8. Stockholders’ Equity and Stock-Based Compensation

Preferred Stock

The Company has authorized a total of 50,000,000 shares of preferred stock, par value $0.001 per share, none of which were outstanding at December 31, 2018 and 2017. The Company’s Board of Directors has the authority to issue preferred stock and to determine the rights, preferences, privileges, and restrictions, including voting rights, without any further vote or action by the Company’s stockholders.

Common Stock

The Company has authorized a total of 500,000,000 shares of common stock, par value $0.001 per share.

Initial Public Offering

During May 2016 through June 2016, the Company closed its initial public offering (“IPO”), whereby the Company sold 5,749,846 shares of common stock at $4.00 per share. The Company received net proceeds of approximately $20.3 million from the IPO, including proceeds from the exercise of the overallotment option granted to the underwriters, net of underwriting discounts and commissions and other offering costs.

Private Placements

During February 2017, the Company entered into a securities purchase agreement, pursuant to which the Company, in a private placement, issued and sold an aggregate of 819,673 shares of the Company’s common stock, par value $0.001 per share, at a price per share of $6.10, for net proceeds of approximately $5.0 million.

During September 2017, the Company entered into a securities purchase agreement with an existing investor, pursuant to which the Company, in a private placement, issued and sold an aggregate of 2,000,000 shares of the Company’s common stock, par value $0.001 per share, at a price per share of $15.02, for net proceeds of approximately $29.9 million.

Rights Offering

On October 25, 2018, the Company commenced a rights offering pursuant to which stockholders of record as of November 19, 2018, were issued, at no charge, one subscription right for each share of common stock then outstanding. Each right entitled the holder to purchase 0.19860755 share of the Company’s common stock for $12.57 per share (the “Rights Offering”).

Stockholders who exercised their rights in full were also permitted an over-subscription right to purchase additional shares of common stock that remained unsubscribed at the expiration of the Rights Offering, subject to the availability of shares and a pro rata allocation of shares among persons exercising the oversubscription right.

Upon the closing of the Rights Offering on December 6, 2018, the Rights Offering was oversubscribed. A total of 3,581,148 shares of the Company’s common stock were issued and sold in the Rights Offering for net proceeds of approximately $44.8 million. Robert W. Duggan, the Company’s Chairman of the Board of Directors and the beneficial owner of approximately 35% of the Company’s outstanding common stock prior to the Rights Offering, participated in the Rights Offering and purchased an aggregate of 3,146,226 shares for an additional investment of approximately $39.5 million.

Common Stock Warrants

In connection with a private placement offering of the Company’s shares of common stock, par value $0.001 per share in 2014, the Company issued warrants as compensation to the placement agent to purchase a total of 299,625 shares of its common stock at a price of $2.67 per share (the “Private Placement Warrants”). The Private Placement Warrants are exercisable for a period of seven years. As of December 31, 2018, there were a total of 91,876 of Private Placement Warrants outstanding.

In connection with the closing of the Company’s initial public offering in 2016, the Company issued warrants as compensation to its underwriters, as representatives of the underwriters of its initial public offering to purchase a total of 574,985 shares of its common stock at a price of $5.00 per share (“the IPO Warrants”). The IPO Warrants are exercisable for a period of five years. As of December 31, 2018, there were a total of 121,609 of the IPO Warrants outstanding.

A summary of warrant activity for the year ended December 31, 2018 is presented below:



				Weighted
				Average
		Weighted		Remaining
	Number of	Average		Contractual
	Shares	Exercise Price		Life (in Years)
Warrants outstanding at December 31, 2017	249,709	$	4.14	3.56
Issued	—
Exercised	(36,224)		5.00
Expired/terminated	—
Warrants outstanding and exercisable at December 31, 2018	213,485	$	4.00	2.37

During the year ended December 31, 2018, warrants to purchase 36,224 shares of common stock were net exercised, resulting in the issuance of approximately 23,957 shares of common stock.

