13. Share-based payments

The Company has three share-based payment plans for employees, directors and consultants. The share options granted will be settled in equity.

2016 options

In 2016, share options were granted under the following share-based payment plans:

U.K. share-based payment plans

Options granted under these plans will vest if the option holder remains under their respective employment/consultancy contract for the agreed vesting period. The majority of the share options granted under these plans will vest equally over a period of four years, with the exception of the following:

1) options granted to a director, under which a third of the options granted vested immediately with the remaining two-thirds vesting each subsequent year; and

13. Share-based payments (continued)

2) options granted to three employees, under which two thirds of the options vested immediately with the remaining third vesting in 2017.

Upon vesting, each option allows the holder to purchase one ordinary share at a specified option price determined at grant date.

Stock option plan (U.S. Sub-Plan)

On June 30, 2016, share options were granted under this sub-plan, which will vest equally over a period of four years if the option holder remains under the respective employment contract. Upon vesting, each option allows the holder to purchase one ordinary share at a specified option price determined at grant date.

On December 12, 2016, 45,750 share options were granted to a non-executive director with an exercise price of £4.00 each, which could be exercised within six months after the grant date. The share options were exercised on December 29, 2016. In terms of the stock option agreement, should that non-executive director cease holding office within the four years from the grant date then a reducing number, dependent upon when such cessation occurs, of these shares options so acquired may, at the Board’s discretion, be subject to a mandatory transfer notice.

These share options will only be fully unencumbered by such restriction after a period of four years from the expiration of the grant date and consequently the share-based payment expense is recognized on a straight-line basis.

Cancelled share option arrangement

During the year ended December 31, 2016, the share-based payment arrangements for three employees were cancelled. The cancellation of the original plan resulted in an acceleration of the remaining vesting period, with the remaining charge recognized in 2016 deemed immaterial.

2017 options

In 2017, share options were granted under the following share-based payment plans:

U.K. share-based payment plans

Options granted under these plans will vest if the option holder remains under their respective contract of employment or contract of service for the agreed vesting period. The share options granted under these plans will vest equally over a period of four years, with the exception of options granted to a director, under which the options granted vested immediately.

Upon vesting, each option allows the holder to purchase one ordinary share at a specified option price determined at grant date.

Stock option plan (U.S. Sub-Plan)

Options granted under these plans will vest if the option holder remains under their respective employment contract for the agreed vesting period. The share options granted under these plans will vest equally over a period of four years.

13. Share-based payments (continued)

Upon vesting, each option allows the holder to purchase one ordinary share at a specified option price determined at grant date.

Share options and weighted average exercise prices are as follows for the reporting periods presented:

	Number of shares			Weighted average exercise price per share
				£
Outstanding at January 1, 2015		2,873,747			0.26
Granted		—			—
Forfeited		—			—
Exercised		—			—
Outstanding at December 31, 2015		2,873,747			0.26
Granted		507,690			3.81
Forfeited		—			—
Cancelled		(50,000	)		2.95
Exercised¹		(83,250	)		2.40
Outstanding at December 31, 2016		3,248,187			0.72
Granted		1,500,815			2.58
Forfeited		(7,500	)		0.16
Cancelled		—			—
Exercised²		(30,000	)		4.00
Outstanding at December 31, 2017		4,711,502			1.29
Vested and exercisable at December 31, 2017³		4,030,833			0.36
Vested and exercisable at December 31, 2016		2,841,419			0.36
Vested and exercisable at December 31, 2015		2,262,500			0.23

1. The weighted average share price at the date of exercise of these options was £9.00

2. The weighted average share price at the date of exercise of these options was £10.43

3. Share options granted to a non-executive director in 2016 are not included in these calculations. These share options were exercised and will only be fully unencumbered after a period of four years from the grant date.

The weighted average remaining contractual life of the share options outstanding as at December 31, 2017 is 4.49 years (2016: 6.66; 2015: 6.18).

13. Share-based payments (continued)

The following principal assumptions were used in the valuation for the 2016 share options.

