ECYT Endocyte, Inc. (delisted)

PROPOSAL 1 — ELECTION OF DIRECTORS

The Board of Directors currently consists of eleven members divided into three classes whose three-year terms of office expire at successive annual meetings. The directors in Class II have a term expiring at the 2018 annual meeting. The Nominating and Corporate Governance Committee has been conducting a succession planning review of the Board’s composition and tenure, including discussions with Board members about their individual plans. As part of that process, the Nominating and Corporate Governance Committee conducted a thorough evaluation of potential candidates for director, and following a review of the criteria described above under “— Director Qualifications,” the Nominating and Corporate Governance Committee recommended, and the Board elected, Patrick Machado to the Board of Directors in Class II, effective February 27, 2018. Among other qualified candidates considered, the Nominating and Corporate Governance Committee also received a recommendation of another candidate, Dawn Svoronos, from one of our non-management directors. Following a review of the criteria described above under “— Director Qualifications,” the Nominating and Corporate Governance Committee recommended, and the Board of Directors approved, the nomination of Ms. Svoronos to stand for election as a director at the 2018 annual meeting. Further, and also as part of the Nominating and Corporate Governance Committee’s succession planning process, three of the four current directors in Class II,  Keith E. Brauer, Ann F. Hanham and Peter D. Meldrum, informed the Committee that they would not stand for re-election at the 2018 annual meeting. 

Based on the recommendation of the Nominating and Corporate Governance Committee, the Board has nominated the persons listed below as “Nominees for Director” for election as directors at the 2018 annual meeting. Mr. Machado is a current director, the fourth member of Class II, and has been nominated for re-election. Ms. Svoronos is not currently a director and has been nominated for election at the annual meeting.  If Mr. Machado and Ms. Svoronos are elected as directors at the 2018 annual meeting, Class II of the Board would consist of two members, while Class III consists of three directors and Class I consists of four directors. In order that the classes of director be as nearly equal in size as is practicable, as provided by our amended and restated certificate of incorporation, it is intended that one of our current directors, Lesley Russell, would move from Class I to Class II, resulting in each class consisting of three members. To effect this, the Board, upon the recommendation of the Nominating and Corporate Governance Committee, has nominated Dr. Russell for election as a Class II director at the 2018 annual meeting, and Dr. Russell has provided a conditional notice of her intention to resign from Class I of the Board, which will only become effective if she is elected by our stockholders to Class II of the Board at the 2018 annual meeting. If Dr. Russell is not elected by our stockholders to Class II of the Board at the 2018 annual meeting, her conditional resignation will not take effect, and she will continue to serve as a member of the Board in Class I.

As a result of the foregoing, the Board of Directors has determined that the size of the Board of Directors will be reduced to nine members, effective at the time of the 2018 annual meeting. Proxies cannot be voted for a greater number of persons than three, the number of nominees named in this proxy statement.

Directors elected at the annual meeting will serve for a term of office expiring at the 2021 annual meeting.

We expect each nominee for election as a director will be able to serve if elected. If any nominee is not able to serve, proxies will be voted in favor of the remainder of those nominated and may be voted for substitute nominees.

There are no family relationships among any of our directors, director nominees or executive officers. The names, principal occupations and certain other information about the nominees and the directors whose term of office is not expiring at the annual meeting, as well as key experiences, qualifications, attributes and skills of those persons that led the Nominating and Corporate Governance Committee to conclude that such person is currently qualified to serve as a director, are set forth on the following pages.

