8. Stockholders’ Equity

Authorized and Outstanding Capital Stock

As of June 30, 2018, the authorized capital stock of the Company included 175,000,000 shares of common stock, par value $0.00001 per share, of which 56,913,886 and 47,612,619 shares are issued and outstanding at June 30, 2018 and December 31, 2017, respectively; and 25,000,000 shares of undesignated preferred stock, par value $0.00001 per share, of which 0 shares are issued and outstanding at June 30, 2018 and December 31, 2017.

At-the-Market Facility

In May 2016, the Company established an at-the-market equity, or ATM, offering program pursuant to which it was able to offer and sell up to $75.0 million of common stock at the then current market prices from time to time. In September 2016, the Company commenced sales under this program. Through December 31, 2017, the Company sold 1,080,908 shares of common stock under this program with net proceeds (after deducting commissions and other offering expenses) of $12.1 million, of which 150,023 shares were sold in the three months ended March 31, 2017 for net proceeds (after deducting commissions and other offering expenses) of approximately $1.6 million. Additionally, the Company sold 694,306 shares in the three months ended March 31, 2018 for net proceeds (after deducting commissions and other offering expenses) of approximately $10.5 million. The Company did not sell any additional shares in the three months ended June 30, 2018.

Equity Offering

In March 2018, the Company completed a follow-on public offering, whereby the Company sold 8,500,000 shares of common stock at a public offering price of $10.50 per share. The aggregate net proceeds received by the Company from the offering were approximately $84.8 million, net of underwriting discounts and commissions and estimated offering expenses payable by the Company.

Equity Plans

On February 28, 2014, the Company’s Board of Directors adopted its 2014 Incentive Plan, the 2014 Plan, and its 2014 Employee Stock Purchase Plan, the ESPP, which were subsequently approved by its stockholders and became effective upon the closing of the Company’s initial public offering on March 25, 2014. The 2014 Plan replaced the 2008 Equity Incentive Plan, as amended, the 2008 Plan; however, options or other awards granted under the 2008 Plan prior to the adoption of the 2014 Plan that have not been settled or forfeited remain outstanding and effective. In May 2016 the Company’s Board of Directors approved an inducement award program that was separate from the Company’s equity plans and which, consistent with Nasdaq Listing Rule 5635(c)(4), did not require shareholder approval, the Inducement Award Program. For 2018, the Company authorized the issuance of up to 750,000 shares for the purpose of granting options to purchase shares of our common stock to new hires under the Inducement Award Program, of which 184,150 options to purchase shares were granted during the six months ended June 30, 2018.

The 2014 Plan allows for the granting of stock options, stock appreciation rights, or SARs, restricted stock, unrestricted stock, RSUs, performance awards and other awards convertible into or otherwise based on shares of our common stock. Dividend equivalents may also be provided in connection with an award under the 2014 Plan. The Company’s employees, officers, directors and consultants and advisors are eligible to receive awards under the 2014 Plan. The Company initially reserved 1,785,000 shares of its common stock for the issuance of awards under the 2014 Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the 2014 Plan will automatically increase annually on January 1^st of each calendar year, by an amount equal to three percent (3%) of the number of shares of stock outstanding on a fully diluted basis as of the close of business on the immediately preceding December 31^st, the 2014 Plan Evergreen Provision. The Company’s Board of Directors may act prior to January 1^st of any year to provide that there will be no automatic increase in the number of shares available for grant under the 2014 Plan for that year (or that the increase will be less than the amount that would otherwise have automatically been made). During the first six months of 2018, the Company granted 522,200 stock options to employees under the 2014 Plan, 184,150 stock options to employees under the Inducement Award Program, 367,250 RSUs to employees under the 2014 Plan, and 87,500 stock options to directors under the 2014 Plan.

The ESPP provides for the issuance of options to purchase shares of the Company’s common stock to participating employees at a discount to their fair market value. The maximum aggregate number of shares of common stock available for purchase pursuant to the exercise of options granted under the ESPP will be the lesser of (a) 262,500 shares, increased on each anniversary of the adoption of the ESPP by one percent (1%) of the total shares of common stock then outstanding, the ESPP Evergreen Provision, and (b) 739,611 shares, which is equal to five percent (5%) of the total shares of common stock outstanding on the date of the adoption of the ESPP on a fully diluted, as converted basis. Under the ESPP, each offering period is six months, at the end of which employees may purchase shares of common stock through payroll deductions made over the term of the offering. The per-share purchase price at the end of each offering period is equal to the lesser of eighty-five percent (85%) of the closing price of our common stock at the beginning or end of the offering period.

Shares Reserved for Future Issuance

The Company has reserved for future issuance the following number of shares of common stock:

	June 30, 2018		December 31, 2017
Common stock options and RSUs outstanding ⁽¹⁾		4,977,061		4,388,752
Shares available for issuance under the 2014 Plan ⁽²⁾		3,352,352		1,790,600
Warrant to purchase common stock		509,611		509,611
Shares available for issuance under the ESPP ⁽³⁾		634,721		652,290
Total		9,473,745		7,341,253

⁽¹⁾	Includes awards granted under the 2014 Plan and the Inducement Award Program.

