Stock-Based Awards

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

2017 Equity Incentive Plan

The Company's 2017 Stock Option and Incentive Plan (the 2017 Plan) provides for the grant of equity-based incentive awards. The number of shares initially reserved for issuance of awards under the 2017 Plan was 2,655,831 shares of common stock and may be increased by the number of shares under the 2015 Equity Incentive Plan (the 2015 Plan) and the 2017 Plan

that are forfeited, cancelled, repurchased by the Company, or otherwise surrendered. The 2017 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2018, by 4% of the outstanding number of shares of our common stock on the immediately preceding December 31, or such lesser number of shares as determined by the Compensation Committee of the Company's Board of Directors. As of December 31, 2019, 994,282 remained available for issuance under the 2017 Plan. The number of shares reserved for issuance under the 2017 Plan was increased by 2,064,706 shares effective January 1, 2020.

2015 Equity Incentive Plan

Under the 2015 Plan the Company was authorized to sell or issue common shares or restricted common shares, or to grant options for the purchase of common shares, share appreciation rights (SARs) and other awards, to employees, members of the board of directors, consultants, and advisors of the Company. Upon effectiveness of the 2017 Plan no further awards were available to be issued under the 2015 Plan.

Both the 2017 and 2015 Plans provide that they be administered by the board of directors or, at the discretion of the board of directors, by a committee of the board of directors. The exercise prices for stock options may not be less than 100% of the fair market value of the common stock on the date of grant and the term of awards may not be greater than ten years. The Company bases fair value of common stock on the quoted market price. Vesting periods are determined at the discretion of the board of directors. Awards granted to employees and directors typically vest over four years.

2017 Employee Stock Purchase Plan

The 2017 Employee Stock Purchase Plan (the ESPP) initially reserved and authorized the issuance of up to 306,750 shares of common stock to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2018 and each January 1 thereafter through January 1, 2027, by the least of (i) 1% of the outstanding number of shares of common stock on the immediately preceding December 31; (ii) 400,000; shares or (iii) such number of shares as determined by the ESPP administrator. As of December 31, 2019, 1,009,433 remained available for issuance under the ESPP Plan. The number of shares reserved for issuance under the ESPP was increased by 400,000 shares effective January 1, 2020.

As of December 31, 2019, no offering periods have commenced under the ESPP.

Stock Option Valuation

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of the Company's common stock and assumptions for the volatility of its common stock, the expected term of stock-based awards, the risk-free interest rate for a period that approximates the expected term of stock-based awards, and the expected dividend yield. Prior to October 2017, the Company was privately-held and lacked company-specific historical and implied volatility information. Therefore, it estimates its expected share volatility based on the historical volatility of a set of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The Company estimated the expected term of its options using the "simplified" method for awards that qualify as "plain-vanilla" options. For options that do not qualify as "plain-vanilla", the Company estimated the expected term using the average of vesting date and expiration date as it believes there is no better estimate of expected term. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common shares and does not expect to pay any cash dividends in the foreseeable future.

The assumptions that the Company used to determine the fair value of options granted to employees and directors were as follows, presented on a weighted average basis:


	Year Ended December 31,
	2019		2018		2017
Risk-free interest rate	2.2	%	2.8	%	1.9	%
Expected term (in years)	6.2		6.1		6.0
Expected volatility	74.5	%	73.3	%	78.3	%
Expected dividend yield	0	%	0	%	0	%

The following table summarizes the Company's option activity from January 1, 2019 to December 31, 2019:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2018	5,787,151	$	10.92
Granted	3,067,718	$	28.77
Exercised	(1,504,583)	$	4.49
Forfeited/Expired	(599,347)	$	23.40
Outstanding as of December 31, 2019	6,750,939	$	19.36	8.0	$	289,615
Options vested and expected to vest as of December 31, 2019	6,750,939	$	19.36	8.0	$	289,615
Options exercisable as of December 31, 2019	3,052,876	$	10.62	6.9	$	157,592

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company's common shares for those options that had exercise prices lower than the fair value of the Company's common shares. The aggregate intrinsic value of options exercised during the years ended December 31, 2019 and 2018 was $53.2 million and $4.4 million, respectively. There were no option exercises during the year ended December 31, 2017.

The weighted average grant-date fair value per share of options granted during the years ended December 31, 2019, 2018, and 2017 was $19.22, $19.68, and $7.63, respectively.

Restricted Stock Units

The 2017 Plan provides for the award of restricted stock units. During 2019 and 2018, the Company granted restricted stock units to employees that were subject to time-based vesting conditions that lapse between one year and four years from date of grant, assuming continued employment.

During 2019, the Company also granted 57,400 restricted stock units at a weighted average grant date fair value of $34.43 that were subject to performance-based vesting conditions. Vesting of the performance-based restricted stock units are contingent upon meeting certain performance obligations and continued employment through the service period. No performance-based restricted units vested and no performance-based restricted units were forfeited during 2019.

All restricted stock units currently granted have been classified as equity instruments as their terms require settlement in shares. Restricted stock units with time-based and performance-based vesting conditions are valued on the grant date using the grant date market price of the underlying shares. The Company granted no performance-based restricted units in 2018 and granted no restricted stock units in 2017.

The table below summarizes the Company's time-based restricted stock unit activity from January 1, 2019 to December 31, 2019:


	Number of Shares	Weighted Average Grant Date Fair Value
Unvested at December 31, 2018	25,000	$	33.43
Granted	87,000	$	29.03
Vested	(12,500)	$	33.43
Forfeited	—	$	—
Unvested at December 31, 2019	99,500	$	29.58

The fair value of time-based restricted stock units that vested during the year ended December 31, 2019 was $0.5 million. No restricted stock units vested during the years ended December 31, 2018 and 2017.

Stock-Based Compensation Expense

Stock-based compensation expense was classified in the statements of operations and comprehensive loss as follows:


	Year Ended December 31,
(in thousands)	2019		2018		2017
Research and development	$	7,934	$	4,021	$	1,320
Selling, general, and administrative	12,476		5,667		3,546
Total stock-based compensation	$	20,410	$	9,688	$	4,866

The following table summarizes share-based compensation expense associated with each of our share-based compensation arrangements:


	Year Ended December 31,
(in thousands)	2019		2018		2017
Stock options	$	19,328	$	9,578	$	4,866
Time-based restricted stock units	1,082		110		—
Total stock-based compensation expense	$	20,410	$	9,688	$	4,866

As of December 31, 2019, total unrecognized compensation cost related to the unvested share-based awards was $60.8 million, which is expected to be recognized over a weighted average of 2.7 years.

During the year ended December 31, 2019, the Company recorded $2.4 million of stock-based compensation expense related to the modification of stock options pursuant to the transition agreement with its former President and Chief Executive Officer, which was classified within selling, general, and administrative expenses in the statements of operations and comprehensive loss.

As of December 31, 2019, no expenses had been incurred related to performance-based restricted stock awards as the achievement of the related performance criteria was not probable.