Stock-Based Compensation

The Company has adopted certain equity incentive and stock purchase plans as described in the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

In March 2018, our board of directors approved an amendment and restatement of our non-employee director compensation policy, pursuant to which any non-employee director who is first elected to the board of directors is granted an option to purchase 20,000 shares of our common stock on the date of his or her initial election to the board of directors. In addition, on the date of each annual meeting of our stockholders, commencing with the 2018 annual meeting, each non-employee director is eligible to receive an option to purchase 15,000 shares of common stock. Prior to March 2018, under our non-employee director compensation policy, any non-employee director who was first elected to the board of directors was granted an option to purchase 30,000 shares of our common stock on the date of his or her initial election to the board of directors. In addition, on the date of each annual meeting of our stockholders, each non-employee director was eligible to receive an option to purchase 20,000 shares of common stock.

Equity Incentive Awards Activity

Stock Options

The following is a summary of stock option activity for the three months ended March 31, 2018 (in thousands, except per share data):



	Shares (in thousands)		Weighted- Average Exercise Price per Share
Outstanding at December 31, 2017	3,392		$	14.41
Granted	490		42.37
Exercised	(102	)	19.09
Canceled	(7	)	19.00
Outstanding at March 31, 2018	3,773		$	17.90

Restricted Stock Units

The following is a summary of restricted stock unit activity for the three months ended March 31, 2018 (in thousands, except per share data):



	Shares (in thousands)		Weighted- Average Fair Value per Share at Grant Date
Outstanding as of December 31, 2017	259		$	10.43
Granted	131		42.65
Vested	(97	)	10.38
Canceled	—		—
Outstanding as of March 31, 2018	293		$	24.84

As of March 31, 2018, outstanding restricted stock units included 162,000 granted in March 2017 with performance-based conditions to employees and executives. The restricted stock units vest upon the approval of the Company’s new drug application for ZX008 by the FDA, provided such approval occurs within five years following the grant date. Due to the uncertainties associated with the FDA approval process, approval is not yet probable, as such term is used for accounting purposes, prior to the occurrence of the event. Accordingly, no compensation expense has been recognized to date for these performance-based awards.

Valuation of Equity Awards

The estimated grant date fair value of the stock options was estimated using the Black-Scholes option pricing model, based on the following assumptions:



	Three Months Ended March 31,
	2018	2017
Risk free interest rate	2.3% to 2.7%	2.1% to 2.3%
Expected term	6.0 to 6.1 years	6.0 to 6.1 years
Expected volatility	84.2% to 85.2%	76.4% to 76.6%
Expected dividend yield	—%	—%

The fair value of restricted stock units granted is determined based on the price of the Company’s common stock on the date of grant.

Stock-Based Compensation Expense

The following table summarizes the components of total stock-based compensation expense included in the condensed consolidated statements of operations (in thousands):



	Three Months Ended March 31,
	2018		2017
Cost of contract manufacturing	$	—	$	77
Research and development	681		517
Selling, general and administrative	1,231		1,079
Total	$	1,912	$	1,673