Annual report pursuant to Section 13 and 15(d)

Stock-based Compensation

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Stock-based Compensation
12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Stock-based Compensation Stock-based Compensation
Equity Incentive Plans
In June 2019, our board of directors (the "Board") and stockholders approved the 2019 Incentive Award Plan (the "2019 Plan"). The 2019 Plan superseded and replaced in its entirety our 2010 Equity Incentive Plan (the “2010 Plan”) which was effective in March 2010, and no further awards will be granted under the 2010 Plan; however, the terms and conditions of the 2010 Plan will continue to govern any outstanding awards thereunder. The 2010 Plan provided for the grant of incentive stock options, non-statutory stock options, restricted stock units ("RSUs"), restricted stock awards ("RSAs"), performance-contingent restricted stock units ("PSUs"), performance based options ("PBOs"), stock appreciation rights, and stock purchase rights to our employees, non-employee directors and consultants.
The number of shares of our common stock available for issuance under the 2019 Plan is equal to the sum of (i) 7,897,144 shares, and (ii) any shares subject to awards granted under the 2010 Plan that were outstanding as of April 22, 2019 and thereafter terminate, expire, lapse or are forfeited; provided that no more than 14,000,000 shares may be issued upon the exercise of incentive stock options (“ISOs”). In June 2019, 8.1 million shares authorized for issuance under the 2019 Plan were registered under the Securities Act of 1933, as amended (the “Securities Act”).
The 2019 Plan provided for the grant of stock options, including incentive stock options and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock or cash based awards and dividend equivalents to eligible employees and consultants of the Company or any parent or subsidiary, as well as members of the Board.
As of December 31, 2019, total shares remaining available for issuance under the 2019 Plan were approximately 7.9 million shares.
Stock Options
The option exercise price for incentive stock options must be at least 100% of the fair value of our common stock on the date of grant and the option exercise price for non-statutory stock options is 85% of the fair value of our common stock on the date of grant, as determined by the Board. If, at the time of a grant, the optionee directly or by attribution owns stock possessing more than 10% of the total combined voting power of all of our outstanding capital stock, the exercise price for these options must be at least 110% of the fair value of the underlying common stock. Stock options granted to employees generally have a maximum term of 10 years and vest over 4 years from the date of grant, of which 25% vest at the end of one year, and 75% vest monthly over the remaining three years. We may grant options with different vesting terms from time to time. Unless an employee's termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier.
Restricted Stock Units (RSUs)
We also grant employees RSUs, which generally vest over either a three year period with one-third of the shares subject to the RSUs vesting on each yearly anniversary of the vesting commencement date or over a four year period with 25% of the shares subject to the RSU vesting on each yearly anniversary of the vesting commencement date, in each case contingent upon such employee’s continued service on such vesting date. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. We may grant RSUs with different vesting terms from time to time.
Performance-contingent Restricted Stock Units (PSUs) and Performance Based Options (PBOs)
The compensation committee of the Board approved, solely in respect of non-executive employees, delegated to our Chief Executive Officer the authority to approve grants of PSUs. The compensation committee of the Board also approved grants of PBOs and PSUs to our executives. The PSUs and PBOs vest based upon both the successful achievement of certain corporate operating milestones in specified timelines and continued employment through the applicable vesting date. When the performance goals are deemed to be probable of achievement for these types of awards, recognition of stock-based compensation expense commences. Once the number of shares eligible to vest is determined, those shares vest in two equal installments with 50% vesting upon achievement and the remaining 50% vesting on the first anniversary of achievement, in each case, subject to the recipient’s continued service through the applicable vesting date. If the performance goals are achieved at the threshold level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to half the number of PSUs granted and one-quarter the number of shares underlying the PBOs granted. If the performance goals are achieved at the target level, the number of shares eligible to vest in respect of the PSUs and PBOs would be equal to the number of PSUs granted and half of the shares underlying the PBOs granted. If the performance goals are achieved at the superior level, the number of shares eligible to vest in respect of the PSUs would be equal to two times the number of PSUs granted and equal to the number of PBOs granted. The number of shares issuable upon achievement of the performance goals at the levels between the threshold and target levels for the PSUs and PBOs or between the target level and superior levels for the PSUs would be determined using linear interpolation. Achievement below the threshold level would result in no shares being eligible to vest in respect of the PSUs and PBOs.
In the first quarter of 2019, we awarded PSUs ("2019 PSUs") and PBOs ("2019 PBOs"), each of which commenced vesting based upon the achievement of various weighted performance goals, including sustained revenue and performance enzyme growth, strategic advancement of biotherapeutics, cash balance and strategic plan development. As of December 31, 2019, we estimated that the 2019 PSUs and 2019 PBOs performance goals would be achieved at 84% of the target level, and recognized expenses accordingly.
In the first quarter of 2018, we awarded PSUs ("2018 PSUs") and PBOs ("2018 PBOs"), each of which commenced vesting based upon the achievement of various weighted performance goals, including core business revenue growth, cash balance, new licensing collaborations, new research and development service revenue arrangements, technology advancement and novel therapeutic enzymes advancement. In the first quarter of 2019, we determined that the 2018 PSUs and 2018 PBOs performance goals had been achieved at 118% of the target level, and recognized expenses accordingly. Accordingly, one-half of the shares underlying the 2018 PSUs and PBOs vested in the first quarter of 2019 and one-half of the shares underlying the 2018 PSUs and PBOs will vest in the first quarter of 2020, in each case subject to the recipient’s continued service on each vesting date.
In 2017, we awarded PSUs ("2017 PSUs") and PBOs ("2017 PBOs"), each of which commenced vesting based upon the achievement of various weighted performance goals, including revenue growth, fundraising, service revenue, new platform license revenue, and strategic advancement. In the first quarter of 2018, we determined that the 2017 PSU and PBO performance goals had been achieved at 134.2% of the target level, and recognized expenses accordingly. Accordingly, one-half of the shares underlying the 2017 PSUs and PBOs vested in the first quarter of 2018 and one-half of the shares underlying the 2017 PSUs and PBOs vested in the first quarter of 2019, in each case subject to the recipient’s continued service on each vesting date.
Stock-Based Compensation Expense:
Stock-based compensation expense is included in the consolidated statements of operations as follows (in thousands):
 
