11. Share-Based Payments

Stock Option Plan 2015

On April 2, 2015, the Company’s shareholders, management board and supervisory board adopted the Stock Option Plan 2015 (the “SOP 2015”) and the shareholders approved an amended and restated version of the SOP 2015 on June 30, 2015. An amendment to the amended and restated SOP 2015 was approved by the shareholders on July 22, 2015. SOP 2015 became effective on July 3, 2015 upon the registration with the commercial register in Austria of the conditional capital increase approved by the shareholders on June 30, 2015. The SOP 2015 initially provided for the grant of options for up to 95,000 Nabriva Austria common shares to the Company’s employees, including members of the management board, and to members of the supervisory board. Following the closing of the initial public offering of the Company, the overall number of options increased to 177,499 Nabriva Austria common shares. Following approval by the Company’s shareholders at its 2016 annual general meeting, the number of shares available for issuance under the SOP 2015 was increased to 346,235 Nabriva Austria common shares.

Each vested option grants the beneficiary the right to acquire one share in the Company. The vesting period for the options is four years following the grant date. On the last day of the last calendar month of the first year of the vesting period, 25% of the options attributable to each beneficiary are automatically vested. During the second, third and fourth years of the vesting period, the remaining 75% of the options vest on a monthly pro rata basis (i.e. 2.083% per month). Options granted under the SOP 2015 have a term of no more than ten years from the beneficiary’s date of participation.

The following table summarizes information regarding our stock option awards under the SOP 2015:


	2016		2017		2018
	Weighted		Weighted		Weighted
	average		average		average
	exercise		exercise		exercise		Aggregate
	price in		price in		price in		intrinsic
Stock Option Plan 2015	$ per share	Options	$ per share	Options	$ per share	Options	value
Outstanding as of January 1	7.61	1,092,300	7.83	1,794,360	8.35	3,044,899
Granted	8.02	922,130	9.02	1,458,300	—	—
Exercised	7.21	(23,360)	—	—	—	—
Forfeited	7.64	(196,710)	8.60	(207,761)	8.41	(201,986)
Outstanding as of December 31	7.83	1,794,360	8.35	3,044,899	8.34	2,842,913	—
Vested and exercisable as of December 31	7.52	452,210	7.68	989,656	8.10	1,844,590	—

The total intrinsic value of options exercised during the year ended December 31, 2016 was $181.

The Company has 2,842,913 option grants outstanding at December 31, 2018 with exercise prices ranging from $4.06 per share to $11.00 per share and a weighted average remaining contractual life of 7.4 years.

Stock-based compensation expense under the SOP 2015 was $2.5 million, $5.6 million and $3.2 million for the years ended December 31, 2016, 2017 and 2018, respectively. The weighted average fair value of the options granted during the years ended December 31, 2016 and 2017 was $4.76 per share, $5.05 per share, respectively.

The grant date fair value of each option grant was estimated throughout the year using the Black-Scholes option-pricing model using the following assumptions:


Input parameters	2016	2017
Expected volatility	59.8% - 67.2%	55.6% - 62.0%
Expected term of options	6.0 years	6.1 years
Risk-free interest rate	1.15% - 2.09%	1.89% - 2.10%
Expected dividend yield	–	–

The expected price volatility is based on historical trading volatility for the publicly traded peer companies under consideration of the remaining life of the options. The risk free interest for the years 2016 and 2017, is based on the average of 5 and 7-year market yield on U.S. treasury securities in effect at the time of grant.

As of December 31, 2018, there was $5.4 million of unrecognized compensation expense, related to unvested options granted under the SOP 2015 Plan, which will be recognized over the weighted average remaining vesting period of 2.1 years.

2017 Share Incentive Plan

On July 26, 2017, the Company’s board of directors adopted the 2017 Share Incentive Plan (the “2017 Plan”) and the shareholders approved the 2017 Plan at the Company’s Extraordinary General Meeting of Shareholders on September 15, 2017. Following shareholder approval of the 2017 Plan, the Company ceased making awards under the SOP 2015, and future awards will be made under the 2017 Plan. However, all outstanding awards under SOP 2015 will remain in effect and continue to be governed by the terms of the SOP 2015. The 2017 Plan permits the award of share options (both incentive and nonstatutory options), share appreciation rights (“SARs”), restricted shares, restricted share units (“RSUs”), and other share-based awards to the Company’s employees, officers, directors, consultants and advisers. The 2017 Plan is administered by the Company’s board of directors.

Under the 2017 Plan, the number of ordinary shares that will be reserved for issuance will be the sum of (1) 3,000,000 ordinary shares; plus (2) a number of ordinary shares (up to 3,438,990 ordinary shares) which is equal to the sum of the number of the Company’s ordinary shares then available for issuance under the SOP 2015 and the number of ordinary shares subject to outstanding awards under the SOP 2015 that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right; plus (3) an annual increase, to be added on the first day of each fiscal year beginning in the fiscal year ending December 31, 2018 and continuing until, and including, the fiscal year ending December 31, 2027, equal to the least of (i) 2,000,000 ordinary shares, (ii) 4% of the number of outstanding ordinary shares on such date and (iii) an amount determined by the board of directors.

At December 31, 2018, 5,064,378 ordinary shares were available for issuance under the 2017 Plan.

Options and SARs granted will be exercisable at such times and subject to such terms and conditions as the board may specify in the applicable option agreement; provided, however, that no option or SAR will be granted with a term in excess of ten years. The board will also determine the terms and conditions of restricted shares and RSUs, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.

