Note 9. Stock-Based Compensation

Equity Compensation Plans

2013 Stock Incentive Plan

The Company's board of directors adopted the 2013 Stock Incentive Plan (as amended to date, the “2013 Plan”), which was approved by the Company’s stockholders effective July 26, 2013. The 2013 Plan is intended to further align the interests of the Company and its stockholders with its employees, including its officers, non-employee directors, consultants and advisers by providing equity-based incentives. The 2013 Plan allows for the issuance of up to such number of shares of the Company’s common stock as equal to (i) 3,153,057 shares of common stock; plus (ii) such additional number of shares of common stock (up to 868,372 shares) as is equal to the sum of the number of shares of common stock subject to awards granted under the Company’s 2005 Stock Incentive Plan (the “2005 Plan”) or the Company’s 2008 Stock Incentive Plan (the “2008 Plan” and, together with the 2005 Plan, the “Existing Plans”) which awards expire, terminate or are otherwise surrendered, canceled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right (subject, however, in the case of incentive stock options to any limitations of the Internal Revenue Code).

As of June 30, 2018, options to purchase a total of 2,050,232 shares of common stock were outstanding and up to 1,308,485 shares of common stock remained available for grant under the 2013 Plan. The Company has not made any awards pursuant to other equity incentive plans, including the Existing Plans, since the Company’s stockholders approved the 2013 Plan. As of June 30, 2018, options to purchase a total of 511,093 shares of common stock were outstanding under these earlier plans.

In addition, as of June 30, 2018, non-statutory stock options to purchase an aggregate of 393,750 shares of common stock were outstanding that were issued outside of the 2013 Plan to certain employees in 2017, 2015 and 2014 pursuant to the Nasdaq inducement grant exception as a material component of new hires’ employment compensation.

2017 Employee Stock Purchase Plan

The Company’s board of directors adopted the 2017 Employee Stock Purchase Plan (the “2017 ESPP”) which was approved by the Company’s stockholders and became effective on June 7, 2017. The 2017 ESPP provides for the issuance of up to 62,500 shares of common stock to participating employees of the Company or its subsidiaries. Participation is limited to employees that would not own 5% or more of the total combined voting power or value of the stock of the Company after the grant. As of June 30, 2018, 44,006 shares remained available for issuance under the 2017 ESPP.

Note 9. Stock-Based Compensation (Continued)

For the six months ended June 30, 2018 and 2017, the Company issued 13,112 and 10,418 shares of common stock, respectively, under the 2017 ESPP and the Company’s 1995 Employee Stock Purchase Plan and received proceeds of approximately $0.2 million and $0.1 million during each period, respectively, as a result of employee stock purchases.

Accounting for Stock-based Compensation

The Company recognizes non-cash compensation expense for stock-based awards under the Company’s equity incentive plans over an award’s requisite service period, or vesting period, using the straight-line attribution method, based on their grant date fair value determined using the Black-Scholes option-pricing model. The Company also recognizes non-cash compensation for stock purchases made under the 2017 ESPP. The fair value of the discounted purchases made under the Company’s 2017 ESPP is calculated using the Black-Scholes option-pricing model. The fair value of the look-back provision plus the 15% discount is recognized as compensation expense over each plan period.

Total stock-based compensation expense attributable to stock-based payments made to employees and directors and employee stock purchases included in operating expenses in the Company's statements of operations for the three and six months ended June 30, 2018 and 2017 was as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2018		2017		2018		2017
Stock-based compensation:
Research and development
Employee Stock Purchase Plans	$	29	$	20	$	51	$	42
Equity Incentive Plans		520		4,627		1,076		5,341
	$	549	$	4,647	$	1,127	$	5,383
General and administrative
Employee Stock Purchase Plans	$	18	$	11	$	32	$	30
Equity Incentive Plans		971		1,100		1,968		2,129
	$	989	$	1,111	$	2,000	$	2,159
Total stock-based compensation expense	$	1,538	$	5,758	$	3,127	$	7,542

During the six months ended June 30, 2018 and 2017, the weighted average fair market value of stock options granted was $9.76 and $8.00, respectively. The following weighted average assumptions apply to the options to purchase 569,199 and 488,915 shares of common stock granted to employees and directors during the six months ended June 30, 2018 and 2017, respectively:


	Six Months Ended
	June 30,
	2018		2017
Average risk free interest rate		2.2%		1.7%
Expected dividend yield		—		—
Expected lives (years)		3.9		4.0
Expected volatility		75.6%		86.9%
Weighted average exercise price (per share)	$	17.42	$	12.80

All options granted during the six months ended June 30, 2018 were granted at exercise prices equal to the fair market value of the common stock on the dates of grant.

Note 9. Stock-Based Compensation (Continued)

Stock Option Activity

The following table summarizes stock option activity for the six months ended June 30, 2018:


($ in thousands, except per share data)	Stock Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2017	2,675,184	$	23.52	6.5	$	5,805
Granted	569,199		17.42
Exercised	(858)		12.77
Forfeited	(162,420)		19.04
Expired	(126,030)		55.07
Outstanding at June 30, 2018 (1)	2,955,075	$	21.25	6.6	$	1,191
Exercisable at June 30, 2018	1,901,703	$	22.98	5.4	$	1,190

(1)

Includes both vested stock options as well as unvested stock options for which the requisite service period has not been rendered but that are expected to vest based on achievement of a service condition.

The fair value of options that vested during the six months ended June 30, 2018 was $3.8 million. As of June 30, 2018, there was $9.6 million of unrecognized compensation cost related to unvested options, which the Company expects to recognize over a weighted average period of 2.4 years.