  Year Ended December 31,
  2019 2018 2017
Research and development $ 1,562    $ 2,055    $ 1,444   
Selling, general and administrative 5,381    5,834    5,647   
Total $ 6,943    $ 7,889    $ 7,091   
The following table presents total stock-based compensation expense by security type included in the consolidated statements of operations (in thousands):
  Year Ended December 31,
  2019 2018 2017
Stock options $ 2,149    $ 1,975    $ 1,554   
RSUs and RSAs 1,805    1,770    1,888   
PSUs 1,087    1,511    1,792   
PBOs 1,902    2,633    1,857   
Total $ 6,943    $ 7,889    $ 7,091   

Grant Award Activities:

Stock Option Awards
We estimated the fair value of stock options using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarize the ranges of weighted-average assumptions used to estimate the fair value of employee stock options granted:
  Year Ended December 31,
  2019 2018 2017
Expected life (years) 5.6 5.6 5.4
Volatility 55.3  % 60.0  % 62.2  %
Risk-free interest rate 2.4  % 2.7  % 2.0  %
Expected dividend yield 0.0  % 0.0  % 0.0  %

In October 2017, we granted an option to purchase 11,100 shares of common stock to a non-employee as compensation for services valued at $48 thousand with the following assumptions used to estimate the fair value of non-employee stock options: (i) volatility rate at 60.6%, risk-free interest rate of 2.4% and (ii) no expected dividend yield. The option vested over a period of six months with one-sixth of total number of shares subject to the option vesting on each one month anniversary of the grant date. During the years ended December 31, 2019 and December 31, 2018, we did not grant any options to purchase shares of common stock to non-employees.
The following tables summarizes stock option activities:
Number
of
Shares
Weighted
Average
Exercise Price Per Share
(In Thousands)
Outstanding at December 31, 2016 3,890    $ 4.40   
Granted
856    $ 4.57   
Exercised
(86)   $ 3.10   
Forfeited/Expired
(81)   $ 7.72   
Outstanding at December 31, 2017 4,579    $ 4.40   
Granted
645    $ 9.56   
Exercised
(772)   $ 5.56   
Forfeited/Expired
(340)   $ 6.66   
Outstanding at December 31, 2018 4,112    $ 4.81   
Granted 406    $ 20.68   
Exercised (1,045)   $ 4.50   
Forfeited/Expired (326)   $ 11.01   
Outstanding at December 31, 2019 3,147    $ 6.31   

Number
of
Shares
Weighted
Average
Exercise Price Per Share
Weighted
Average
Remaining
Contractual Term
Aggregate Intrinsic
Value
(In Thousands) (In Years) (In Thousands)
Outstanding at December 31, 2019 3,147    $ 6.31    5.6 $ 31,961   
Exercisable at December 31, 2019 2,415    $ 4.23    4.7 $ 28,406   
Vested and expected to vest at December 31, 2019 3,050    $ 6.05    5.5 $ 31,600   

The weighted average grant date fair value per share of stock options granted in 2019, 2018 and 2017 were $10.77, $5.34 and $2.51, respectively. The total intrinsic value of options exercised in 2019, 2018 and 2017 were $13.6 million, $7.6 million and $0.2 million, respectively.
As of December 31, 2019, there was $3.7 million of unrecognized stock-based compensation cost related to non-vested options, which we expect to recognize over a weighted average period of 2.39 years.
Restricted Stock Awards (RSAs)
The following table summarizes RSA activities:
Number
of
Shares
Weighted Average
Grant Date
Fair Value
Per Share
(In Thousands)  
Non-vested balance at December 31, 2016 230    $ 3.82   
Granted
143    $ 4.75   
Vested
(214)   $ 3.81   
Non-vested balance at December 31, 2017 159    $ 4.68   
Granted
47    $ 14.35   
Vested
(151)   $ 4.71   
Non-vested balance at December 31, 2018 55    $ 12.83   
Granted 40    $ 17.18   
Vested (56)   $ 12.83   
Forfeited/Expired (4)   $ 17.18   
Non-vested balance at December 31, 2019 35    $ 17.18   

