
		Options Outstanding
	Shares Available for Grant	Shares Subject to Options Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value

	(unaudited)
								(in thousands)
Balance as of December 31, 2019	2,726,225	4,494,889	$	10.90	7.7	$	306,392
2018 Plan annual increase⁽¹⁾	3,689,000	—
Granted	(78,476)	78,476	76.01
Exercised	—	(654,557)	5.42
Canceled	12,406	(49,806)	8.79
Restricted stock units granted	(126,834)	—	—
Restricted stock units canceled	33,355	—	—
Market-based restricted stock units granted	(3,391,148)	—	—
Balance as of June 30, 2020	2,864,528	3,869,002	$	13.18	7.3	$	266,316
Vested and Exercisable as of June 30, 2020		2,014,893	$	6.90	6.9	$	150,268

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. The total intrinsic value of the options exercised was $33.1 million and $108.3 million for the three months ended June 30, 2020 and 2019, respectively, and $50.3 million and $116.4 million for the six months ended June 30, 2020 and 2019, respectively.

The weighted-average grant date fair value of options granted was $44.61 and $51.94 per share for the three months ended June 30, 2020 and 2019, respectively, and $45.52 and $43.35 per share for the six months ended June 30, 2020 and 2019, respectively.


	Restricted Stock Units Outstanding	Weighted-Average Grant Date Fair Value

	(unaudited)
Balance as of December 31, 2019	496,131	$	82.08
Granted	126,834	75.96
Vested	(25,602)	80.27
Canceled	(33,355)	75.94
Balance as of June 30, 2020	564,008	$	81.15

On May 26, 2020, the Board of Directors approved and granted 1,695,574 market-based restricted stock units (“MSUs”) under the 2018 Plan to each of the Company's Chief Executive Officer and the Company's President and Chief Operating Officer, which is subject to the achievement of market-based share price goals established by the Board of Directors. The MSUs consist of three separate tranches and the vesting of each tranche is subject to the Company's common stock closing price being maintained at or above a predetermined share price goal for a period of 30 consecutive calendar days. The share price goal can be met any time during the seven-year performance period from the date of grant. Upon vesting, the MSUs must be held for a period of six to twelve months depending on the time of vesting within the seven-year performance period. The vesting of the MSUs can also be triggered upon a change in control event and achievement of a certain change in control price goal, or when there is a qualifying termination or in the event of death or disability. The following table presents additional information relating to each MSU award:

The grant date fair values of the MSUs were determined using a Monte Carlo valuation model for each tranche. The related stock-based compensation expense for each tranche is recognized based on an accelerated attribution method over the estimated derived service period. If the related share price goal is achieved earlier than its expected derived service period, the stock-based compensation expense will be recognized as a cumulative catch-up expense from the grant date to that point in time in achieving the share price goal. The derived service period is the median duration of the successful stock price paths to meet the price goal for each tranche as simulated in the Monte Carlo valuation model. The Monte Carlo valuation model uses assumptions such as volatility, risk-free interest rate, cost of equity and dividend estimated for the performance period of the MSU. The weighted average grant date fair value of the MSUs was $67.00 and the weighted average derived service period was estimated to be in the range of 0.83 – 2.07 years.

Stock-based compensation recorded for the MSUs for the three months ended June 30, 2020 was $18.3 million and is recorded in general and administrative expenses in our condensed consolidated statement of operations. Future stock-based compensation for unvested MSUs as of June 30, 2020 was $208.9 million, which is expected to be recognized over a weighted-average period of 1.3 years. In the event of a change in control, a qualifying termination, death, disability or the share price goal occurring earlier than the estimated derived service period, the stock-based compensation relating to these MSUs could be accelerated. Any MSUs that remain unvested at the end of the seven-year performance period will automatically be forfeited and terminated without further consideration.


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019

	(unaudited)
	(in thousands)
Cost of precision oncology testing	$	407	$	126	$	710	$	296
Research and development expense	2,622		1,428		4,986		2,638
Sales and marketing expense	2,167		646		3,965		1,472
General and administrative expense	20,619		1,015		22,492		1,992
Total stock-based compensation expense	$	25,815	$	3,215	$	32,153	$	6,398

Three Months Ended
June 30,

Six Months Ended
June 30,

2020

2019

2020

2019

(unaudited)

Expected term (in years)

5.50 – 6.10

5.50 – 6.16

5.50 – 6.10

5.50 – 6.22

Expected volatility

66.5% – 68.5%

66.9% – 68.3%

66.5% – 73.3%

66.7% – 68.3%

Risk-free interest rate

0.4% – 0.4%

1.9%

0.4% – 1.6%

1.9% – 2.7%

Expected dividend yield

—%

The determination of the fair value of stock options on the date of grant using a Black-Scholes option-pricing model is affected by the estimated fair value of the Company’s common stock, as well as assumptions regarding a number of variables that are complex, subjective and generally require significant judgment to determine. The valuation assumptions were determined as follows:

The expected term represents the period that the options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term.

