Stock Plans and Stock Based Compensation

As of September 30, 2019, the Company had two stockholder approved, share based compensation plans: (i) the Amended and Restated 2010 Employee Stock Purchase Plan (“ESPP”), adopted by the Company's board of directors in April 2017 and approved by stockholders in June 2017, and (ii) the Third Amended and Restated 2010 Stock Incentive Plan, (“2010 Plan”). New employees are typically issued options as an inducement equity award under Nasdaq Listing Rule 5635(c)(4) outside of the 2010 Plan.

The Third Amended and Restated 2010 Stock Incentive Plan

The 2010 Plan permits the granting of incentive and non-qualified stock options and stock awards to employees, officers, directors, and consultants of the Company and its subsidiaries at prices determined by the Company’s Board of Directors. On May 23, 2019 the Company's stockholders approved an amendment to the Company's Third Amended and Restated 2010 Stock Incentive Plan to reserve an additional 4,700,000 shares of common stock for issuance under the 2010 Plan. The Company can issue up to 10,890,000 shares of its common stock pursuant to awards granted under the 2010 Plan. Options become exercisable as determined by the Board of Directors and expire up to ten years from the date of grant. The 2010 Plan uses a “fungible share” concept under which each share of stock subject to awards granted as options and stock appreciation rights, will cause one share per share under the award to be removed from the available share pool, while each share of stock subject to awards granted as restricted stock, restricted stock units, other stock based awards or performance awards where the price charged for the award is less than 100% of the fair market value of the Company’s common stock will cause 1.3 shares per share under the award to be removed from the available share pool. As of September 30, 2019 the Company had only granted options to purchase shares of the Company’s common stock with an exercise price equal to the closing market price of the Company’s common stock on the Nasdaq Global Market on the grant date. As of September 30, 2019, 4,743,559 shares remained available for grant under the 2010 Plan.

During the nine months ended September 30, 2019, the Company’s board of directors granted options to purchase a total of 3,875,865 shares of the Company’s common stock to employees and directors of the Company, under the 2010 Plan or in the form of inducement awards pursuant to Nasdaq Marketplace Rules. Of these options, options to purchase 3,155,865 shares were granted to employees and vest as to 25% of the shares underlying the award after the first year and as to an additional 6.25% of the shares underlying the award in each subsequent quarter, based upon continued employment over a four year period, and are exercisable at a price equal to the closing price of the Company’s common stock on the Nasdaq Global Market on the grant dates.

Additionally, the Company’s board of directors authorized a grant of options to purchase 1,502,867 shares of the Company’s common stock to its officers in January 2019. Such stock options have an exercise price equal to $1.16 per share, the closing price of the Company’s common stock on the Nasdaq Global Market on the date of grant, and will vest and become exercisable as to 25% of the shares underlying the award after the first year and as to an additional 6.25% of the shares underlying the award in each subsequent quarter, based upon continued employment over a four year period.

During the first quarter of 2019, the Company’s board of directors granted options to its non-employee directors to purchase 720,000 shares of common stock under the 2010 Plan, which will vest and become exercisable in one year from the date of grant. These options were granted at an exercise price of $1.16 per share, which equals the closing market price of the Company’s common stock on the Nasdaq Global Market on the grant date. There were no additional non-employee grants made in the current quarter.

Nonstatutory Inducement Grants

For certain new employees the Company issues options as an inducement equity award under Nasdaq Listing Rule 5635(c)(4) outside of the 2010 Plan. Each option will vest as to 25% of the shares underlying the option on the first anniversary of the grant date, and as to an additional 6.25% of the shares underlying the option on each successive three month period thereafter. During the nine months ended September 30, 2019, the Company’s board of directors granted options to purchase 418,000 shares of common stock as inducement equity awards. These options were granted at a weighted average exercise price of $1.88 which is based on the closing market price of the Company’s common stock on the Nasdaq Global Market on the grant date.

Employee and Director Grants

Vesting Tied to Service Conditions

In determining the fair value of stock options, the Company generally uses the Black-Scholes option pricing model. The Black-Scholes option pricing model employs the following key assumptions for employee and director options awarded during the nine months ended September 30, 2019 and 2018 based on the assumptions noted in the following table:



	Nine Months Ended September 30,
	2019	2018
Expected term (years) – employees and officers	5.5	5.5
Expected term (years) – directors	5.5	6.25
Risk free interest rate	2.3-2.6%	2.5-2.8%
Expected Volatility	75.8-78.7%	66.0-72.0%
Expected Dividends	None	None

The expected volatility is based on the annualized daily historical volatility of the Company’s stock price for a time period consistent with the expected term of each grant. Management believes that the historical volatility of the Company’s stock price best represents the future volatility of the stock price.