The following table summarizes information regarding our stock option awards under the 2017 Plan at December 31, 2018:


	2017		2018
	Weighted		Weighted
	average		average
	exercise		exercise		Aggregate
	price in $		price in $		intrinsic
Stock Option Plan 2017	per share	Options	per share	Options	value
Outstanding as of January 1	—	—	6.92	294,100
Granted	6.92	294,100	5.27	2,199,225
Exercised	—	—	—	—
Forfeited	—	—	6.75	(94,900)
Outstanding as of December 31	6.92	294,100	5.41	2,398,425	—
Vested and exercisable as of December 31	—	—	6.88	119,287	—

There were no options exercised during the years ended December 31, 2017 and 2018.

The Company has 2,398,425 option grants outstanding at December 31, 2018 with exercise prices ranging from $1.46 per share to $8.35 per share and a weighted average remaining contractual life of 9.3 years.

Stock-based compensation expense under the 2017 Plan was $0.1 million and $1.8 million for the years ended December 31, 2017 and 2018, respectively. The weighted average fair value of the options granted during years ended December 31, 2017 and 2018 was $3.98 and $3.06 per share, respectively, based on a Black Scholes option pricing model using the following assumptions:


Input parameters	2017	2018
Expected volatility	59.5% - 63.0%	59.8% - 61.4%
Expected term of options	6.0	6.1
Risk-free interest rate	1.93% - 2.27%	2.55% - 3.03%
Expected dividend yield	–	–

The expected price volatility is based on historical trading volatility for the publicly traded peer companies under consideration of the remaining life of the options. The risk free interest rate is based on the average of 5 and 7 year market yield on U.S. treasury securities in effect at the time of grant.

As of December, 2018, there was $5.7 million of total unrecognized compensation expense, related to unvested options granted under the 2017 Plan, which will be recognized over the weighted-average remaining vesting period of 3.1 years.

Restricted Stock Units (“RSUs”)

During the year ended December 31, 2018, the Company granted 407,150 RSUs with a weighted average grant date fair value of $5.82 per share. As of December 31, 2018, there were 387,800 RSUs outstanding. Vesting of the RSUs is subject to FDA approval of the new drug application (“NDA”) for lefamulin. Fifty percent (50%) of each RSU award will vest upon FDA approval of an NDA for lefamulin, and the remaining fifty percent (50%) will vest on the one-year anniversary of such approval. If the FDA does not approve an NDA for lefamulin within two years of the grant date, the RSU award will terminate in full. No compensation expense was recognized for these RSUs as vesting is not probable at December 31, 2018.

Also, during the year ended December 31, 2018, the Company granted 834,300 RSUs to certain employees with a grant date fair value of $2.16 per share. These RSUs will vest in three six month increments beginning in May of 2019 and ending in May 2020. As of December 31, 2018, there were 834,300 of such RSUs outstanding. As of December 31, 2018, $0.2 million of compensation expense was recognized for these RSUs.

Inducement Award

In July 2018, the Company granted a non-statutory option to purchase 850,000 of its ordinary shares and 150,000 performance-based RSUs to the Company’s newly appointed Chief Executive Officer (the “CEO”). These equity awards were granted outside of the 2017 Plan, were approved by the Company’s compensation committee and board of directors and were made as an inducement material to the CEO entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). The exercise price per share for the share option is $3.53 per share, and the option award has a ten-year term and will vest over a four-year period, with 25% of the shares underlying the award vesting on the first anniversary of the grant date and the remaining 75% of the shares underlying the option award to vest monthly over the subsequent 36-month period. The performance-based RSUs are subject to vesting as follows: 50% will vest upon certification by the board of directors of the receipt of approval by the FDA of an NDA for each of lefamulin and CONTEPO for any indication, and 50% will vest on the first anniversary of such certification by the board of directors, provided, in each case, the CEO is performing services to the Company on the applicable vesting dates. If the FDA does not approve an NDA for both lefamulin and CONTEPO by January 31, 2020, the performance-based RSUs will terminate in full.

Stock-based compensation expense was $0.2 million for the year ended December 31, 2018. The performance-based RSUs had a grant date fair value of $3.53 per share and the options had a grant date fair value of $2.05 per share based on a Black Scholes option pricing model using the following assumptions.


Input parameters
Expected volatility	59.8	%
Expected term of options (in years)	6.1
Range of risk-free interest rate	2.9	%
Dividend yield	—

The weighted average remaining contractual life of the options as of December 31, 2018 is 9.6 years.

Our share-based compensation expense has been allocated to research and development and general and administrative expenses in the Consolidated Statement of Operations and Comprehensive Loss as follows:


	Year ended December 31,
(in thousands)	2016		2017		2018
Research and development	$	894	$	2,128	$	1,406
General and administrative		1,651		3,604		3,748
Total	$	2,545	$	5,732	$	5,154

Employee Stock Purchase Plan

The Company’s board of directors adopted, and in August 2018 Company’s stockholders approved, the 2018 employee stock purchase plan (the “2018 ESPP”). The maximum aggregate number of shares of ordinary shares that may be purchased under the 2018 ESPP is 500,000 shares, (the “ESPP Share Pool”), subject to adjustment as provided for in the 2018 ESPP. The ESPP Share Pool represented 0.75% of the total number of shares of ordinary shares outstanding as of December 31, 2018. The 2018 ESPP allows eligible employees to purchase shares at a 15% discount to the then current market price of the Company’s ordinary shares during certain offering periods, which will be six -month periods commencing November 1 and ending April 30 and commencing May1 and ending October 31 of each year. The first offering under the 2018 ESPP commenced on November 1, 2018.