SHARE-BASED COMPENSATION

Equity Incentive Plans

As of December 31, 2019, there were 1,305,678 options outstanding and no remaining equity awards available for future issuances under the 2008 Plan. All awards granted under the 2008 Plan that, after February 13, 2017, expire or terminate for any reason prior to exercise or settlement, are forfeited, or are reacquired, withheld, or not issued to satisfy a tax withholding obligation or to satisfy the exercise price of a stock award, will become available for grant under the 2016 Plan in accordance with its terms.

The 2016 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other stock awards, and performance awards that may be settled in cash, stock, or other property. All employees and non-employee directors are eligible to participate in the 2016 Plan and may receive all types of awards other than incentive stock options. Incentive stock options may be granted under the 2016 Plan only to employees (including officers) and employees of the Company’s affiliates.

The aggregate number of shares of Common Stock that may be issued under the 2016 Plan will not exceed 4,182,404 shares, which number is the sum of: (i) 1,681,294 shares, plus (ii) the number of shares subject to outstanding stock awards that were granted under the 2008 Plan, that, from and after February 13, 2017, expire or terminate for any reason prior to exercise or settlement, are forfeited because of the failure to meet a contingency or condition required to vest such shares, or are reacquired, withheld, or not issued to satisfy a tax withholding obligation in connection with an award or to satisfy the purchase price or exercise price of a stock award, if any, as such shares become available from time to time, plus (iii) shares from automatic increases to the share reserve, as described in more detail below. In accordance with the 2016 Plan, the share reserve will automatically increase on January 1 of each year, for a period of not more than ten years, commencing on January 1 of the year following the year in which the effective date of the 2016 Plan occurs, and ending on (and including) January 1, 2026, in an amount equal to 4% of the shares of Common Stock outstanding on December 31 of the preceding calendar year; however, the board of directors or compensation committee may act prior to January 1 of a given year to provide that there will be no January 1 increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of Common Stock than would otherwise occur pursuant to the automatic increase. On January 1, 2020, the share reserve automatically increased by 1,394,475 shares. Cumulative increases to the share reserve through January 1, 2020 consisted of 3,530,773 shares. As of December 31, 2019, there were outstanding stock options to purchase 2,190,922 shares of Common Stock and 1,826,218 shares of Common Stock available for issuance pursuant to the terms under the 2016 Plan.

Options granted under the 2008 Plan and the 2016 Plan have an exercise price equal to the market value of the Common Stock at the date of grant and expire ten years from the date of grant. Generally, options vest 25% on the first anniversary of the vesting commencement date and 75% ratably in equal monthly installments over the remaining 36 months. The Company has also granted options that vest in equal monthly or quarterly amounts over periods up to 48 months.

A summary of Common Stock option activity is as follows:



	Number of Options (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2017	2,863		$	4.85
Granted	1,108		$	7.37
Exercised	(280	)	$	0.65
Forfeited or expired	(164	)	$	9.52
Outstanding at December 31, 2018	3,527		$	5.76
Granted	1,078		$	2.89
Exercised	(143	)	$	0.60
Forfeited or expired	(965	)	$	5.39
Outstanding at December 31, 2019	3,497		$	5.19	5.91	$	—
Vested or expected to vest at December 31, 2019	3,497		$	5.19	5.91	$	—
Exercisable as of December 31, 2019	2,388		$	5.06	4.68	$	—
Vested as of December 31, 2019	2,388		$	5.06	4.68	$	—

The total intrinsic value of stock options exercised during the year ended December 31, 2019 and 2018 was $0.1 million and $1.6 million, respectively. Cash received from the exercise of stock options during the year ended December 31, 2019 and 2018 was approximately $0.1 million and $0.2 million, respectively.

Fair Value Assumptions

The Company uses the Black-Scholes option pricing model to estimate the fair value of stock options granted under its equity compensation plans. The Black-Scholes model requires inputs for risk-free interest rate, dividend yield, volatility, and expected lives of the options. Because the Company has a limited history of stock purchase and sale activity, expected volatility is based on historical data from public companies that are similar to the Company in size and nature of operations. The Company will continue to use similar entity volatility information until its historical volatility is relevant to measure expected volatility for option grants. The Company accounts for forfeitures as they occur. The risk-free rate for periods within the contractual life of each option is based on the U.S. Treasury yield curve in effect at the time of the grant for a period commensurate with the expected term of the grant. The expected term (without regard to forfeitures) for options granted represents the period of time that options granted are expected to be outstanding and is derived from the contractual terms of the options granted and expected option-exercise behaviors. The fair value of the underlying Common Stock is based on the closing price of the Common Stock on The Nasdaq Capital Market at the date of grant.

Stock Options Granted

The weighted-average grant-date fair value of options granted to the Company’s employees and members of its board of directors during the years ended December 31, 2019 and 2018 was $2.31 and $5.41, respectively. The fair value was determined by the Black-Scholes option pricing model using the following weighted-average assumptions:



	Year Ended December 31,
	2019			2018
Expected term, in years	6.35			6.35
Expected volatility	98.8		%	85.2		%
Risk-free interest rate	2.5		%	2.6		%
Expected dividend yield	—		%	—		%
Weighted-average exercise price	$	2.97		$	7.37

Employee Stock Purchase Plan

The 2016 Employee Stock Purchase Plan (“ESPP”) allows qualified employees to purchase shares of Common Stock at a price equal to 85% of the lower of: (i) the closing price at the beginning of the offering period or (ii) the closing price at the end of the offering period. The Company expects that a new 6-month offering period will begin each August 22 and February 22. As of December 31, 2019, the Company had 622,346 shares available for issuance and 121,890 shares had been issued under the ESPP.

Share-Based Compensation Expense

Share-based compensation related to all equity awards issued pursuant to the 2008 Plan and 2016 Plan and for estimated shares to be issued under the ESPP for the purchase periods active during each respective period is included in the consolidated statements of operations and comprehensive loss as follows:



	Year Ended December 31,
	2019		2018
	(in thousands)
Research and development	$	1,677	$	1,286
General and administrative	2,293		2,393
Total share-based compensation expense	$	3,970	$	3,679

As of December 31, 2019, the Company had $4.4 million of total unrecognized employee and non-employee share-based compensation costs, which the Company expects to recognize over a weighted-average remaining period of 2.09 years.