Nominees for Director (Class II Directors)

Patrick Machado

Age 54

Audit Committee

Mr. Machado has served as a member of our Board of Directors since February 2018. Mr. Machado is a co-   founder of Medivation, Inc., a biopharmaceutical company that was acquired by Pfizer, Inc. in 2016. Prior to his retirement in April 2014, Mr. Machado served as Medivation’s Chief Financial Officer since its inception in September 2003 and as its Chief Business Officer since December 2009. From 1998 until 2001, Mr. Machado was employed by ProDuct Health, Inc., a privately held medical device company, as Vice President, Chief Financial

Officer and General Counsel from 1998 to 2000, and as Senior Vice President and Chief Financial Officer from 2000-2001.  From 2001 until 2002, Mr. Machado served as a consultant to Cytyc Corporation to assist with transitional matters related to Cytyc Corporation’s acquisition of ProDuct Health, Inc. Mr. Machado currently serves on the board of directors of public biopharmaceutical companies Adverum Biotechnologies, Inc., Chimerix, Inc. and SCYNEXIS, Inc., and private biopharmaceutical companies Roivant Sciences Ltd., and Armaron Bio Pty., Ltd., where he also serves as chair of the board. During the past five years, Mr. Machado also served as a member of the board of directors of public biopharmaceutical companies Medivation, Inc., Inotek Pharmaceuticals Corporation and Axovant Sciences Ltd. Mr. Machado received a J.D. from Harvard Law School and a B.A. and B.S. in German and Economics, respectively, from Santa Clara University.  

We believe that Mr. Machado possesses specific attributes that qualify him to serve as a member of our Board of Directors, including his years of experience in the biotechnology industry, and his financial, business development, and legal expertise.

Lesley Russell, MBChB, MRCP

Age   57

Nominating and Corporate Governance Committee

Dr. Russell joined our Board of Directors in January 2013.  She served as the chief medical officer of Innocoll Holdings plc from April 2016 until November 1, 2017. Prior to Innocoll, Dr. Russell served as chief operating officer for TetraLogic Pharmaceuticals from August 2013 until April 2016, where she advanced the company’s lead candidate into Phase 2 clinical trials in parallel with the company’s initial public offering.  Prior to this role, Dr. Russell held senior executive research and development positions at a number of biopharmaceutical companies including Teva Pharmaceuticals, Cephalon, Inc., and US Bioscience/Medimmune Oncology. In these roles, she managed staff responsible for a variety of functions including regulatory strategy development, clinical research, medical affairs and data management.  Dr. Russell held positions at Amgen, UK, Lilly Industries, UK, and US Bioscience, now acquired by MedImmune Oncology. Dr. Russell received an MBChB degree from the University of Edinburgh, Scotland. She is a member of the Royal College of Physicians, UK , and is registered with the General Medical Council, UK. She currently serves as a member of the board of directors of AMAG Pharmaceuticals and ENANTA Pharmaceuticals, both traded on Nasdaq.

We believe that Dr. Russell possesses specific attributes that qualify her to serve as a member of our Board of Directors, including her experience in advancing products through late-stage clinical development and in navigating the new drug approval process at the FDA.

Dawn Svoronos

Age   64

Ms. Svoronos has more than 30 years of experience in the bio-pharmaceutical industry, including extensive commercial work with the multinational pharmaceutical company Merck & Co. Inc., where she held roles of increasing seniority over 23 years of service. Prior to her retirement from Merck in 2011, Ms. Svoronos most recently served as President of Merck in Europe/Canada from 2009 to 2011, President of Merck in Canada from 2006 to 2009 and Vice-President of Merck for Asia Pacific from 2005 to 2006. Ms. Svoronos has served on the boards of directors of Xenon Pharmaceuticals, Inc. and PTC Therapeutics, each Nasdaq-listed biopharmaceutical companies, since 2016, and has been Chair of the board of directors of Theratechnologies Inc., a TSX-listed biopharmaceutical company, since 2013. Previously, Ms. Svoronos served on the board of directors of Medivation, Inc., from 2013 until its acquisition in 2016. 

We believe that Ms. Svoronos is qualified to serve on our Board of Directors because of her extensive experience in the global commercialization of pharmaceutical products, including her substantial international commercialization expertise, as well as her leadership experience and her service on the boards of directors of other public companies.

The Board of Directors Recommends that
Stockholders Vote FOR the Nominees Named Above.

