounting Bulletin, or SAB, No. 107.

· Expected term of options: We estimated the expected term of our stock options with service‑based vesting using the “simplified” method, as prescribed in SAB No. 107, whereby the expected life equals the average of the vesting tranches and the original contractual term of the option due to our lack of sufficient historical data.

· Risk‑free interest rate: We base the risk‑free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term.

· Expected annual dividend yield: The estimated annual dividend yield is 0% because we have not historically paid, and do not expect for the foreseeable future to pay, a dividend on our common stock.

As of December 31, 2017, there was $6.1 million of total unrecognized compensation expense related to unvested stock options granted under the 2005 Plan and 2014 Plan. That expense is expected to be recognized over the next four years as follows, in thousands:

2018	$	3,164
2019		1,616
2020		1,275
2021		45
	$	6,100

Restricted Stock

All issued and outstanding restricted shares of common stock are time-based and become vested one year after the grant date, pursuant to the 2014 Plan.  Compensation expense is recorded ratably over the requisite service period. Compensation expense related to restricted stock is measured based on the fair value using the closing market price of the Company’s common stock on the date of the grant.

No restricted shares of common stock were issued prior to fiscal year 2016.  A summary of activity for the year ended December 31, 2017 is presented below (in thousands, except share and per share amounts):

		Weighted‑average
		Grant Date
	Shares	Fair Value per Share
Outstanding—December 31, 2015	—	$	—
Granted	196,275		1.51
Forfeited	(375)		1.50
Outstanding—December 31, 2016	195,900	$	1.51
Granted	245,200		1.26
Vested	(179,700)		1.12
Forfeited	(21,600)		0.17
Outstanding—December 31, 2017	239,800	$	1.21
Expected to vest—December 31, 2017	239,800	$	1.21

As of December 31, 2017, there was $0.1 million of total unrecognized compensation cost related to unvested restricted stock is expected to be recognized over a weighted average service period of 0.83 years. 

Total compensation cost recognized for all restricted stock awards in the statements of operations for the year ended December 31, 2017 is as follows (in thousands):

	Year Ended
	December 31,
	2017		2016
Research and development	$	125	$	48
General and administrative		334		74
Total	$	459	$	122

Equity Distribution Agreement

In August 2015, we entered into an Equity Distribution Agreement (EDA) with JMP Securities LLC (JMP), under which JMP, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the execution of the agreement up to a maximum of $35 million of shares of our common stock. We are not required to sell any shares at any time during the term of the EDA.

The EDA will terminate upon the earliest of: (1) the sale of all shares subject to the EDA, (2) August 15, 2018 or (3) the termination of the EDA in accordance with its terms.  Either party may terminate the EDA at any time upon written notification to the other party in accordance with the EDA, and upon such notification, the offering will terminate.

We agreed to pay JMP a commission of up to 3.0% of the gross sales price of any shares sold pursuant to the EDA. With the exception of expenses related to the shares, JMP will be responsible for all of its own costs and expenses incurred in connection with the offering.

During the year ended December 31, 2017, we issued 9,768,142 shares of our common stock pursuant to the EDA for aggregate net proceeds to us of $14.9 million.  As of December 31, 2017, $19.8 million remained available under the EDA.