		Options granted on
		Jun 30, 2016				Aug 22, 2016				Aug 22, 2016				Aug 22, 2016				Aug 22, 2016
Vesting dates		Oct 12, 2016				Aug 22, 2016				Aug 22, 2016				Dec 07, 2016				Mar 01, 2017
		Oct 12, 2017				Aug 22, 2017				Aug 22, 2017				Dec 07, 2017				Mar 01, 2018
		Oct 12, 2018												Dec 07, 2018				Mar 01, 2019
		Oct 12, 2019												Dec 07, 2019				Mar 01, 2020
Volatility			69.05	%			67.92	%			67.92	%			67.92	%			67.92	%
Dividend yield			0	%			0	%			0	%			0	%			0	%
Risk-free investment rate			0.11	%			0.07	%			0.07	%			0.07	%			0.07	%
Fair value of option at grant date	£		4.02		£		6.15		£		6.01		£		5.74		£		5.62
Fair value of share at grant date	£		6.97		£		8.61		£		8.61		£		8.61		£		8.61
Exercise price at date of grant	£		4.00		£		2.80		£		3.00		£		3.40		£		3.60
Lapse date		June 30, 2026				Aug 22, 2026				Aug 22, 2026				Aug 22, 2026				Aug 22, 2026
Expected option life (years)			2.50				2.36				2.36				2.36				2.36
Number of options granted			270,690				12,500				37,500				25,000				11,250
		Options granted on
		Aug 22, 2016				Aug 22, 2016				Oct 28, 2016				Oct 28, 2016				Dec 12, 2016
Vesting dates		May 01, 2017				May 16, 2017				Oct 28, 2017				Oct 28, 2016				Dec 12, 2017
		May 01, 2018				May 16, 2018				Oct 28, 2018				Oct 28, 2017				Dec 12, 2018
		May 01, 2019				May 16, 2019				Oct 28, 2019				Oct 28, 2018				Dec 12, 2019
		May 01, 2020				May 16, 2020				Oct 28, 2020								Dec 12, 2020
Volatility			67.92	%			67.92	%			68.38	%			68.38	%			60.92	%
Dividend yield			0	%			0	%			0	%			0	%			0	%
Risk-free investment rate			0.07	%			0.07	%			0.28	%			0.28	%			0.06	%

Fair value of option at grant date	£		5.62		£		5.62		£		5.85		£		5.46		£		5.22
Fair value of share at grant date	£		8.61		£		8.61		£		8.76		£		8.76		£		9.19
Exercise price at date of grant	£		3.60		£		3.60		£		3.40		£		4.00		£		4.00
Lapse date		Aug 22, 2026				Aug 22, 2026				Oct 28, 2026				Oct 28, 2026				Dec 12, 2026
Expected option life (years)			2.36				2.36				2.17				2.17				0.50
Number of options granted			5,000				37,500				12,500				50,000				45,750

The fair values of options granted were determined using the Black-Scholes model that takes into account factors specific to the share incentive plan such as the assumption that the options will be exercised at a single point in time, in December 2018. This has been incorporated into the measurement by means of actuarial modelling. As NuCana plc was unlisted at the grant date of the options, it is not possible to derive historical volatility from the Company’s own share price. The underlying expected volatility was therefore determined by using the historical volatility of similar listed entities as a proxy. The volatility percentage applied to each tranche is the average of the historical volatility of companies comparable to NuCana plc. In prior years, management made contemporaneous valuation of the share price, based on recent capital transactions, as an input to the Black-Scholes model. For the 2016 awards, the Company’s ordinary share valuations were prepared using the guideline public company, or GPC, method under the market approach. In the application of the GPC method, we considered the pricing of IPOs completed by clinical-stage oncology companies between April 2015 and May 2016. We converted prospective IPO value to present value by applying a discount rate of 25%. The discount rate was derived from studies of rates of return required by venture investors in IPO-stage companies. In addition to the IPO GPCs, we considered the enterprise values indicated by a group of eight trading GPCs. The trading prices of these clinical-stage GPCs provided contemporaneous indications of value as of each appraisal date. We applied a discount for lack of marketability to the ordinary shares to account for the lack of access to an active public market. We estimated the discount for lack of marketability using an Asian put model. In the year ended December 31, 2016, an employee remuneration expense, all of which related to equity-settled share-based payments, of £1.1 million (2015: £0.8 million) has been included in the statement of operations and credited to equity.

13. Share-based payments (continued)

The following principal assumptions were used in the valuation for share 2017 options.