The intrinsic value of exercisable in-the-money stock warrants was approximately $1.6 million as of December 31, 2018.

Equity Plans

2017 Equity Incentive Plan and 2017 Inducement Equity Incentive Plan

The Board of Directors (the “Board”) of the Company previously adopted, and the Company’s stockholders approved, the Company’s 2017 Equity Incentive Plan (the “2017 Plan”).

The 2017 Plan has a 10-year term, and provides for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and performance shares to employees, directors and consultants of the Company and any parent or subsidiary of the Company, as the Compensation Committee of the Board may determine. Subject to an annual evergreen increase and adjustment in the case of certain capitalization events, the Company initially reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to awards under the 2017 Plan. In addition, shares remaining available under the Company’s 2015 Equity Incentive Plan, as amended (the “2015 Plan”), and shares reserved but not issued pursuant to outstanding equity awards that expire or terminate without being exercised or that are forfeited or repurchased by the Company will be added to the shares of common stock available for issuance under the 2017 Plan. The 2017 Plan is administered by the Board’s Compensation Committee. Effective January 1, 2019, the number of shares of common stock available under the 2017 Plan increased by 823,716 shares pursuant to the evergreen provision of the 2017 Plan. Pursuant to the 2017 Plan, the 2019 share increase is determined based on the least of (i) 1,200,000 shares, (ii) 4% of the Company’s common stock outstanding at December 31 of the immediately preceding year, or (iii) such number of shares as determined by the Board. As of December 31, 2018, 539,436 shares of common stock remained available for issuance under the 2017 Plan.

During November 2017, the Board of the Company adopted the 2017 Inducement Equity Incentive Plan (the “Inducement Plan”) and reserved 1,000,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan was adopted without stockholder approval.

The Inducement Plan has a 10-year term, and provides for the grant of equity-based awards, including nonstatutory stock options, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the 2017 Plan, including with respect to treatment of equity awards in the event of a “merger” or “change in control” as defined under the Inducement Plan. Options issued under the Inducement Plan may have a term up to ten years and have variable vesting provisions. New hire grants generally vest 25% upon the first anniversary of the grant and 1/48th monthly thereafter, over the subsequent 36 months. Equity-based awards issued under the Inducement Plan are only issuable to individuals not previously engaged as employees or non-employee directors of the Company prior to the Inducement Plan’s adoption date. As of December 31, 2018, 541,625 shares of common stock were available for issuance under the Inducement Plan.

2017 Employee Stock Purchase Plan

The Board previously adopted and the stockholders approved the Company’s 2017 Employee Stock Purchase Plan (the “2017 ESPP”).

The 2017 ESPP is a broad-based plan that provides employees of the Company and its designated affiliates with the opportunity to become stockholders through periodic payroll deductions that are applied towards the purchase of Company common shares at a discount from the then-current market price. Subject to adjustment in the case of certain capitalization events, a total of 250,000 common shares of the Company were available for purchase at adoption of the 2017 ESPP. In January 2019, the Board determined not to increase the number of shares of common stock available under the 2017 ESPP pursuant to the evergreen provision of the 2017 ESPP. Pursuant to the 2017 ESPP, the annual share increase pursuant to the evergreen provision is determined based on the least of (i) 450,000 shares, (ii) 1.5% of the Company’s common stock outstanding at December 31 of the immediately preceding year, or (iii) such number of shares as determined by the Board. During the year ended December 31, 2018, the Company issued 23,869 shares of common stock under the 2017 ESPP. As of December 31, 2018, 478,474 shares of common stock remained available for issuance under the 2017 ESPP.

