Note 9. Equity Plans

Equity Incentive Plans

In July 2016, the Company’s board of directors and stockholders approved the Company’s 2016 Equity Incentive Plan (the “2016 Plan”) to replace the 2007 Stock Option Plan. The 2016 Plan is administered by the board of directors or a committee appointed by the board of directors, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Awards granted under the 2016 Plan expire no later than ten years from the date of grant. As of September 30, 2018, approximately 201,579 shares were available for issuance under the 2016 Plan.

Inducement Plan

In May 2018, the Company’s board of directors approved the 2018 Inducement Plan, a non-stockholder approved stock plan, under which it reserved and authorized up to 750,000 shares of the Company’s common stock in order to award options and restricted stock unit awards to persons that were not previously employees or directors of the Company, or following a bona fide period of non-employment, as an inducement material to such persons entering into employment with the Company, within the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules. The 2018 Inducement Plan is administered by the board of directors or the Compensation Committee of the board, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Awards granted under the 2018 Inducement Plan expire no later than ten years from the date of grant. As of September 30, 2018, approximately 645,000 shares were available for issuance under the 2018 Inducement Plan.

Stock Options

Stock options generally have an exercise price equal to the fair market value of the Company’s common stock on the grant date. Employee stock options generally vest over a period of four years. Non-employee director initial stock options generally vest over a period of three years, and non-employee director annual refresher stock options generally vest over a period of approximately one year. Non-employee consultant options generally vest over a period of one to four years.

Stock option activity under the Company’s equity incentive and inducement plans is set forth below:



		Weighted-		Weighted-
		Average		Average
		Exercise		Remaining	Aggregate
	Options	Price Per		Contractual	Intrinsic
	Outstanding	Share		Life (years)	Value
					(in millions)
Balances at December 31, 2017	2,438,151	$	11.51	8.26
Options granted	1,005,400		13.51
Options exercised	(142,014)		2.79
Options forfeited	(148,058)		14.99
Balances at September 30, 2018	3,153,479	$	12.37	8.21	$	7.8
Options exercisable – September 30, 2018	1,311,184	$	11.05	7.48	$	4.6
Options vested and expected to vest – September 30, 2018	3,153,479	$	12.37	8.21	$	7.8

⁽¹⁾

The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock on September 30, 2018. The calculation excludes options with an exercise price higher than the closing price of the Company’s common stock on September 30, 2018.

During the nine months ended September 30, 2018, the estimated weighted-average grant-date fair value of common stock underlying options granted to employees was $8.35 per share.

Employee Stock Options Valuation

The fair value of employee stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2018	2017	2018	2017
Expected term (in years)	5.49 - 6.08	6.08	5.49 - 6.08	5.50 - 6.08
Expected volatility	61.2% - 65.1%	62.1%	62.0% - 66.5%	62.1% - 65.4%
Risk-free interest rate	2.75% - 2.98%	2.00%	2.42% - 2.98%	1.88 - 2.07%
Dividend yield	—	—	—	—

Restricted Stock Units

A restricted stock unit is an agreement to issue shares of the Company’s common stock at the time of vesting. Restricted stock units vest in four equal installments on approximately the first, second, third and fourth anniversaries of the grant date.

Restricted stock unit activity under the Company’s equity incentive plans is set forth below:

Un
			Weighted-
			Average
	Number of		Grant Date
	Shares		Fair Value
Unvested at December 31, 2017	—		—
Restricted stock units granted	426,025	$	10.53
Restricted stock units forfeited	(5,375)		16.95
Unvested at September 30, 2018	420,650	$	10.45

Stock-based compensation expense associated with restricted stock units is based on the fair value of the Company’s common stock on the grant date, which equals the closing market price of the Company’s common stock on the grant date. For restricted stock units, the Company recognizes compensation expense over the vesting period of the awards that are ultimately expected to vest.

Employee Stock Purchase Plan

The 2016 Employee Stock Purchase Plan (“2016 ESPP”) allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation. At the end of each offering period, eligible employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or at the end of each applicable purchase period. As of September 30, 2018, a total of 102,950 shares of common stock have been issued under the 2016 ESPP, and 425,155 shares were available for issuance.

Stock-Based Compensation

Total stock-based compensation expense was as follows (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Research and development	$	1,046	$	600	$	2,424	$	1,399
General and administrative		971		607		2,423		1,653
Total stock-based compensation expense	$	2,017	$	1,207	$	4,847	$	3,052

As of September 30, 2018, total unrecognized stock-based compensation expense related to stock options was approximately $17.6 million, which the Company expects to recognize over a weighted-average period of approximately 2.25 years.