12.

Equity Incentive Plans

In May 2002, the stockholders approved the Amended and Restated 1997 Stock Option/Stock Issuance Plan (the 1997 Plan) and in September 2002, the stockholders approved the 2002 Equity Incentive Plan (the 2002 Plan). In February 2012, the stockholders approved the 2012 Equity Incentive Award Plan (the 2012 Plan). As of December 31, 2017, a total of 11,500,000 shares of the Company’s common stock were reserved for issuance under the 2012 Plan. In addition, the number of shares available for issuance under the 2012 Plan will be annually increased by an amount equal to the lesser of: 2,000,000 shares; 4% of the outstanding shares of the Company’s common stock as of the last day of the Company’s immediately preceding fiscal year; or an amount determined by the Company’s Board of Directors. In October 2017, the Board of Directors approved an increase to the number of shares reserved for issuance under the 2012 Plan by 1,940,000 shares effective January 1, 2018. Collectively, the 1997 Plan, the 2002 Plan and the 2012 Plan are known as the Stock Plans.

Restricted Stock

Restricted Stock Awards (RSAs) and Restricted Stock Units (RSUs) are independent of stock option grants and are not transferrable, and are subject to forfeiture if recipients terminate their service to the Company prior to the release of the vesting restrictions. RSUs granted to employees generally vest over a period of three years. RSUs and RSAs granted to its nonemployee directors vest over a one-year period, or over a three-year period in the case of an initial grant pursuant to the Company’s Non-Employee Director Compensation Policy (Directors Plan). In the case of a change in control, RSUs and RSAs granted to nonemployee directors will vest in full. RSUs and RSAs are valued at the closing price of the Company’s common stock on the date of grant. During the years ended December 31, 2016 and 2015, the weighted average grant date fair value for restricted stock granted was $4.48 and $7.88, respectively. The total fair value of restricted stock vested during the years ended December 31, 2017, 2016 and 2015 was $1.7 million, $0.2 million and $1.0 million, respectively.

The activity for restricted stock is summarized as follows:


	Shares			Weighted Average Grant-Date Fair Value
Balance at December 31, 2016		471,650		$	4.60
Granted		279,738			6.72
Vested		(229,610	)		4.60
Canceled		(13,334	)		3.57

Unvested at December 31, 2017		508,444		$	5.79

As of December 31, 2017, there was $1.7 million of unrecognized compensation expense associated with unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.4 years.

Stock Options

Under the Stock Plans, incentive stock options may be granted by the Board of Directors to employees at exercise prices of not less than 100% of the fair value at the date of grant. Nonstatutory options may be granted by the Board of Directors to employees, officers, and directors of the Company or consultants at exercise prices of not less than 85% of the fair value of the common stock on the date of grant. The fair value at the date of grant is determined by the Board of Directors. Under the Stock Plans, options may be granted with different vesting terms from time to time, but not to exceed 10 years from the date of grant. Outstanding options generally vest over four years, with 25% of the total grant vesting on the first anniversary of the option grant date and 1/36th of the remaining grant vesting each month thereafter.

The following table summarizes stock option activity and related information under the Company’s Stock Plans:


	Available for Grant			Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balance at December 31, 2016		1,655,524			9,345,515		$	7.72
Shares authorized		1,900,000			—
Granted ⁽¹⁾		(2,212,138	)		1,932,400			6.80
Exercised ⁽²⁾		58,967			(461,151	)		5.84
Forfeited and expired ⁽³⁾		626,527			(613,193	)		7.03

Outstanding at December 31, 2017		2,028,880			10,203,571		$	7.68		6.19	$	3,773,137

Vested and expected to vest, net of estimated forfeiture at December 31, 2017					9,967,860		$	7.72		6.13	$	3,636,358

Exercisable at December 31, 2017					7,099,052		$	8.37		5.10	$	1,798,555

(1)	The difference between shares granted in the number of shares available for grant and outstanding options represents the RSUs and RSAs granted for the period.

(2)	Shares presented as available for grant represents shares repurchased for tax withholding upon vesting of RSUs.

(3)	The difference between shares forfeited and expired in the number of shares available for grant and outstanding options represents the RSUs canceled for the period.

The aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable. Total intrinsic value of options exercised was $1.3 million, $0.7 million and $2.1 million during 2017, 2016, and 2015, respectively. As of December 31, 2017, there was $8.2 million of unrecognized compensation expense, net of estimated forfeitures, associated with outstanding stock options, which is expected to be recognized over an estimated weighted-average period of 2.5 years.