A summary of stock option activity under the 2015 Plan, 2017 Plan and Inducement Plan for the year ended

December 31, 2018 is presented below:



				Weighted
		Weighted		Average
		Average		Remaining
	Number of	Exercise		Contractual
	Shares	Price		Life (in Years)
Balances - December 31, 2017	2,598,659	$	16.88	8.2
Options granted	657,375		15.18
Options exercised	(144,508)		3.44
Options canceled	(147,839)		19.04
Options expired	(7,000)		19.99
Balances - December 31, 2018	2,956,687	$	17.04	7.6
Stock options exercisable at December 31, 2018	1,513,617	$	15.70	6.6

The exercise prices of stock options outstanding and exercisable are as follows at December 31, 2018:



Options Outstanding				Options Exercisable
		Weighted average
	Number	remaining contractual	Weighted average	Number	Weighted average
Exercise Price	outstanding	life (in years)	exercise price	vested	exercise price
$2.67 - $4.28	732,842	6.0	$ 3.84	579,735	$ 3.79
$4.67 - $7.55	218,359	7.7	5.27	105,633	5.42
$11.00 - $16.52	471,375	9.6	13.49	53,634	14.71
$19.35 - $30.99	1,534,111	7.7	26.12	774,615	26.08
	2,956,687	7.6	$ 17.04	1,513,617	$ 15.70

The tables above exclude 42,500 performance stock options granted during the year ended December 31, 2018 for which the performance criteria had not been established as of December 31, 2018.

The intrinsic value of stock options exercised during the year ended December 31, 2018, 2017 and 2016 was $1.8 million, $3.8 million, and $0, respectively.

The fair value of employee stock options was estimated using the Black-Scholes option-pricing model utilizing the following assumptions:



	Year Ended December 31,
	2018		2017		2016
Expected term in years		5.3 - 6.1		0.4 - 6.1		6.1
Expected volatility		70%		70% - 90%		80%
Risk-free interest rate		2.6 - 3.0%		1.0% - 2.2%		1.2% - 1.5%
Dividend yield		—		—		—

The fair value of the stock options granted to employees and directors during the years ended December 31, 2018, 2017 and 2016, calculated pursuant to the Black-Scholes option-pricing model, was $6.4 million, $26.8 million, and $1.2 million, respectively.

The fair value of ESPP was estimated using the Black-Scholes option-pricing model utilizing the following assumptions:


	Year Ended December 31,
	2018		2017		2016
Expected term in years		0.5 - 1.0		0.5 - 1.3		—
Expected volatility		70%		95%		—
Risk-free interest rate		1.9% - 2.5%		1.1% - 1.2%		—
Dividend yield		—		—		—

Total stock-based compensation expense consisted of the following (in thousands):


	Year Ended December 31,
	2018		2017		2016
General and administrative	$	9,004	$	9,136	$	674
Research and development		3,334		1,790		196
Total stock-based compensation expense	$	12,338	$	10,926	$	870

The fair value of restricted stock unit (“RSUs”) awards is determined based on the number of units granted and the closing price of the Company’s common stock as of the grant date. The estimated fair value of RSUs is recognized on a straight-line basis over the requisite service period. During 2017, the Company granted 160,974 RSUs all of which vested pursuant to which no shares were issued, during June 2018. Additional paid in capital was reduced by $0.1 million for tax payments related to shares withheld in connection with the vesting of the RSUs. The stock-based compensation expense related to these RSUs was approximately $2.1 million and $2.9 million during the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, there was no unrecognized compensation expense related to these RSUs.

During the year ended December 31, 2017, the Company granted 68,800 RSUs to certain employees which vest 50% on June 1, 2019 with the remaining 50% vesting on June 1, 2021. In the event of a change in control, these RSUs vest 100%. The stock-based compensation expense recorded in 2018 and 2017 related to these RSUs was approximately $0.4 million and $0.1 million, respectively. As of December 31, 2018, there was $0.9 million of unrecognized compensation expense related to these RSUs.

During November 2017, the Board of Directors of the Company accepted resignations of certain members of its board of directors resulting in the full vesting of their outstanding equity awards. This resulted in the Company recording an additional $1.2 million of stock-based compensation expense for the year ended December 31, 2017.

At December 31, 2018, there was $17.1 million of unrecognized compensation cost related to unvested stock-based compensation arrangements, which is expected to be recognized over a weighted average period of 2.3 years.