⁽²⁾

On January 1, 2018, January 1, 2017 and January 1, 2016, the shares reserved for future grants under the 2014 Plan increased by 1,575,329, 1,265,863 and 986,800 shares, respectively, pursuant to the 2014 Plan Evergreen Provision. Additionally, on December 19, 2017, the Company’s Board of Directors approved 750,000 shares for issuance in fiscal year 2018 under the Inducement Award Program.

⁽³⁾

On February 28, 2016, the shares reserved for future issuance under the ESPP increased by 273,404 shares pursuant to the ESPP Evergreen Provision. There were no increases in the shares reserved for future issuance subsequent to this period as the maximum aggregate number of shares available for purchase had reached its cap of 739,611.

Stock-Based Compensation

Stock Options

On February 28, 2018, as part of the Company’s annual grant of equity, the Company issued 522,200 stock options to employees. In addition, the Company issues stock options to directors, new hires and occasionally to other employees not in connection with the annual grant process. Options granted by the Company vest over periods of between 12 and 48 months, subject, in each case, to the individual’s continued service through the applicable vesting date. Options vest either 100% on the first anniversary of the grant date or in installments of (i) 25% at the one year anniversary and (ii) 12 equal quarterly installments beginning on the first day of each calendar quarter after the initial vesting commencement date or grant date, subject to the individual’s continuous service with the Company. Options generally expire ten years after the date of grant. The Company recorded approximately $1.7 million of stock-based compensation expense related to stock options during each of the three months ended June 30, 2018 and 2017 and approximately $3.6 million and $3.3 million during the six months ended June 30, 2018 and 2017, respectively.

Restricted Stock

On December 23, 2013, the Company issued 450,224 shares of restricted stock to employees and 79,067 shares of restricted stock to non-employees at a grant date fair value of $7.42 per share. The aggregate grant date fair value for the shares of restricted stock issued on December 23, 2013 totaled approximately $3.9 million. The Company records stock-based compensation expense for restricted stock awards based on the grant date fair value for employees and the reporting date and upon vesting fair value for non-employees. The fair value of the award is considered the intrinsic value as of each measurement date. Compensation expense related to the restricted stock awards was being recognized over the associated requisite service period. The Company recorded approximately $0.1 million of stock-based compensation expense related to restricted stock during each of the three and six months ended June 30, 2017. Restricted shares were fully vested as of December 31, 2017 and there were no additional grants of restricted stock during the six months ended June 30, 2018, as such, there was no stock-based compensation expense related to restricted stock during the three and six months ended June 30, 2018.

Restricted Stock Units

On February 28, 2018, as part of the Company’s annual grant of equity, the Company issued 367,250 RSUs to employees. In addition, the Company occasionally issues RSUs not in connection with the annual grant process to employees. 100% of each RSU grant vests on either the first or the third anniversary of the grant date, subject, in each case, to the individual’s continued service through the applicable vesting date. The expense recognized for these awards is based on the grant date fair value of the Company’s common stock multiplied by the number of units granted and recognized on a straight-line basis over the vesting period. The Company recorded approximately $0.8 million and $0.7 million of stock-based compensation expense related to the RSUs during the three months ended June 30, 2018 and 2017, respectively, and approximately $1.0 million and $1.1 million during the six months ended June 30, 2018 and 2017, respectively.

Employee Stock Purchase Plan

The Company issued 17,569 shares during the first six months of 2018. The Company recorded approximately $41,000 and $42,000 of stock-based compensation expense related to the ESPP during the three months ended June 30, 2018 and 2017, respectively, and approximately $0.1 million during each of the six months ended June 30, 2018 and 2017.

Stock-Based Compensation Expense Summary

The Company has classified its stock-based compensation expense related to share-based awards as follows:

	Three Months Ended				Six Months Ended
	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
	(in thousands)				(in thousands)
Research and development	$	825	$	997	$	1,442	$	5,171	⁽¹⁾
General and administrative		1,669		1,508		3,283		2,764
Total	$	2,494	$	2,505	$	4,725	$	7,935

⁽¹⁾	This amount includes $3.4 million of fair value related to the warrant issued to Janssen.

Compensation expense by type of award:

	Three Months Ended				Six Months Ended
	June 30, 2018		June 30, 2017		June 30, 2018		June 30, 2017
	(in thousands)				(in thousands)
Stock options	$	1,673	$	1,747	$	3,615	$	3,324
Restricted stock		—		57		—		65
Restricted stock units		780		659		1,009		1,050
Employee stock purchase plan		41		42		101		83
Warrant		—		—		—		3,413
Total	$	2,494	$	2,505	$	4,725	$	7,935