Stock-Based Compensation

Stock Plans

In July 2018, the Company amended its Amended and Restated 2002 Stock Plan (the “2002 Plan”) to reserve an additional 800,000 shares of common stock for issuance under the 2002 Plan.

In October 2018, the Company’s board of directors and stockholders adopted and approved the 2018 Equity Incentive Plan (the “2018 Plan”), which is a successor to and continuation of the 2002 Plan. The 2018 Plan became effective upon the execution of the underwriting agreement related to the IPO on October 17, 2018. No further grants will be made under the 2002 Plan.

Initially, the maximum number of shares of the Company’s common stock that may be issued under the 2018 Plan was 3,231,626 shares. As of December 31, 2019, the Company had 1,221,879 shares available for grant under the 2018 Plan. The number of shares of common stock reserved for issuance under the 2018 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2019 through January 1, 2028, in an amount equal to 3% of the total number of shares of the Company’s capital stock outstanding on the last day of the calendar month before the date of each automatic increase, or a lesser number of shares determined by the Company’s board of directors. Subject to this provision, the Company added 862,992 shares available for grant to the 2018 Plan effective January 1, 2020. The maximum number of shares of the Company’s common stock that may be issued on the exercise of incentive stock options under the 2018 Plan is 9,694,878.

The following table summarizes stock option activity for the 2002 Plan and 2018 Plan for the year ended December 31, 2019:



	Total Options		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at Ended December 31, 2017	1,075,209		$	1.60	7.3	$	711,328
Granted	563,268		$	4.07
Exercised	(43,687	)	$	2.12
Cancelled or expired	(49,387	)	$	1.65
Outstanding at December 31, 2018	1,545,403		$	2.48	7.6	$	1,593,487
Granted	1,260,540		$	4.19
Exercised	(143,654	)	$	1.71
Cancelled or expired	(84,571	)	$	4.65
Outstanding at December 31, 2019	2,577,718		$	3.29	7.9	$	7,914,459
Vested and expected to vest at December 31, 2019	2,577,718		$	3.29	7.9	$	7,914,459
Vested and exercisable at December 31, 2019	1,157,120		$	2.25	6.7	$	4,469,348

The weighted-average grant date fair value per share of options granted was $2.62 and $2.75 for the years ended December 31, 2019 and 2018, respectively. The aggregate intrinsic value of options exercised was $1.0 million and $0.2 million for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019, the total unrecognized compensation expense related to unvested employee and non-employee stock option awards was $3.2 million, which was expected to be recognized in expense over a weighted-average period of approximately 2.7 years.

In October 2018, the Company’s board of directors and stockholders approved the 2018 Employee Stock Purchase Plan (the “ESPP”). The ESPP became effective on October 17, 2018. The purpose of the ESPP is to secure the services of new employees, to retain the services of existing employees and to provide incentives for such individuals to exert maximum efforts toward the Company’s success and that of the Company’s affiliates. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code for United States employees.

The ESPP authorizes the issuance of 196,000 shares of the Company’s common stock under purchase rights granted to the Company’s employees or to employees of any of the Company’s designated affiliates. The number of shares of common stock reserved for issuance will automatically increase on January 1 of each calendar year, beginning on January 1, 2019 through January 1, 2028, by the lesser of (1) 1% of the total number of shares of the Company’s common stock outstanding on the last day of the calendar month before the date of the automatic increase, and (2) 490,000 shares; provided that before the date of any such increase, the Company’s board of directors may determine that such increase will be less than the amount set forth in clauses (1) and (2). Subject to this provision, the Company added 287,664 shares available for grant to the ESPP effective January 1, 2020. As of December 31, 2019, no shares of common stock have been purchased under the ESPP.

Determining Fair Value of Stock Options

The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. Certain of these inputs are subjective and generally require judgment to determine.

Expected Term—The expected term of stock options represents the weighted average period the stock options are expected to be outstanding. The Company uses the simplified method for estimating the expected term. The simplified method calculates the expected term as the average time-to-vesting and the contractual life of the options.

Expected Volatility—Due to the Company’s limited operating history and lack of company-specific historical or implied volatility, the expected volatility assumption was determined by examining the historical volatilities of a group of industry peers whose share prices are publicly available.

Risk-Free Interest Rate—The risk-free rate assumption is based on the United States Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options.

Expected Dividend—The Company has not paid and does not intend to pay dividends.

Common Stock Valuation—Due to the absence of a public market trading the Company’s common stock prior to the IPO, it was necessary to estimate the fair value of the common stock underlying the stock-based grants when performing fair value calculations using the Black-Scholes option pricing model. The fair value of the common stock underlying the stock-based grants was assessed for each grant date by the board of directors. All options to purchase shares of common stock have been granted with an exercise price per share no less than the fair value per share of the common stock underlying those options on the date of grant.

In the absence of a public trading market for the Company’s common stock, the Company determined the estimated fair value of its common stock using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants (“AICPA”) Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation (“AICPA Practice Aid”).

The fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below:



	Year Ended December 31,
	2019			2018
Risk-free interest rate	2.36		%	2.88		%
Expected term (in years)	5.9			7.0
Expected volatility	69		%	69		%
Expected dividend yield	—			—
Fair value of common stock	$	4.19		$	4.07

Stock-based compensation expense has been reported in the Company’s statements of operations for the years ended December 31, 2019 and 2018 as follows (in thousands):



	Year Ended December 31,
	2019		2018
General and administrative	$	1,135	$	208
Research and development	286		124
Total stock-based compensation	$	1,421	$	332