As of December 31, 2017, stock options outstanding were as follows:


	Options Outstanding
Exercise Price Range	Shares		Weighted-Average Contractual Life
$2.10 - $3.29		214,050		8.32
$3.57		1,151,175		8.08
$3.72 - $5.95		486,090		8.52
$6.00		1,054,514		1.18
$6.08 - $6.30		1,134,724		4.61
$6.50 - $6.60		96,087		9.30
$6.62		1,175,900		9.10
$6.90 - $7.10		1,113,845		5.90
$7.12 - $7.85		418,100		8.87
$8.19 - $15.90		3,359,086		5.84

		10,203,571		6.19

Employee Stock Purchase Plan

In February 2012, the stockholders approved the ESPP. As of December 31, 2017, a total of 950,000 shares of the Company’s common stock were reserved for issuance under the ESPP. In addition, the number of shares available for issuance under the ESPP may be annually increased on the first day of each fiscal year during the term of the ESPP, beginning with the 2012 fiscal year, by an amount equal to the lesser of: 300,000 shares; 1% of outstanding shares of the Company’s common stock; or an amount determined by the Company’s Board of Directors. The ESPP provides for an aggregate limit of 3,000,000 shares of common stock that may be issued under the ESPP during the term of the ESPP. In October 2017, the Board of Directors approved an increase to the number of shares reserved for issuance under the ESPP by 150,000 shares effective January 1, 2018.

The Company issued 93,221 shares, 157,893 shares and 134,579 shares under the ESPP in 2017, 2016 and 2015, respectively. As of December 31, 2017, 333,335 shares were available for issuance under the ESPP. As of December 31, 2017, there was $0.1 million of unrecognized compensation expense, net of estimated forfeitures, associated with the ESPP, which is expected to be recognized over an estimated weighted-average period of 0.4 years.

Stock Awards Granted to Employees

Employee stock-based compensation expense recognized is calculated based on awards ultimately expected to vest and reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Total employee stock-based compensation expense recognized associated with restricted stock, stock options, and the ESPP, was as follows (in thousands):


	Year Ended December 31,
	2017		2016		2015
Research and development	$	3,154	$	3,245	$	3,240
General and administrative		4,965		4,977		5,620

Total	$	8,119	$	8,222	$	8,860

Valuation Assumptions

Fair value of options granted under the Stock Plans and purchases under the Company’s ESPP were estimated at grant or purchase dates using a Black-Scholes option valuation model. The Black-Scholes valuation model requires that assumptions are made with respect to various factors, including the expected volatility of the fair value of the Company’s common stock. The Company has based its expected volatility on the average historical volatilities of public entities having similar characteristics including: industry, stage of life cycle, size, and financial leverage. The weighted average expected term of options was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation. This decision was based on the lack of relevant historical data due to the Company’s limited historical experience. The fair values of the employee stock options granted under the Company’s Stock Plans and the option component of the shares purchased under the ESPP during 2017, 2016, and 2015 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:


	Employee Stock Options									Employee Stock Purchase Plan
	2017			2016			2015			2017			2016			2015
Dividend yield		0	%		0	%		0	%		0	%		0	%		0	%
Volatility		68.3	%		65.6	%		67.6	%		52.9	%		99.7	%		60.1	%
Weighted-average expected life (in years)		6.0			6.0			6.0			0.5			0.5			0.5
Risk-free interest rate		2.04	%		1.58	%		1.70	%		1.22	%		0.47	%		0.21	%
Weighted average grant date fair value	$	4.30		$	2.43		$	5.00		$	2.16		$	2.29		$	2.22

Stock Options Granted to Nonemployees

During 2017, 2016 and 2015, the Company granted to consultants options to purchase 239,266, 15,000, and 90,300 shares of common stock, respectively. The stock-based compensation expense related to nonemployees will fluctuate as the fair value of the Company’s common stock fluctuates. In connection with grants of stock options to nonemployees, the Company recorded stock-based compensation expense as follows (in thousands):


	Year Ended December 31,
	2017		2016		2015
Research and development	$	629	$	313	$	105
General and administrative		—		—		20

Total	$	629	$	313	$	125

Valuation Assumptions

Stock-based compensation expense associated with stock options granted to nonemployees is recognized as the stock options vest. The estimated fair values of the stock options granted are calculated at each reporting date using the Black-Scholes option-pricing model, with the following assumptions:


	Year Ended December 31,
	2017			2016			2015
Dividend yield		0	%		0	%		0	%
Volatility		69-70	%		65-68	%		65-66	%
Weighted-average expected life (in years)		5.5-10.0			6.1-9.9			5.6-9.9
Risk-free interest rate		1.9-2.5	%		1.3-2.4	%		1.7-2.4	%