Stock based compensation

9 Months Ended

Sep. 30, 2019

Stock based compensation

Stock based compensation

10. Stock-based compensation

2014 Stock Option and Grant Plan

In January 2014, the Company adopted the 2014 Stock Option and Grant Plan (the “2014 Plan”), under which it could grant incentive stock options, non-qualified stock options, restricted stock awards, unrestricted stock awards, or restricted stock units to purchase up to 823,529 shares of common stock to employees, officers, directors and consultants of the Company.

In April 2014, the Company amended the 2014 Plan to allow for the issuance of up to 1,411,764 shares of common stock. In August 2014, April 2015, August 2015, and October 2015, the Company further amended the 2014 Plan to allow for the issuance of up to 2,000,000, 2,047,058, 2,669,411, and 2,998,823 shares of common stock, respectively. During 2014 the Company issued only restricted stock awards under the 2014 Plan and during 2015 the Company only granted stock options under the 2014 Plan.

The terms of stock option agreements, including vesting requirements, were determined by the Board of Directors and were subject to the provisions of the 2014 Plan. Restricted stock awards granted by the Company generally vest based on each grantee’s continued service with the Company during a specified period following grant. Stock options granted to employees generally vest over four years, with 25% vesting on the one year anniversary and 75% vesting ratably, on a monthly basis, over the remaining three years. Stock options granted to non-employee consultants generally vest monthly over a period of one to four years.

Founder Awards

In January 2014, the Company issued 1,188,233 shares of restricted stock to its founders at an original issuance price of $0.0425 per share. Of the total restricted shares awarded to the founders, 835,292 shares generally vested over one to four years, based on each founder’s continued service to the Company in varying capacities as a Scientific Advisory Board member, consultant, director, officer or employee, as set forth in each grantee’s individual restricted stock purchase agreement. These shares were fully vested as of September 30, 2019. Stock-based compensation expense associated with these time-based awards was recognized over the vesting period.

The remaining 352,941 of the restricted shares issued begin vesting upon the achievement of certain performance objectives as well as continued service to the Company, as set forth in the agreements. These performance conditions are tied to certain milestone events specific to the Company’s corporate goals, including but not limited to preclinical and clinical development milestones related to the Company’s product candidates. Stock-based compensation expense associated with these performance-based awards is recognized when the achievement of the performance condition is considered probable, using management’s best estimates. During 2016, management determined that the achievement of the performance milestone for one of the three performance-based awards had become probable and began recognizing stock-based compensation accordingly. The Company recorded $0.1 million and $0.3 million in stock-based compensation expense related to this award during the three and nine months ended September 30, 2018, respectively. No stock-based compensation expense was recorded in 2019 related to this award as it was fully vested during 2018. No stock-based compensation expense was recorded for the remaining two founders’ awards with performance-based vesting as of September 30, 2019 as the performance-based milestones related to these awards were not probable.

2015 Stock Option Plan

In October 2015, the Company’s board of directors and stockholders approved the 2015 Stock Option and Incentive Plan (the “2015 Stock Option Plan”), which became effective upon the completion of the Company’s initial public offering (the “IPO”). The 2015 Stock Option Plan provides the Company with the flexibility to use various

equity-based incentive and other awards as compensation tools to motivate its workforce. These tools include stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance share awards and cash-based awards. The 2015 Stock Option Plan replaced the 2014 Plan. Any options or awards outstanding under the 2014 Plan remained outstanding and effective. The number of shares initially reserved for issuance under the 2015 Stock Option Plan is the sum of (i) 1,311,812 shares of common stock and (ii) the number of shares under the 2014 Plan that are not needed to fulfill the Company’s obligations for awards issued under the 2014 Plan as a result of forfeiture, expiration, cancellation, termination or net issuances of awards thereunder. The number of shares of common stock that may be issued under the 2015 Stock Option Plan is also subject to increase on the first day of each fiscal year by up to 4% of the Company’s issued and outstanding shares of common stock on the immediately preceding December 31.