Class III Directors (Terms expire in 2019)

Marc D. Kozin

Age   56

Compensation Committee

Nominating and Corporate Governance Committee

Mr. Kozin has served as a member of our Board of Directors since July 2012. Mr. Kozin has been a Senior Advisor to L.E.K. Consulting, a global strategy consulting firm, since July 2011. Prior to that, Mr. Kozin served as president of L.E.K.’s North American practice for 15 years. Mr. Kozin has over 30 years of experience in corporate and business unit strategy consulting, merger and acquisition advisory services, and value management both domestically and internationally. Mr. Kozin currently serves as a member of the board of directors of UFP Technologies, Inc., a designer and manufacturer of engineered packaging solutions and engineered component products,  OvaScience, Inc., a global life science company, Flex Pharmaceuticals, a biopharmaceutical company and one privately-held company. During the past five years, Mr. Kozin also served as a member of the board of directors of DYAX Corp., a biopharmaceutical company. He also serves on the strategic advisory board for Healthcare Royalty Partners, a global healthcare investment firm. Mr. Kozin holds a B.A., with distinction, in economics from Duke University and an M.B.A., with distinction, from The Wharton School, University of Pennsylvania.

We believe that Mr. Kozin possesses specific attributes that qualify him to serve as a member of our Board of Directors, including his experience in corporate and business unit strategy consulting, merger and acquisition advisory services, and value management both domestically and internationally, as well as his deep industry expertise advising biopharmaceutical, life sciences and medical technology companies.

Fred A. Middleton

Age   68

Audit Committee

Mr. Middleton has served as a member of our Board of Directors since July 2001. Since 1987, Mr. Middleton has been a General Partner and Managing Director of Sanderling Ventures, a biomedical venture capital firm. During the last 30 years, Mr. Middleton has served in a number of roles as a member of management, board member or an investor in over 25 biomedical companies. Mr. Middleton currently serves as a director of Stereotaxis, Inc. (STXS), a medical device company. During the past five years, he was also a member of the board of directors of Pacira Pharmaceuticals, Inc. (PCRX), a therapeutic drug company. Mr. Middleton also serves on the board of directors of several privately-held biomedical and biotechnology companies. He holds a B.S. in chemistry from the Massachusetts Institute of Technology and an M.B.A. with distinction from the Harvard Business School.

We believe that Mr. Middleton possesses specific attributes that qualify him to serve as a member of the Board of Directors, including his experience in the venture capital industry and his general operational and management experience working with early-stage biomedical companies.

Michael A. Sherman

Age 51

Mr. Sherman has served as our President and Chief Executive Officer since June 2016. He served as our Chief Financial Officer from October 2006 to February 2017 and as our Chief Operating Officer from June 2014 to June 2016. From December 1994 to October 2006, Mr. Sherman served in various executive roles, but most recently as Vice President of Finance and Strategic Planning from May 2004 to October 2006, of Guidant Corporation, a cardiovascular device manufacturer acquired by Boston Scientific Corporation, a medical device company, in April 2006. Mr. Sherman serves on the Indianapolis Children’s Museum Board of Trustees. During the past five years, he also served on the Board of Directors of Mead Johnson Nutrition Company, a pediatric nutrition company. Mr. Sherman holds a B.A. in economics from DePauw University and an M.B.A. from the Amos Tuck School, Dartmouth College.

We believe that Mr. Sherman possesses specific attributes that qualify him to serve as a member of our Board of Directors, including the perspective and experience he brings as our President and Chief Executive Officer.  Mr. Sherman was previously our Chief Financial Officer and Chief Operating Officer and has over 10 years of historic knowledge and operational expertise with our company.

Class I Directors (Terms expire in 2020)

John C. Aplin, Ph.D.

Age 72

Chairman of the Board

Audit Committee

Dr. Aplin has served as a member of our Board of Directors since May 2003 and as Chairman since May 2011. Since November 1990, Dr. Aplin has served as General Partner and Managing Director of CID Capital, a private equity firm. Dr. Aplin has served on the board of directors of 25 companies and was the Chairperson of the M.B.A. program at Indiana University. Dr. Aplin holds a B.S. in business administration from Drake University, and an M.A. in industrial and labor relations and a Ph.D. in business administration from the University of Iowa. Dr. Aplin is also a Certified Management Consultant.

