Stock-Based Compensation

The Company incurs stock-based compensation expense related to restricted stock units and stock options. The fair value of restricted stock is determined by the closing price of the Company's common stock reported on the Nasdaq Global Select Market on the date of grant. The Company estimates the fair value of stock options granted using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of subjective assumptions, including the expected stock price volatility and expected option life. The Company amortizes the fair value of the awards on a straight-line basis over the requisite vesting period of the awards. Expected volatility is based on historical volatility. The expected life of options granted is based on historical expected life. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The dividend yield is based on the fact that no dividends have been paid historically and none are currently expected to be paid in the foreseeable future.

The weighted average assumptions used in the Black-Scholes model for option grants to employees and directors are presented below:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Risk-free interest rate	1.75%	2.86%	2.43%	2.73%
Expected volatility	65%	71%	70%	72%
Expected life in years	6.1	6.1	6.2	6.2
Dividend yield	—	—	—	—

Total employee and director stock-based compensation expense recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2019 was $1.8 million and $8.1 million, respectively, of which $922,000 and $5.1 million, respectively, was included in research and development expenses, and $885,000 and $3.0 million, respectively, was included in general and administrative expenses.

Total employee and director stock-based compensation expense recognized in the condensed consolidated statements of operations for the three and nine months ended September 30, 2018 was $2.2 million and $8.0 million, respectively, of which $1.2 million and $4.7 million, respectively, was included in research and development expenses, and $1.0 million and $3.3 million, respectively, was included in general and administrative expenses.

At September 30, 2019, there was $4.3 million of total unrecognized compensation expense related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.9 years.

The weighted average grant date fair value per share, calculated using the Black-Scholes option pricing model, was $1.65 and $2.20 for employee and director stock options granted during the three and nine months ended September 30, 2019, respectively, and $2.96 and $2.85 for employee and director stock options granted during the three and nine months ended September 30, 2018, respectively.

At September 30, 2019, there was $5.3 million of total unrecognized compensation expense related to unvested restricted stock units, which is expected to be recognized over a weighted-average period of 1.7 years.

The weighted average grant date fair value per share was $2.68 and $3.09 for restricted stock units granted during the three and nine months ended September 30, 2019, respectively, and $4.31 for restricted stock units granted during the nine months ended September 30, 2018. There were no restricted stock units granted during the three months ended September 30, 2018.

The Company adopted ASU 2018-07 on January 1, 2019, which generally aligned the accounting for stock-based compensation for non-employees with that of employees. The fair value of stock options granted to non-employees was estimated using the Black-Scholes pricing model. Total stock-based compensation expense for stock options and restricted stock units granted to non-employees for the three and nine months ended September 30, 2019 was $264,000 and $744,000, respectively. Total stock-based compensation expense for stock options and restricted stock units granted to non-employees for the three and nine months ended September 30, 2018 was $160,000 and $334,000 respectively.