The total fair value, as of the vesting date, of RSAs vested in fiscal 2019, 2018 and 2017 were $1.0 million, $2.1 million and $1.0 million respectively.
As of December 31, 2019, there was $0.2 million of unrecognized stock-based compensation cost related to non-vested RSAs, which we expect to recognize over a weighted average period of 0.4 years.

Restricted Stock Units (RSUs)
The following table summarizes RSU activities:
Number
of
Shares
Weighted Average
Grant Date
Fair Value
Per Share
(In Thousands)  
Non-vested balance at December 31, 2016 617    $ 3.69   
Granted
275    $ 4.22   
Vested
(302)   $ 3.40   
Forfeited/Expired
(30)   $ 4.12   
Non-vested balance at December 31, 2017 560    $ 4.08   
Granted
86    $ 10.56   
Vested
(290)   $ 4.09   
Forfeited/Expired
(8)   $ 4.73   
Non-vested balance at December 31, 2018 348    $ 5.66   
Granted 72    $ 19.19   
Vested (210)   $ 5.03   
Forfeited/Expired (9)   $ 13.60   
Non-vested balance at December 31, 2019 201    $ 10.76   
The total fair value, as of the vesting date, of RSUs vested in fiscal 2019, 2018 and 2017 were $4.1 million, $2.9 million and $1.3 million respectively.
As of December 31, 2019, there was $1.1 million of unrecognized stock-based compensation cost related to non-vested RSUs, which we expect to recognize over a weighted average period of 0.7 years.

Performance-Contingent Restricted Stock Units (PSUs)
The following table summarizes PSU activities:
Number
of
Shares
Weighted Average
Grant Date
Fair Value
Per Share
(In Thousands)  
Non-vested balance at December 31, 2016 831    $ 3.88   
Granted
276    $ 4.25   
Vested
(651)   $ 3.84   
Forfeited/Expired
(27)   $ 3.65   
Non-vested balance at December 31, 2017 429    $ 4.20   
Granted
306    $ 6.71   
Vested
(495)   $ 7.16   
Non-vested balance at December 31, 2018 240    $ 7.48   
Granted 95    $ 14.98   
Vested (200)   $ 6.58   
Forfeited/Expired
(15)   $ 15.58   
Non-vested balance at December 31, 2019 120    $ 13.88   

The total fair value, as of the vesting date, of PSUs vested in the years ended December 31, 2019, 2018, and 2017 were $3.8 million, $5.4 million, and $2.7 million, respectively.
As of December 31, 2019, there was $0.3 million of unrecognized stock-based compensation cost related to non-vested PSUs, which we expect to recognize over a weighted average period of 0.4 years.

Performance Based Options (PBOs)
We estimated the fair value of PBO using the Black-Scholes-Merton option-pricing model based on the date of grant. The following summarize the ranges of weighted-average assumptions used to estimate the fair value of employee stock options granted:
  Year Ended December 31,
  2019 2018 2017
Expected life (years) 5.58 5.63 5.33
Volatility 55.8  % 60.3  % 62.3  %
Risk-free interest rate 2.5  % 2.7  % 2.0  %
Expected dividend yield 0.0  % 0.0  % 0.0  %
The following table summarizes PBO activities:
Number of Shares Weighted Average Grant Date Fair Value Per Share
(in thousands)  
Outstanding at December 31, 2016 —    $ —   
Granted 1,720    $ 2.54   
Outstanding at December 31, 2017 1,720    $ 2.54   
Granted
1,200    $ 5.02   
Exercised (84)   $ 2.54   
Forfeited (1,254)   $ 3.73   
Outstanding at December 31, 2018 1,582    $ 3.47   
Granted
718    $ 11.44   
Exercised
(422)   $ 3.17   
Forfeited
(618)   $ 10.34   
Outstanding at December 31, 2019 1,260    $ 4.75   

Number
of
Shares
Weighted
Average
Exercise Price Per Share
Weighted
Average
Remaining
Contractual Term
Aggregate Intrinsic
Value
(In Thousands) (In Years) (In Thousands)
Exercisable at December 31, 2019 863    $ 5.57    7.3 $ 8,993   
Vested and expected to vest at December 31, 2019 1,213    $ 8.47    7.7 $ 10,181   

The total fair value of exercised PBOs were $1.3 million for 2019, $0.2 million for 2018 and zero for 2017. As of December 31, 2019, there was $0.9 million of unrecognized stock-based compensation cost related to non-vested PBOs, which we expect to recognize over a weighted average period of 0.8 years.