Share-Based Compensation

Equity Incentive Plan

The Company has in place a stock option plan (the "Stock Option Plan") for the benefit of employees, directors, officers and consultants of the Company. In May 2013 our Board of Directors adopted the 2013 Equity Incentive Plan (the "2013 Plan"). The 2013 Plan was approved by our stockholders in connection with the Arrangement. Our Board of Directors and stockholders approved an amendment to the 2013 Plan in 2017 to, among other things, increase the aggregate number of shares of common stock authorized for issuance under the 2013 Plan by 2.9 million shares. The 2013 Plan is a continuation of and successor to the Stock Option Plan and no further grants will be made under the Stock Option Plan. As of December 31, 2017, there were approximately 3.0 million stock options available to be issued.

To date, share-based compensation awards under either the Stock Option Plan or the 2013 Plan consist of incentive and non-qualified stock options. Stock options granted under each of the plans must have an exercise price equal to at least 100% of the fair market value of our common stock on the date of grant and generally vest over four years. The Stock Option Plan has contractual terms ranging from five to seven years and the 2013 Plan has contractual terms ranging from seven to ten years.

The following table summarizes our stock option activity and related information for the year ended December 31, 2017:



	Number of options		Weighted average exercise price		Weighted-Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Balance outstanding as of December 31, 2016	2,813,342		$	16.57
Granted	970,226		$	5.36
Exercised	(45,573	)	$	8.74
Canceled/forfeited	(415,908	)	$	14.47
Expired	(17,906	)	$	12.50
Balance outstanding as of December 31, 2017	3,304,181		$	13.67	7.2	$	21.0
Options exercisable at December 31, 2017	1,843,808		$	16.28	6.1	$	7.3
Options vested and expected to vest at December 31, 2017	3,304,181		$	13.67	7.2	$	21.0

The total intrinsic value of stock options exercised was $0.3 million, $0.3 million and $0.6 million for the years ended December 31, 2017, 2016, and 2015, respectively. The Company received total cash of $0.4 million, $0.2 million and $0.6 million for the exercise of options for the years ended December 31, 2017, 2016 and 2015, respectively. The total fair value of options vested during the years ended December 31, 2017, 2016 and 2015 was $10.6 million, $8.6 million and $6.5 million, respectively. Upon option exercise, the Company issues new shares of its common stock.

Total share-based compensation expense by statement of operations classification is presented below (in thousands):



	Year ended December 31,
	2017		2016		2015
Research and development expense	$	3,192	$	5,461	$	3,669
General and administrative expense	3,594		5,163		6,585
	$	6,786	$	10,624	$	10,254

For the years ended December 31, 2017, 2016 and 2015, no share-based compensation expense was capitalized and there were no recognized tax benefits associated with the share-based compensation charge.

The fair value of options granted is estimated at the date of grant using the Black-Scholes option pricing model. The assumptions used for the specified reporting periods and the resulting estimates of weighted-average estimated fair value per share of options granted during those periods are as follows:



	Year Ended December 31,
	2017	2016	2015
Risk-free interest rate	2.1%	1.5%	1.5%
Dividend yield	—%	—%	—%
Volatility factor	96.0%	101.7%	104.3%
Expected term (in years)	6.0	6.0	6.0
Weighted average estimated fair value per share	$4.17	$13.32	$19.44

Risk-Free Interest Rate - The risk-free interest rate is the rate for periods equal to the expected term of the stock option based on U.S. Treasury zero-coupon bonds.

Dividend Yield - The dividend yield is based on the Company’s history and expectation of dividend payouts. The Company has not paid, and does not intend to pay dividends.

Volatility Factor - The expected volatility assumption was determined by examining the historical volatility of the Company's stock.

Expected Term - The expected term represents the weighted average period the stock options are expected to be outstanding. The Company uses the simplified method for estimating the expected term as provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average time-to-vesting and the contractual life of the options. The Company believes this methodology is appropriate given the Company's limited history as a U.S. public company.

The total compensation cost not yet recognized as of December 31, 2017 related to non-vested option awards was $4.4 million which will be recognized over a weighted-average period of 1.2 years.

2013 Employee Stock Purchase Plan

In May 2013, the Company's Board of Directors adopted the ESPP. The ESPP was approved by the Company's stockholders in connection with the Arrangement. In December 2014, the ESPP became effective and the first purchase period began. The ESPP permits eligible employees to make payroll deductions to purchase up to $25,000 of the Company’s common stock on regularly scheduled purchase dates at a discount. Offering periods under the ESPP are not more than six months in duration and shares are purchased at 85% of the lower of the closing price for the Company’s common stock on the first day of the offering period or the date of purchase. The ESPP initially authorized the issuance of 300,000 shares of the Company’s common stock pursuant to rights granted to employees for their payroll deductions. As of December 31, 2017, 121,104 shares have been issued out of the plan.