Stock-Based Compensation

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

As of June 30, 2020, there were 5,445,343 shares that were subject to outstanding options and restricted stock units (RSUs) under the 2006 Equity Incentive Plan (2006 Plan) and the Amended and Restated 2016 Equity Incentive Plan (2016 Plan, and together with the 2006 Plan, Plans). The 2006 Plan expired by its terms in April 2016, and the Company adopted the 2016 Plan. Outstanding options and RSUs under the 2006 Plan remain in effect and the terms of the 2006 Plan continue to apply, but no additional awards can be granted under the 2006 Plan. In June 2016, the Company’s stockholders approved the 2016 Plan. The 2016 Plan has been amended and restated three times to increase the number of shares reserved for issuance, among other administrative changes. Each of the amendments and restatements of the 2016 Plan was approved by the Company's stockholders. There are a total of 8,790,000 shares of common stock reserved for issuance under the 2016 Plan, 4,041,406 shares of which remained available for future grant as of June 30, 2020.

Stock Options

The Company has granted option awards under the Plans with service conditions (service option awards) that are subject to terms and conditions established by the compensation committee of the board of directors. Service option awards have 10 year contractual terms. Service option awards granted to employees and new directors upon their election vest and become exercisable over four years with the first 25% of the shares subject to service option awards vesting on the first anniversary of the grant date and remaining 75% of the shares subject to the service option awards in 36 equal monthly installments thereafter. Subsequent annual service option awards granted to directors vest and become exercisable in full on the first anniversary of the grant date. Certain service option awards to executives and directors provide for accelerated vesting if there is a change in control of the Company. Certain service option awards to employees and executives provide for accelerated vesting if the respective employee’s or executive’s service is terminated by the Company for any reason other than cause or permanent disability.

As of June 30, 2020, $8.4 million of unrecognized compensation costs related to unvested service option awards are expected to be recognized over a weighted average period of 1.4 years. No option awards are classified as a liability as of June 30, 2020.

A summary of option activity under the Plans for the six months ended June 30, 2020 follows:


2006 and 2016 Plans (in thousands, except for share and per share amounts)	Number of Shares	Weighted Average Exercise Price at Grant Date		Weighted Average Remaining Term (Years)	Aggregate Intrinsic Value
Outstanding at December 31, 2019	4,495,145	$	12.21	5.58	$	22,148
Granted	537,500	11.34
Forfeited	(225,000)	18.83
Expired	(545,104)	14.29
Exercised	(554,844)	7.35			2,113
Outstanding at June 30, 2020	3,707,697	12.10		5.90	5,415
Exercisable at June 30, 2020	2,562,003	10.95		4.51	5,317
Vested and expected to vest at June 30, 2020	3,518,867	12.03		5.71	5,395

The weighted average grant-date fair value of options granted was $5.65 and $11.16 per share for the six months ended June 30, 2020 and 2019, respectively. Proceeds from the exercise of stock options amounted to $4.1 million and $3.6 million for the six months ended June 30, 2020 and 2019, respectively.

Restricted Stock Units

An RSU is a stock award that entitles the holder to receive shares of the Company’s common stock as the award vests. The fair value of each RSU is based on the closing price of the Company’s stock on the date of grant. The Company has granted RSUs under the Plans with service conditions (service RSUs) that vest in four equal annual installments provided that the employee remains employed with the Company. Annual service RSUs granted to directors vest on the first anniversary of the grant date.

As of June 30, 2020, $23.5 million of unrecognized compensation costs related to unvested service RSUs are expected to be recognized over a weighted average period of 1.8 years. No RSUs are classified as a liability as of June 30, 2020.

A summary of RSU activity under the Plans for the six months ended June 30, 2020 follows:


2006 and 2016 Plans	Number of Shares Underlying RSUs	Weighted Average Grant Date Fair Value
Unvested at December 31, 2019	1,649,285	$	18.04
Granted	786,818	11.28
Forfeited	(174,577)	18.19
Vested	(523,880)	16.65
Unvested at June 30, 2020	1,737,646	15.39

The grant date fair value for the 523,880 shares underlying RSUs that vested during the six months ended June 30, 2020 was $8.7 million.

Stock-Based Compensation Expense

Stock-based compensation expense recognized for the three and six months ended June 30, 2020 and 2019 was comprised of the following:


	Three Months Ended						Six Months Ended
(in thousands)	June 30, 2020		June 30, 2019		June 30, 2020		June 30, 2019
Research and development	$	900	$	756	$	2,011	$	1,484
Selling, general and administrative	2,169		2,345		5,002		4,899
Total stock-based compensation expense	$	3,069	$	3,101	$	7,013	$	6,383

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model that uses the assumptions noted in the following table. Expected volatility rates are based on the historical volatility of the Company’s publicly traded common stock and other factors. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has never paid cash

dividends to its stockholders and does not plan to pay dividends in the foreseeable future. Assumptions used in the Black-Scholes-Merton option pricing model for employee and director stock options granted during the six months ended June 30, 2020 and 2019 were as follows:


	Six Months Ended
	June 30, 2020		June 30, 2019
Expected dividend yield	0	%	0	%
Weighted average expected volatility	52	%	59	%
Weighted average expected term (years)	6.09		5.93
Weighted average risk-free rate	1.28	%	2.48	%