Prior to the commencement of trading of the Company’s common stock on the Nasdaq Global Select Market on October 4, 2018 in connection with the IPO, there was no active trading market for the Company's common stock. Due to limited historical data for the trading of the Company’s common stock, expected volatility is estimated based on the average volatility for comparable publicly traded peer group companies in the same industry plus the Company's expected volatility for the available periods. The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty.

The estimated fair value of the MSUs was determined using a Monte Carlo simulation model. The valuation assumptions used were substantially consistent with the assumption used to value stock options with the exception of the following:

Due to limited historical data for the trading of the Company’s common stock, expected volatility is estimated based on the average volatility for comparable publicly traded peer group companies and implied volatility of publicly traded options in the same industry plus the Company's expected volatility for the available periods. The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty.

The following assumptions were used to calculate the stock-based compensation for MSUs: a weighted-average expected term of 0.83 – 2.07 years; expected volatility of 65.5%; a risk-free interest rate of 0.5%; a zero dividend yield; a risky rate (cost of equity) of 16%; and a discount for post-vesting restrictions of 10.4% – 14.5%.

In September 2018, the Company’s Board of Directors adopted and its stockholders approved the 2018 Employee Stock Purchase Plan (the “ESPP”). A total of 922,250 shares of common stock were initially reserved for issuance under the ESPP. Effective as of January 1, 2020, an additional 942,614 shares of common stock became available for issuance under the ESPP, as a result of the operation of an automatic annual increase provision therein.

Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to 10% of their earnings for the purchase of the Company’s common stock at a discounted price per share. The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of the Company’s common stock on the first or last day of the offering period, whichever is lower. The initial offering period ran from October 2, 2018 to January 31, 2019, the second offering period ran from February 1, 2019 to July 31, 2019, and the third offering period began on August 1, 2019 and ran to November 14, 2019. For subsequent years starting with 2020, the ESPP provides for separate six-month offering periods beginning on May 15 and November 15 of each year.

Shares of common stock purchased under the ESPP were 58,164 and nil for the three months ended June 30, 2020 and 2019, respectively, and 58,164 and 119,702 for the six months ended June 30, 2020 and 2019, respectively. The total compensation expense related to the ESPP was $1.1 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively, and $1.6 million and $1.0 million for the six months ended June 30, 2020 and 2019, respectively.

The fair value of the stock purchase right granted under the ESPP was estimated on the first day of each offering period using the Black-Scholes option pricing model. The valuation assumptions used were substantially consistent with the assumption used to value stock options with the exception of the expected term which was based on the term of each purchase period.

No ESPP shares were granted for the three months ended June 30, 2019. The grant date fair value of the stock purchase right granted under the ESPP was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions:


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019

	(unaudited)
Expected term (in years)	0.5	0.5	0.5	0.5
Expected volatility	73.2%	60.2%	73.2%	60.2%
Risk-free interest rate	0.2%	2.5%	0.2%	2.5%
Expected dividend yield	—%	—%	—%	—%

The Company allowed certain stock option holders to exercise unvested options to purchase shares of the Company’s common stock. Shares received from such early exercises are subject to repurchase in the event of the optionee’s employment termination, at the original issuance price, until the options are fully vested. As of June 30, 2020 and December 31, 2019, 18,447 shares and 23,981 shares of common stock were subject to repurchase at weighted-average price of $4.66 per share. As of June 30, 2020 and December 31, 2019, the cash proceeds received for unvested shares of common stock of $0.1 million and $0.1 million, respectively, was recorded within other long-term liabilities on the condensed consolidated balance sheet, respectively. The shares issued pursuant to unvested options have been included in shares issued and outstanding on the condensed consolidated balance sheet and condensed consolidated statement of redeemable noncontrolling interest and stockholders’ equity as such shares are considered legally outstanding.