The risk free interest rate is based on the U.S. Treasury yield in effect at the time of grant for the expected term of the respective grant. The Company has not historically paid cash dividends, and does not expect to pay cash dividends in the foreseeable future.

The expected terms and stock price volatility utilized in the calculation involve management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option. GAAP also requires that the Company recognize compensation expense for only the portion of options that are expected to vest. Therefore, management calculated an estimated annual pre-vesting forfeiture rate that is derived from historical employee termination behavior since the inception of the Company, as adjusted. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

A summary of stock option activity under the 2010 Plan, the 2000 Stock Incentive Plan, the 2000 Director Stock Option Plan and nonstatutory inducement awards are summarized as follows:



	Number of Shares		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, December 31, 2018	3,714,394		$	7.68
Granted	3,875,865		1.26
Exercised	—		—
Canceled	(1,577,558	)	7.95
Outstanding, September 30, 2019	6,012,701		$	3.48	8.53	$	3,797
Exercisable at September 30, 2019	1,435,808		$	8.84	6.52	$	122
Vested and unvested expected to vest at September 30, 2019	5,284,182		$	3.75	8.43	$	3,200

The weighted average grant date fair values of the stock options granted during the nine months ended September 30, 2019 and 2018 were $0.83 and $1.46, respectively. As of September 30, 2019, there was approximately $3.7 million of unrecognized compensation cost related to unvested employee stock option awards outstanding, net of the impact of estimated forfeitures that is expected to be recognized as expense over a weighted average period of 2.54 years. There were no options exercised during the nine months ended September 30, 2019 and September 30, 2018.

The following table presents a summary of unvested restricted stock awards (“RSAs”) under the 2010 Plan as of September 30, 2019:



	Number of Shares		Weighted Average Grant Date Fair Value
Unvested, December 31, 2018	226,250		$	3.45
Awarded	—		—
Vested	(195,313	)	3.45
Forfeited	—		—
Unvested, September 30, 2019	30,937		$	3.45

As of September 30, 2019, there were 30,937 shares outstanding covered by RSAs that are expected to vest. The weighted average fair value of these shares of restricted stock was $3.45 per share and the aggregate fair value of these shares of restricted stock was approximately $0.1 million. As of September 30, 2019, there were approximately $0.1 million of unrecognized compensation costs, net of estimated forfeitures, related to RSAs granted to officers, which are expected to be recognized as expense over a remaining weighted average period of 2.31 years.

Second Amended and Restated 2010 Employee Stock Purchase Plan

The Company has reserved 2,000,000 of its shares of common stock for issuance under the ESPP. Eligible employees may purchase shares of the Company’s common stock at 85% of the lower closing market price of the common stock at the beginning of the enrollment period or ending date of the any purchase period within a two year enrollment period, as defined. The Company has four six month purchase periods per each two year enrollment period. If, within any one of the four purchase periods in an enrollment period, the purchase period ending stock price is lower than the stock price at the beginning of the enrollment period, the two year enrollment resets at the new lower stock price. This aspect of the plan was amended in 2017. Prior to 2017, the plan included two six month purchase periods per year with no defined enrollment period. As of September 30, 2019, 231,053 shares were issued under the ESPP, of which none were issued during the quarter ended September 30, 2019. As of September 30, 2019, there were 1,716,856 shares available for future purchase under the ESPP.

ESPP compensation expense for the three and nine months ended September 30, 2019 was not material. ESPP compensation expense for the three months ended September 30, 2018 was not material and $0.2 million was recorded for the nine months ended September 30, 2018.

Stock Based Compensation Expense

The Company recorded a total of $0.7 million and $2.0 million, respectively, in compensation expense for the three and nine months ended September 30, 2019 and $0.9 million and $3.3 million, respectively, for the three and nine months ended September 30, 2018 related to employee and director stock option grants.

Total Stock Based Compensation Expense

For the three and nine months ended September 30, 2019 and 2018, the Company recorded stock based compensation expense to the following line items in its costs and expenses section of the Condensed Consolidated Statements of Operations and Comprehensive Loss, including expense related to its ESPP:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Research and development expenses	$	130	$	295	$	254	$	1,143
General and administrative expenses	554		600		1,712		2,166
Total stock based compensation expense	$	684	$	895	$	1,966	$	3,309