We believe that Dr. Aplin possesses specific attributes that qualify him to serve as a member of our Board of Directors, including his experience in the venture capital and private equity industries, his years of business and leadership experience and his financial sophistication and expertise.

Colin Goddard, Ph.D.

Age   58

Compensation Committee

Dr. Goddard has served as a member of our Board of Directors since November 2013.  Dr. Goddard has served as Chairman and Chief Executive Officer of BlinkBio, Inc. (formerly Coferon, Inc.), a private biotechnology platform company, since April 2011. From October 1998, until its acquisition by Astellas Pharmaceuticals, Inc. in July 2010, Dr. Goddard served as Chief Executive Officer of OSI Pharmaceuticals, Inc., or OSI, and as a member of its Board of Directors. He joined OSI as a scientist in 1989 and held positions that included Director of Drug Discovery, Chief Operating Officer and President. He also chaired the OSI board from 2000-2002. Prior to his employment at OSI, Dr. Goddard was a research fellow at the National Cancer Institute in Bethesda, MD. Dr. Goddard also chairs the board of Mission Therapeutics Ltd., a UK based private biotech company. From December 2010 until the sale of the company in July 2012, Dr. Goddard served as a director of the board of Human Genome Sciences (HGS), a publicly traded biopharmaceutical company. He also served on the boards of the trade associations PhRMA and BIO. He received his Ph.D. in Cancer Pharmacology from the University of Aston in Birmingham, U.K. and a B.Sc (Hons) in Biochemistry from the University of York, U.K.

We believe that Dr. Goddard possesses specific attributes that qualify him to serve as a member of our Board of Directors, including his years of experience in the biotechnology, diagnostic and related industries, and his scientific background and industry knowledge.

Philip S. Low, Ph.D.

Age   70

Dr. Low is one of our founders and has served as our Chief Science Officer since April 1998 and as a member of our Board of Directors since December 1995. Dr. Low has served on the faculty at Purdue University since August 1976, where he is currently the Presidential Scholar in Drug Discovery and the Ralph C. Corley Distinguished Professor of Chemistry. Dr. Low holds a B.S. in chemistry from Brigham Young University and a Ph.D. in biochemistry from the University of California, San Diego.

We believe that Dr. Low possesses specific attributes that qualify him to serve as a member of our Board of Directors, including the perspective and experience he brings as our Chief Science Officer and as one of our co-   founders, which brings historic knowledge, scientific expertise and continuity to our Board of Directors.

In deciding whether to retain Ernst & Young LLP as our independent registered public accounting firm, the Audit Committee considers whether that firm is best positioned and qualified to provide the most effective and efficient service, based on a number of factors, including, but not limited to:

The Audit Committee approves all audits and permissible non-audit services to be provided to the company by Ernst & Young LLP prior to commencement of services and has delegated to the Chairman of the Audit Committee the authority to approve specific services up to specified individual and aggregate fee amounts. These approval decisions are presented to the full Audit Committee at the next scheduled meeting after such approvals are made.

The company has incurred fees as shown below for services from Ernst & Young LLP. Ernst & Young LLP has advised us that it has billed or will bill the company the below indicated amounts for the following categories of services for the years ended December 31, 2017 and 2016, respectively:

We expect that representatives of Ernst & Young LLP will be present at the meeting and will be available to respond to appropriate questions. They will also have an opportunity to make a statement if they desire to do so.

If the holders of a majority of voting shares voting on this matter do not ratify the selection, the Audit Committee will reconsider its choice taking into consideration the views of the stockholders and may, but will not be required to, appoint a different independent registered public accounting firm.