Effective January 1, 2016, 2017, 2018, and 2019, an additional 1,069,971, 1,070,635, 1,285,200, and 1,302,830 shares, respectively, were added to the Company’s 2015 Stock Option Plan for future issuance. As of September 30, 2019, there were 2,002,018 shares of common stock available for future award grants under the 2015 Stock Option Plan. During the three and nine months ended September 30, 2019, the Company granted a total of 227,595 and 1,199,765 stock options, respectively, to employees and directors under the 2015 Stock Option Plan. During the three and nine months ended September 30, 2019, the Company awarded a total of 25,880 and 387,212 restricted stock units, respectively, to employees under the 2015 Stock Option Plan. During the three and nine months ended September 30, 2019, there were no new stock options issued or restricted stock units granted to non-employees other than to members of the Company’s board of directors under the 2015 Stock Option Plan.

2015 Employee Stock Purchase Plan

In October 2015, the Company’s board of directors and stockholders approved the 2015 Employee Stock Purchase Plan (the “2015 ESPP”). The 2015 ESPP became effective upon the closing of the IPO. Under the 2015 ESPP, all full-time employees of the Company are eligible to purchase common stock of the Company twice per year, at the end of each six-month payment period. During each payment period, eligible employees who so elect, may authorize payroll deductions in an amount of 1% to 10% (whole percentages only) of the employee’s base pay for each payroll period. At the end of each payment period, the accumulated deductions are used to purchase shares of common stock from the Company at a discount. A total of 262,362 shares of common stock were initially authorized for issuance under this plan. The number of shares of common stock that may be issued under the 2015 ESPP is also subject to increase on the first day of each fiscal year by up to 1% of the Company’s issued and outstanding shares of common stock on the immediately preceding December 31. Effective January 1, 2016, 2017, 2018, and 2019, 267,492, 267,658, 321,300, and 325,707 shares of common stock, respectively, were added to the 2015 ESPP.

Inducement Awards

In the three months ended September 30, 2019, no stock options were granted or restricted stock units issued outside of the Company’s 2015 Stock Option Plan. In the nine months ended September 30, 2019, the Company issued non-statutory stock options to purchase an aggregate of 338,750 shares of the Company’s common stock and restricted stock unit awards for an aggregate of 58,125 units of the Company’s common stock, respectively, in each case outside of the Company’s 2015 Stock Option Plan as an inducement material to such executive’s acceptance of an offer of employment with the Company in accordance with  Nasdaq Listing Rule 5635(c)(4). The stock options will vest over a four-year period, with 25% of the shares underlying the option award vesting on the first anniversary of the award and the remaining 75% of the shares underlying the award vesting monthly thereafter over the subsequent 36-month period. The restricted stock units will vest over a three-year period, with 33% of the restricted stock units vesting on the first anniversary, 33% of the restricted stock units vesting on the second anniversary, and the remaining restricted stock units vesting on the third anniversary.

Stock-Based Compensation Expense

Total compensation cost recognized for all stock-based compensation awards in the statements of operations and comprehensive loss is as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in thousands)
Research and development	$	1,304	$	1,176	$	5,975	$	3,706
General and administrative		2,045		1,460		6,145		9,366
Total stock-based compensation expense	$	3,349	$	2,636	$	12,120	$	13,072

Stock-based compensation expense by type of award included within the consolidated statements of operations and comprehensive loss was as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
	(in thousands)
Stock options	$	3,008	$	2,559	$	10,312	$	12,428
Restricted stock awards and units		259		24		1,609		480
Employee stock purchase plan awards		82		53		199		164
Total stock-based compensation expense	$	3,349	$	2,636		12,120		13,072

In June 2019, the Company entered into a consulting agreement (the “Sah Agreement”) with Dr. Dinah Sah, Ph.D., the Company’s former Chief Scientific Officer, pursuant to which Dr. Sah has agreed to provide consulting and advisory services, including but not limited to scientific guidance in connection with certain of the Company’s collaborations and research and development programs for a three-year period which commenced on June 28, 2019. In accordance with its terms, the Sah Agreement triggered an equity modification resulting in the recognition of $2.2 million of stock-based compensation expense related to the non-substantive service period of the Sah Agreement.