		May 16, 2017				Sep 13, 2017				Sep 14, 2017				Sep 14, 2017				Sep 14, 2017
Vesting dates		Oct 28, 2017				Sep 13, 2018				Mar 06, 2018				Sep 14, 2018				Sep 14, 2018
		Oct 28, 2018				Sep 13, 2019				Mar 06, 2019				Sep 14, 2019				Sep 14, 2019
		Oct 28, 2019				Sep 13, 2020				Mar 06, 2020				Sep 14, 2020				Sep 14, 2020
		Oct 28, 2020				Sep 13, 2021				Mar 06, 2012				Sep 14, 2021				Sep 14, 2021
Volatility			66.56	%			66.94	%			66.97	%			66.97	%			66.97	%
Dividend yield			0	%			0	%			0	%			0	%			0	%
Risk-free investment rate			0.12	%			0.27	%			0.36	%			0.36	%			0.36	%
Fair value of option at grant date	£		7.70		£		6.15		£		6.08		£		6.08		£		6.08
Fair value of share at grant date	£		11.08		£		10.43		£		10.34		£		10.34		£		10.34
Exercise price at date of grant	£		4.00		£		5.40		£		5.40		£		5.40		£		5.40
Lapse date		May 16, 2027				Sep 13, 2027				Sep 14, 2027				Sep 14, 2027				Sep 14, 2027
Expected option life (years)			2.63				2.30				2.30				2.30				2.30
Number of options granted			23,250				14,690				25,000				110,310				12,500

		Sep 14, 2017				Sep 15, 2017				Sep 15, 2017				Sep 27, 2017				Sep 27, 2017
Vesting dates		Sep 14, 2018				Sep 15, 2018				Sep 15, 2017				Mar 20, 2018				Sep 27, 2018
		Sep 14, 2019				Sep 15, 2019								Mar 20, 2019				Sep 27, 2019
		Sep 14, 2020				Sep 15, 2020								Mar 20, 2020				Sep 27, 2020
		Sep 14, 2021				Sep 15, 2021								Mar 20, 2021				Sep 27, 2021
Volatility			66.97	%			67.02	%			67.02	%			67.11	%			67.11	%
Dividend yield			0	%			0	%			0	%			0	%			0	%
Risk-free investment rate			0.36	%			0.44	%			0.44	%			0.47	%			0.47	%
Fair value of option at grant date	£		3.90		£		6.76		£		10.11		£		4.36		£		4.36
Fair value of share at grant date	£		10.34		£		10.15		£		10.15		£		11.19		£		11.19
Exercise price at date of grant	£		10.80		£		4.00		£		0.04		£		11.19		£		11.19
Lapse date		Sep 14, 2027				Sep 15, 2027				Sep 15, 2027				Sep 27, 2027				Sep 27, 2027
Expected option life (years)			2.30				2.29				2.29				2.26				2.26
Number of options granted			25,000				45,750				1,028,533				37,500				178,282

The fair values of options granted were determined using the Black-Scholes model that takes into account factors specific to the share incentive plan such as the assumption that the options will be exercised at a single point in time, in December 2019. This has been incorporated into the measurement by means of actuarial modelling. As NuCana plc was unlisted at the grant date of the options, it is not possible to derive historical volatility from the Company’s own share price. The underlying expected volatility was therefore determined by using the historical volatility of similar listed entities as a proxy. The volatility percentage applied to each tranche is the average of the historical volatility of companies comparable to NuCana plc. With the exception of the awards granted on September 27, 2017, the Company’s ordinary share valuations were prepared using the guideline public company, or GPC, method under the market approach. In the application of the GPC method, we considered the pricing of IPOs completed by clinical-stage oncology companies between July 2015 and June 2017. We converted prospective IPO value to present value by applying a discount rate of 25%. The discount rate was derived from studies of rates of return required by venture investors in IPO-stage companies. In addition to the IPO GPCs, we considered the enterprise values indicated by a group of eight trading GPCs. The trading prices of these clinical-stage GPCs provided contemporaneous indications of value as of each appraisal date. We applied a discount for lack of marketability to the ordinary shares to account for the lack of access to an active public market. We estimated the discount for lack of marketability using an Asian put model. In the year ended December 31, 2017, an employee remuneration expense, all of which related to equity-settled share-based payments, of £11.7 million (2016: £1.1 million; 2015: £0.8 million) has been included in the statement of operations and credited to equity.