Note G—Share-Based Compensation

[1] Stock Options:

In March 2015, the Company adopted its 2015 Equity Incentive Plan (the ‘‘2015 Plan’’), under which 7,500,000 of the Company’s common shares were originally reserved for grant. In May 2015, the Company’s Board of Directors amended the 2015 Plan to increase the number of common shares authorized for issuance thereunder to 9,500,000 common shares. The amendment of the 2015 Plan became effective upon the execution of the underwriting agreement relating to the Company’s IPO (see Note F[2]).

At June 30, 2015, a total of 4,769,527 common shares were available for future issuance under the 2015 Plan.

The following table summarizes the stock options granted during the three months ended June 30, 2015:

	Grant Date	Number of Options	Exercise Price		Fair Value Price		Vesting Terms	Assumptions used in Black-Scholes option pricing model
Employees	April 13, 2015	487,500	$	1.04	$	15.00	Over 4.0 years	Volatility	75.00%
								Risk free interest rate	1.55%
								Expected term, in years	6.25
								Dividend yield	0.00

Consultants	April 13, 2015	40,000	$	1.04	$	15.00	Over 4.0 years	Volatility	101%
								Risk free interest rate	2.35%
								Remaining expected term, in years	9.79
								Dividend yield	0.00

Directors and Employees	June 22, 2015	190,473	$	20.09	$	20.09	Over 3.0 - 4.0 years	Volatility	85.5%
								Risk free interest rate	1.89%
								Expected term, in years	6.0 – 6.25
								Dividend yield	0.00

A summary of the Company’s stock option activity and related information is as follows:

	Number of Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Options outstanding at March 31, 2015	4,012,500		$	0.90	$	15.00	9.96	$	56,576,250
Granted	717,973		6.09		16.65
Exercised	—		—
Forfeited	—		—
Cancelled	—		—

Options outstanding at June 30, 2015	4,730,473		$	1.69	$	15.59	9.74	$	69,643,037

Options exercisable at June 30, 2015		4,615,000	$	1.23	$	15.48	9.73	$	67,946,480

For the three months ended June 30, 2015 the Company recorded share-based compensation expense related to stock options issued to employees and directors of $3,736,000. The Company recorded in the same period approximately $445,000 of share-based compensation expense related to stock options issued to non-employees (Note E[2]). This share-based compensation expense is included in research and development and general and administrative expenses in the accompanying condensed consolidated statement of operations.

In connection with the Company’s IPO and after preliminary discussions with the underwriters, the Company reassessed the determination of the fair value of the common shares underlying 4,012,500 stock options granted in March 2015 and 527,500 stock options granted in April 2015. As a result, the Company determined that the fair value of the common shares as of April 13, 2015 was $15.00 per share, which was higher than the fair values of $0.90 per share and $1.04 per share as initially determined by the Board of Directors on the dates of grant in March 2015 and April 2015, respectively. Prior to the IPO, the fair value of the Company’s common shares underlying our stock options was estimated on each grant date by the board of directors. In order to determine the fair value of the Company’s common shares underlying granted stock options, the board of directors considered, among other things, timely valuations of the common shares prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The use of this higher share price increased both recognized and unrecognized share-based compensation expense and also impacted the valuation of the BVC restricted share compensation expense under the Services Agreement discussed in Note E[1].

At June 30, 2015, total unrecognized compensation expense related to non-vested options was $64,947,600 and is expected to be recognized over the remaining weighted-average service period of 3.73 years.

[2] BVC Restricted Stock Awards:

An employee of the Company, while previously employed by RSI, was granted restricted common stock (the “Awards”) in BVC. BVC is a non-public entity, which holds a non-controlling ownership interest in RSL, the Company’s controlling investor. As such, because the Awards are not based on the Company’s shares, they are remeasured at fair value at each reporting period until the Awards vest. Significant judgment and estimates were used to estimate the fair value of these Awards. The Company’s estimation of fair value of the Awards considered recent transactions entered into by the Company, relevant industry and comparable public company data, as well as discounted cash flow analyses. As BVC is a non-public entity, the majority of the inputs used to estimate the fair value of the Awards are considered level 3 due to their unobservable nature. Each Award is subject to specified vesting schedules and requirements (a mix of time-based, performance-based and corporate event-based, including post-IPO market capitalization and financing events). Compensation expense will be recognized by the Company over the required service period to earn the award, which is expected to be 3.28 years, subject to the achievement of performance and event-based vesting requirements.

At June 30, 2015, the remaining weighted average requisite service period over which the Awards could be earned was 3.02 years. For the three months ended June 30, 2015, the Company has recorded share-based compensation expense of approximately $52,000 related to the Awards, which the Company has recorded as research and development expense in the condensed consolidated statement of operations.

At June 30, 2015, total unrecognized compensation expense related to non-vested Awards was approximately $972,000 and is expected to be recognized over the remaining weighted-average service period of 3.02 years.