Restricted Stock Units

A summary of the status of and changes in unvested restricted stock unit activity under the Company’s equity award plans for the nine months ended September 30, 2019 was as follows:

		Weighted
		Average
		Grant Date
		Fair Value
	Units	Per Unit
Unvested restricted stock units as of December 31, 2018	—		—
Granted	445,337	$	11.65
Vested	—		—
Forfeited	(24,155)	$	9.25
Unvested restricted stock units as of September 30, 2019	421,182	$	11.79

Stock-based compensation of restricted stock units is based on the fair value of the Company’s common stock on the date of grant and recognized over the vesting period. The weighted average fair value of restricted stock units granted to employees during the three and nine months ended September 30, 2019 was $25.40 and $11.65 per share, respectively. The restricted stock units granted in the three and nine months ended September 30, 2019 vest in equal amounts, annually over three years. There were no restricted stock units granted to employees in the three and nine months ended September 30, 2018. The expense related to restricted stock units granted to employees was $0.3 million and $1.6 million for the three and nine months ended September 30, 2019, respectively.

As of September 30, 2019, the Company had unrecognized stock-based compensation expense related to its unvested restricted stock units of $3.7 million, which is expected to be recognized over the remaining average vesting period of 2.3 years.

Stock Options

The following is a summary of stock option activity for the nine months ended September 30, 2019:

		Weighted		Remaining	Aggregate
		Average		Contractual	Intrinsic
		Exercise		Life	Value
	Shares	Price		(in years)	(in thousands)
Outstanding at December 31, 2018	4,225,152	$	15.91
Granted	1,538,515	$	15.50
Exercised	(239,336)	$	10.89
Cancelled or forfeited	(288,783)	$	15.50
Outstanding at September 30, 2019	5,235,548	$	16.04	8.2	$	16,807
Exercisable at September 30, 2019	2,259,427	$	14.59	7.3	$	9,547
Vested and expected to vest at September 30, 2019	5,235,548	$	16.04	8.2	$	16,807

Using the Black–Scholes option pricing model, the weighted-average fair value of options granted to employees and directors during the three and nine months ended September 30, 2019 was $13.17 and $10.29 per share, respectively. The stock-based compensation expense related to options granted to employees and directors was $3.0 million and $10.4 million for the three and nine months ended September 30, 2019, respectively.

The weighted-average fair value of options granted to employees and directors during the three and nine months ended September 30, 2018 was $12.20 and $14.37 per share, respectively. The stock-based compensation expense related to awards granted to employees and directors was $2.5 million and $12.3 million for the three and nine months ended September 30, 2018, respectively.

The fair value of each option issued to employees and directors was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Risk-free interest rate	1.6	%	2.8	%	2.3	%	2.7	%
Expected dividend yield	—	%	—	%	—	%	—	%
Expected term (in years)	6.0		6.0		6.0		6.0
Expected volatility	74.1	%	74.5	%	74.9	%	74.4	%

There were no new equity awards granted to non-employees other than members of the Company’s board of directors during the three and nine months ended September 30, 2019. The stock-based compensation expense related to stock option awards previously granted to non-employees was $0.1 million for the three and nine months ended September 30, 2019. The stock-based compensation expense related to awards previously granted to non-employees was $0.1 million and $0.3 million for the three and nine months ended September 30, 2018, respectively.

As of September 30, 2019, the Company had unrecognized stock-based compensation expense related to its unvested stock options of $29.3 million which is expected to be recognized over the remaining weighted-average vesting period of 2.7 years.