STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2020

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

6. STOCK-BASED COMPENSATION

Total stock-based compensation expense related to all of our stock-based awards was as follows (in thousands):

	Year Ended December 31,
	2020		2019		2018
Selling, general and administrative	$	5,223	$	6,453	$	5,383
Research and development		2,072		2,662		2,321
Total stock-based compensation expense	$	7,295	$	9,115	$	7,704

Employee Stock Option Plans

On May 16, 2018, our stockholders approved the adoption of the Company’s 2018 Equity Incentive Plan (2018 Plan). The 2018 Plan is the successor plan to the 2011 Equity Incentive Plan, the 2000 Equity Incentive Plan, and the 2000 Non-Employee Directors' Stock Option Plan. As of December 31, 2020, we have two stock option plans, our 2018 Plan and the Inducement Plan. The 2018 Plan provides for granting to our officers, directors and all other employees and

consultants options to purchase shares of our common stock. The Inducement Plan is intended mainly to provide an inducement material for certain individuals to enter into employment with the Company.

Options granted under our 2018 Plan expire no later than 10 years from the date of grant. Options may be granted with different vesting terms from time to time. As of December 31, 2020, a total of 40,914,675 shares of common stock were authorized for issuance under the 2018 Plan. Options granted under our Inducement Plan expire no later than 10 years from the date of grant and may be granted with different vesting terms from time to time. As of December 31, 2020, a total of 1,283,333 shares of common stock were authorized for issuance under the Inducement Plan.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. We have segregated option awards into the following three homogenous groups for the purposes of determining fair values of options: officers and directors, all other employees, and consultants. We account for forfeitures as they occur.

We determined weighted-average valuation assumptions separately for each of these groups as follows:

● Volatility—We estimated volatility using the historical share price performance over the expected life of the option up to the point where we have historical market data. We also considered other factors, such as implied volatility, our current clinical trials and other company activities that may affect the volatility of our stock in the future. We determined that at this time historical volatility is more indicative of our expected future stock performance than implied volatility.

● Expected term—For options granted to consultants, we use the contractual term of the option, which is generally 10 years, for the initial valuation of the option and the remaining contractual term of the option for the succeeding periods. We analyzed various historical data to determine the applicable expected term for each of the other option groups. This data included: (1) for exercised options, the term of the options from option grant date to exercise date; (2) for cancelled options, the term of the options from option grant date to cancellation date, excluding non-vested option forfeitures; and (3) for options that remained outstanding at the balance sheet date, the term of the options from option grant date to the end of the reporting period and the estimated remaining term of the options. The consideration and calculation of the above data gave us reasonable estimates of the expected term for each employee group. We also considered the vesting schedules of the options granted and factors surrounding exercise behavior of the option groups, our current market price and company activity that may affect our market price. In addition, we considered the optionee type (i.e., officers and directors or all other employees) and other factors that may affect the expected term of the option.

● Risk-free interest rate—The risk-free interest rate is based on U.S. Treasury constant maturity rates with similar terms to the expected term of the options for each option group.

● Dividend yield—The expected dividend yield is 0% as we have not paid and do not expect to pay dividends in the future.

The following table summarizes the weighted-average assumptions relating to options granted pursuant to our equity incentive plans for the years ended December 31, 2020, 2019 and 2018:

	Year Ended
	December 31,
	2020		2019		2018
Risk-free interest rate	1.2	%	2.4	%	2.7	%
Expected term (in years)	6.5		6.5		6.7
Dividend yield	0.0	%	0.0	%	0.0	%
Expected volatility	66.1	%	65.5	%	65.1	%

The exercise price of stock options granted under our stock plans is equal to the fair market value of the underlying shares on the date of grant. Options become exercisable at varying dates and generally expire 10 years from the date of grant. At December 31, 2020, options to purchase 14,218,190 shares of common stock were available for grant and 27,260,463 reserved shares of common stock were available for future issuance under our stock option plans.

Stock-Based Compensation Award Activity

Option activity under our equity incentive plans was as follow:

					Weighted-
					Average
					Remaining
	Shares Available	Number of Shares	Weighted-Average		Contractual Term	Aggregate
	For Grant	Underlying Options	Exercise Price		(in years)	Intrinsic Value
Outstanding at January 1, 2020	16,615,971	22,670,704	$	3.51
Authorized for grant	2,953,519	—
Granted	(8,462,090)	8,462,090	$	2.32
Exercised	—	(761,541)	$	2.26
Cancelled	3,110,790	(3,110,790)	$	4.56
Outstanding at December 31, 2020	14,218,190	27,260,463	$	3.05	6.46	$	23,679,303
Vested and expected to vest at December 31, 2020		26,159,213	$	3.12
Exercisable at December 31, 2020		17,802,873	$	3.42	5.25	$	12,628,388

We granted options to purchase 8,462,090, 7,457,575 and 4,594,225 shares of common stock during the years ended December 31, 2020, 2019 and 2018, respectively. The weighted-average grant date fair values of options granted during 2020, 2019 and 2018 were $1.42, $1.27 and $2.66, respectively. As of December 31, 2020, we had 1,101,250 shares of outstanding performance-based stock option wherein the achievement of the corresponding corporate-based milestones were not considered as probable. Accordingly, none of the stock-based compensation expense of $1.7 million has been recognized as expense as of December 31, 2020.

