Stock Compensation Plans

Equity Incentive Plans

Our 2014 Equity Incentive Plan, or the 2014 Plan, became effective in April 2014 and replaced our 2012 Stock Option Plan, or the 2012 Plan, with respect to future awards. The 2014 Plan provides for the grant of stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards and performance units to employees, directors, and consultants. The 2012 Plan provided for the grant of stock options, restricted stock, restricted stock units, stock purchase rights, and performance awards to employees, directors, and consultants. Option grants under our 2012 Plan were exercisable immediately and subject to repurchase rights, all of which have lapsed.

Shares available for grant under the 2014 Plan include any shares remaining available or becoming available in the future under the 2012 Plan due to cancellation or forfeiture. In addition, the 2014 Plan provides for annual increases in the number of shares available for issuance thereunder beginning upon its effective date in April 2014, and on each annual anniversary, equal to the lower of:


•	1,200,000 shares of our common stock;


•	3% of the outstanding shares of our common stock on the second-to-the-last day prior to each anniversary date of the effectiveness date of our initial public offering; or


•	an amount as our board of directors may determine.

Pursuant to such provisions, the number of shares available for issuance under the 2014 Plan was increased by 1,200,000 shares effective April 16, 2017. Shares available for grant under the 2014 Plan totaled 125,000 shares as of December 31, 2017.

In September 2017, our board of directors approved the 2017 Inducement Equity Incentive Plan and amended and restated the plan in November 2017, or the Inducement Plan, which has terms and conditions substantially similar to our 2014 Plan. Under the Inducement Plan, 1,850,000 shares of our common stock were reserved to be used exclusively for grants to individuals who were not previously our employees or directors, as an inducement material to the individual’s entry into employment with us within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. As of December 31, 2017, we had not made any grants under the Inducement Plan. See Note 10 regarding a subsequent grant under the Inducement Plan.

Option grants made under the 2014 Plan and the 2012 Plan generally vest over one or four years except for performance-based stock options. Our performance-based stock options will fully vest and become exercisable only on achievement of the performance conditions while the participant is a continuing service provider. Options generally expire ten years from the grant date or earlier in accordance with the terms of the plans and the related stock option agreement.

In 2015, our board of directors (the “Board”) approved grants for performance-based stock options to certain employees and consultants under the 2014 Plan. Performance-based stock options for 647,322 shares remain outstanding at December 31, 2017. Performance-based stock options that have not been forfeited will fully vest on the third anniversary of the grant date if (i) our VTL-308 clinical trial has achieved statistical significance in its primary efficacy endpoint and (ii) the participant is a continuing service provider through the third anniversary of the grant date (as such terms are defined in the 2014 Plan). Vesting of the performance-based stock options will not be accelerated if the performance goal is achieved in less than three years. As of December 31, 2017 and 2016, we deemed the performance condition as being probable and are recording stock-based compensation expense over the requisite service period for all performance-based stock options held by employees. The performance-based stock options have exercise prices ranging from $4.57 to $7.69 per share, the closing sales price of our common stock on the grant dates, and expire ten years from the grant date (or earlier in accordance with the terms of the 2014 Plan and the related stock option agreement).

The following table summarizes stock option activity under the 2012 and 2014 Plans:



	Options		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (In thousands)
Outstanding as of January 1, 2017	4,841,274		$	7.78
Granted	1,405,054		$	3.28
Exercised	(2,889	)	$	1.84
Forfeited and expired	(159,957	)	$	7.38
Outstanding as of December 31, 2017	6,083,482		$	6.76	7.0	$	6,709
Options vested and expected to vest as of December 31, 2017	5,980,525		$	6.79	6.9	$	6,530
Options exercisable as of December 31, 2017	3,562,490		$	7.94	5.7	$	2,491

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of our common stock for those shares that had exercise prices lower than the fair value of our common stock as of December 31, 2017. The number of options vested and expected to vest is calculated as the total number of options vested plus the number of unvested options remaining after applying our estimated forfeiture rate.

The following table summarizes information about stock options (in thousands):



	Year Ended December 31,
	2017		2016		2015
Aggregate intrinsic value of options exercised	$	10	$	39	$	1,235

We have not capitalized any stock based-compensation into the cost of inventory nor have we recognized an income tax benefit from the exercise of any stock options as we continue to record a full valuation allowance on our deferred tax assets.

Stock-based Compensation Expense

The weighted-average grant date fair value of stock options granted to employees and directors during the years ended December 31, 2017, 2016 and 2015 was $2.34, $5.70 and $5.81, respectively. The following are the ranges of underlying assumptions used to determine the fair value of stock options granted to employees and non-employees:



	Years Ended December 31,
	2017		2016		2015
Employees and Directors:
Risk-free interest rate	1.5% - 2.0%		1.5% - 1.7%		1.7% - 1.9%
Expected dividend yield	—	%	—	%	—	%
Expected volatility	82% - 85%		77% - 86%		73% - 92%
Expected term of options (years)	5.9 - 6.1		5.9 - 6.0		5.8 - 6.0
Range of common stock value	$2.75 - $5.80		$5.90 - $8.97		$4.57 - $26.71



Non-Employees:
Risk-free interest rate	1.0% - 2.1%		0.5% - 1.9%		0.1% - 1.9%
Expected dividend yield	—	%	—	%	—	%
Expected volatility	66% - 84%		77% - 97%		56% - 94%
Expected term of options (years)	0.5 - 4.5		0.2 - 5.5		0.3 - 6.0
Range of common stock value	$2.90 - $5.95		$4.35 - $9.07		$4.04 - $25.01

The following tables summarize the allocation of stock-based compensation expense to employees and non-employees (in thousands):



	Years Ended December 31,
	2017		2016		2015
Employees and Directors:
Research and development	$	1,645	$	1,758	$	1,412
General and administrative	3,742		2,751		2,012
Total	$	5,387	$	4,509	$	3,424



Non-Employees:
Research and development	$	93	$	153	$	490
General and administrative	—		16		115
Total	$	93	$	169	$	605

As of December 31, 2017, there was $6.2 million and $449,000 of total compensation cost related to unvested employee and non-employee stock option awards, respectively, not yet recognized. The fair value of the non-employee stock options is re-measured at each reporting date and, accordingly, the expense to be recognized will change, primarily with changes in the market value of our common stock. Stock-based compensation expense for employee and non-employee stock option awards is expected to be recognized over a remaining weighted-average vesting period of 1.7 years and 2.1 years, respectively. Immediately following the transition described in note 10 to the consolidated financial statements, as of January 3, 2018, there was $12.7 million and $1.3 million of total compensation cost related to unvested employee and non-employee stock option awards, respectively, not yet recognized and expected to be recognized over 2.7 years and 2.0 years, respectively.