Stock Option Plan | 1 2 . Stock Option Plan In 2009, the Company adopted the 2009 Equity Incentive Plan or the Plan. Under the Plan, shares of the Company’s common stock have been reserved for the issuance of stock options to employees, directors, and consultants under terms and provisions established by the Board of Directors. Under the terms of the Plan, options may be granted at an exercise price not less than fair market value. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for incentive and non-statutory stock options may not be less than 110% of fair market value, as determined by the Board of Directors. The terms of options granted under the Plan may not exceed ten years. The vesting schedule of newly issued option grants is generally four years. As discussed in Note 5, the Company assumed all of the outstanding options, whether or not vested, under the Eiger Plan, with such options henceforth representing the right to purchase a number of shares of the Company’s common stock equal to approximately 0.09 multiplied by the number of shares of Eiger common stock previously represented by such options. For accounting purposes, however, the Company is deemed to have assumed the Celladon 2013 Equity Incentive Plan. Because the Company is considered to be the acquirer for accounting purposes, the pre-Merger vested stock options granted by Celladon are deemed to have been exchanged for equity awards of the Company and, as such, the portion of the acquisition date fair value of these equity awards attributable to pre-Merger service to Celladon were accounted for as a component of the consideration transferred, which was inconsequential to the consolidated financial statements. The exchange of options to purchase shares of Eiger common stock for options to purchase shares of the Combined Company, was accounted for as a modification of the awards because the legal exchange of the awards is considered a modification of Eiger stock options. The modification of the stock options did not result in any incremental compensation expense as In June 2016, the Company’s Board of Directors adopted and in August 2016 the Company’s stockholders approved the amended and restated 2013 Equity Incentive Plan (the “Restated 2013 Plan”), which increased the number of shares reserved for grant by 1,296,683 shares. Under the terms of the Restated 2013 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then employees, officers, non-employee directors or consultants of the Company. All awards granted prior to the approval of the Restated 2013 Plan remain subject to the terms of the previous plans and the applicable award agreements. The following table summarizes stock option activity under both the Company’s stock-based compensation plans during the year ended December 31, 2018 (in thousands, except share and per share data): Shares Available for Grant Number of Options Weighted- Average Exercise Price Per Weighted- Average Remaining Contractual Life (in Years) Aggregate Intrinsic Value Outstanding as of December 31, 2017 799,375 1,467,051 $ 12.70 8.41 $ 4,511 Additional options authorized 526,330 Granted (867,500 ) 867,500 $ 10.34 Exercised (41,208 ) $ 7.52 Forfeited or cancelled 297,132 (297,132 ) $ 12.63 Outstanding as of December 31, 2018 755,337 1,996,211 $ 11.80 7.54 $ 2,347 Vested and exercisable as of December 31, 2018 1,004,316 $ 12.36 6.52 $ 1,647 The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the closing price of the Company’s common stock of $10.16 as of December 31, 2018. The aggregate intrinsic value of stock options exercised in 2018, 2017 and 2016 was $0.2 million, $0.1 million and $0.1 million, respectively. During the years ended December 31, 2018, 2017 and 2016, the Company granted employee stock options for the purchase of 799,500, 579,700 and 902,028 shares of the Company’s common stock, respectively, with a weighted-average grant date fair value of $7.50, $7.66 and $10.40 per share, respectively. The Company records stock-based compensation of stock options granted to employees by estimating the fair value of stock-based awards using the Black-Scholes option pricing model and amortizing the fair value of the stock-based awards granted over the applicable vesting period of the awards on a straight-line basis. The fair value of stock options was estimated using the following weighted-average assumptions: Year Ended December 31, 2018 2017 2016 Expected term (in years) 5.27 - 6.08 5.27 - 6.08 5.27 - 6.08 Contractual term (in years) 9.67 - 9.84 6.00 - 10.00 6.75 - 10.00 Volatility 84.00% - 95.00% 79.00% - 80.00% 73.91% - 78.00% Risk free interest rate 1.67% - 2.68% 1.63% - 2.23% 1.21% - 2.27% Dividend yield — — — Each of these inputs is subjective and generally requires judgment to determine. Fair Value of Common Stock : Prior to the Merger, the fair value of the shares of common stock underlying stock options was determined by the Company’s Board of Directors. In order to determine the fair value of the common stock at the time of grant of the option, the Board of Directors considered, among other things, valuations performed by an independent third-party. Because there was no public market for the Company’s common stock, the Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of the Company’s common stock, including important developments in the Company’s operations, sales of convertible preferred stock, actual operating results and financial performance, the conditions in the life sciences industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common stock, among other factors. Following the Merger, the Company’s Board of Directors determined the fair value of each share of underlying common stock based on the closing price of the Company’s common stock as reported on the date of grant. Expected Term : The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term for employee options). Upon adoption of ASU 2018-07, the Company elected to use the contractual term to determine the non-employee award fair value at the grant date. The contractual term of options granted under the Plan is ten years. Expected Volatility : Since the Company does not have a long trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, or stage in the life cycle. Risk-Free Interest Rate : The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option. Expected Dividend : The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero. Modification of Stock Awards In December 2018, the Company entered into a Separation Agreement with its former Chief Financial Officer which resulted in the acceleration in the vesting of certain unvested stock options as well as the extension of the exercise period for all vested options. As a result of the modification, the Company recorded stock-based compensation expense of $0.3 million during the year ended December 31, 2018 to reflect the revised service period for the stock options and related vesting of shares that would otherwise not have vested. Stock-Based Compensation Expense Total stock-based compensation expense recognized for options granted to employees and non-employees was as follows (in thousands): Year Ended December 31, 2018 2017 2016 Research and development $ 1,500 $ 1,214 $ 737 General and administrative 3,507 3,029 2,453 Total stock-based compensation expense $ 5,007 $ 4,243 $ 3,190 As of December 31, 2018, the total unrecognized compensation expense related to unvested options was $8.5 million, which the Company expects to recognize over an estimated weighted average period of 2.6 years. |