As of December 31, 2020, there was approximately $11.0 million of unrecognized stock-based compensation cost related to time-based stock options and performance-based stock options, wherein achievement of the corresponding corporate-based milestones was considered as probable. Additionally, approximately $615,000 of total unamortized stock-based compensation cost related to our Purchase Plan. The unamortized compensation costs related to our stock option plans and our Purchase Plan are expected to be recognized over a weighted- average period of approximately 2.2 years and 1.1 years, respectively. For the years ended December 31, 2020 and 2019, there were 4,386,910 and 4,442,936 shares vested, respectively, with weighted-average exercise price of $2.41 and $3.26, respectively.

The aggregate intrinsic value of the stock options in the table above is calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock for the options that were in-the-money at December 31, 2020. At December 31, 2020 and 2019, we had 9,457,590 and 6,865,971, respectively, of non-vested stock options, with approximately $11.1 million and $614,000 intrinsic value at December 31, 2020 and 2019, respectively. During the years ended December 31, 2020 and 2019, aggregate intrinsic values of options exercised under our stock option plans were approximately $459,000 and $12,000, respectively, determined as of the date of the stock option exercise.

Details of our stock options by exercise price are as follows as of December 31, 2020:

	Options Outstanding				Options Exercisable
	Number of	Weighted-Average
	Outstanding	Remaining	Weighted-Average		Number of	Weighted-Average
Exercise Price	Options	Contractual Life (in years)	Exercise Price		Options	Exercise Price
$1.68 - $1.96	1,413,800	8.94	$	1.81	337,554	$	1.82
$2.00 - $2.00	3,976,626	7.57		2.00	2,374,499		2.00
$2.02 - $2.25	4,301,158	5.90		2.14	3,681,576		2.12
$2.27 - $2.42	6,261,304	8.63		2.38	1,617,712		2.37
$2.52 - $3.49	3,831,521	6.12		2.86	2,760,475		2.92
$3.54 - $4.49	5,130,353	5.41		4.07	4,685,356		4.05
$4.53 - $8.85	2,345,701	1.18		7.14	2,345,701		7.14
$1.68 - $8.85	27,260,463	6.46		3.05	17,802,873		3.42

Employee Stock Purchase Plan

Our Purchase Plan permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. The price at which the stock is purchased is equal to the lesser of 85% of the fair market value of the common stock on the first day of the offering or 85% of the fair market value of our common stock on the purchase date. The initial offering period commenced on the effective date of our initial public offering. We issued 567,391, 747,691 and 783,984 shares of common stock during 2020, 2019 and 2018, respectively, pursuant to the Purchase Plan at an average price of $1.54, $1.92 and $1.92, respectively. For the year ended December 31, 2020, 2019 and 2018, the weighted average fair value of awards granted under our Purchase Plan was $0.87, $1.07 and $1.27, respectively. As of December 31, 2020, we had 16,502 reserved shares of common stock available for future issuance under the Purchase Plan.

The fair value of awards granted under our Purchase Plan is estimated on the date of grant using the Black-Scholes option pricing model, which uses weighted- average assumptions. Our Purchase Plan provides for a 24- month offering period comprised of four six-month purchase periods with a look-back option. A look-back option is a provision in our Purchase Plan under which eligible employees can purchase shares of our common stock at a price per share equal to the lesser of 85% of the fair market value on the first day of the offering period or 85% of the fair market value on the purchase date. Our Purchase Plan also includes a feature that provides for a new offering period to begin when the fair market value of our common stock on any purchase date during an offering period falls below the fair market value of our common stock on the first day of such offering period. This feature is called a “reset.” Participants are automatically enrolled in the new offering period. We had a “reset” on January 2, 2020 because the fair market value of our stock on December 31, 2019 was lower than the fair market value of our stock on January 1, 2019, the first day of the offering period. We applied modification accounting in accordance with the relevant accounting guidance. The total incremental fair value associated with this Purchase Plan “reset” was approximately $753,000 and will be recognized as expense from the period from January 1, 2020 to December 31, 2021. We also had another “reset” on July 1, 2020 because the fair market value of our stock on June 30, 2020 was lower than the fair market value of our stock on January 1, 2020, the first day of the offering period. We applied modification accounting in accordance with the relevant accounting guidance. The total incremental fair value associated with this Purchase Plan “reset” was approximately $535,000 and is being amortized to expenses from July 1, 2020 to June 30, 2022.

The following table summarizes the weighted-average assumptions related to our Purchase Plan for the years ended December 31, 2020, 2019 and 2018. Expected volatilities for our Purchase Plan are based on the two-year historical volatility of our stock. Expected term represents the weighted- average of the purchase periods within the

offering period. The risk-free interest rate for periods within the expected term is based on U.S. Treasury constant maturity rates.

	Year Ended
	December 31,
	2020		2019		2018
Risk-free interest rate	1.0	%	2.7	%	2.4	%
Expected term (in years)	1.6		1.5		1.3
Dividend yield	0.0	%	0.0	%	0.0	%
Expected volatility	62.3	%	62.6	%	66.2	%