The Board of Directors Recommends that Stockholders Vote FOR Ratification of the
Appointment of Ernst &Young LLP as our Independent Registered Public Accounting Firm for 2018.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

The following discussion and analysis is intended to supplement the more detailed information concerning executive compensation that appears in the rest of this section and in the compensation tables and accompanying narrative which follow this section. Our goal is to provide an understanding of our compensation practices and the decisions that affected the compensation payable for 2017 to our executive officers, including the individual who served as our President and Chief Executive Officer during 2017 (Michael A. Sherman), the individuals who served as our Chief Financial Officer during 2017 (Michael A. Sherman until the hiring of Michael T. Andriole on February 20, 2017) and the other executive officers named in the Summary Compensation Table (Alison A. Armour, Christopher P. Leamon and Katherine K. Parker), whom we refer to in this discussion as the named executive officers, or NEOs. This discussion and analysis provides information regarding those NEOs to the extent it applies based on their status with our company at the applicable time.

The Compensation Committee of our Board of Directors, referred to in this section as the committee, plays a key role in designing and administering our executive compensation program. All principal elements of compensation paid to our executive officers are subject to approval by the committee. The Compensation Committee Report immediately precedes this discussion.

During 2017, management made a series of pivotal decisions designed to maximize long-term stockholder value. These included taking actions to stop development of programs that failed to meet defined efficacy hurdles, quickly implementing a restructuring of  the organization to conserve resources, and by aggressively seeking to acquire or license external assets. Details of these key actions are below:

The result of these actions was to re-focus the company’s strategy on the development of  177 Lu-PSMA-617 in prostate cancer and to generate proof-of-concept data for its CAR T-cell therapy program.

Advisory Votes on Compensation

In accordance with the results of the say-on-pay frequency vote held at the 2011 annual meeting, we  conducted say-on-pay votes every three years until the 2017 annual meeting.  Another say-on-pay frequency vote was held at the 2017 annual meeting, and based on the advisory vote results on the frequency of future say-on-pay votes at that meeting, and consistent with the recommendation of the Board, the Board has determined that we will hold a stockholder advisory say-on-pay vote every year until the next required vote on the frequency, which will be held at the 2023 annual meeting.

Approximately 98% of the votes cast were cast in favor of the advisory say-on-pay vote at the 2017 annual meeting. As a result of the high level of support in 2017, the committee did not make significant changes to our executive compensation programs and policies for 2018. The committee intends to continue to monitor stockholder concerns, including the results of the say-on-pay votes, in making future decisions affecting the compensation of the NEOs.

Compensation Philosophy

Our executive compensation program seeks to attract and retain our senior executives while aligning their long-term incentives with that of our stockholders. Through our annual goal-setting process, organizational objectives are established for our company and employees, including the NEOs. We evaluate and reward our NEOs through

compensation programs designed to motivate achievement of our annual corporate objectives.  The main elements of our NEO compensation program are:

The committee believes that each of these compensation components is necessary to help us attract and retain the executive talent on which we depend. We target cash and equity compensation at a competitive level relative to our peers to reward both near term execution and long term value creation for stockholders.

Compensation Decision Process

Role of Committee

All compensation decisions affecting our executive officers, including the NEOs, are solely determined by the committee.

Role of Management

Our Chief Executive Officer, or CEO, and our Vice President of Human Resources typically attend meetings of the committee, except for executive sessions. However, in some instances, the committee may request the attendance of the Vice President of Human Resources in a separate executive session to provide perspective regarding officer performance. At the request of the committee, our CEO provides his assessment of the performance of our NEOs, other than himself. Our CEO also takes an active part in the discussions of the committee at which the compensation of NEOs other than himself is discussed. The committee may agree with our CEO’s recommendations or may reach a different conclusion as to the compensation of such NEOs. Our CEO oversees major operational, financial, and human resources aspects of the company, including officer compensation practices. He substantially contributes to the committee’s consideration of the overall design and function of our compensation system. The Vice President of Human Resources oversees the human resources function at our company and contributes to the committee’s consideration of the design and function of our compensation practices overall, including those applicable to executive officers. All decisions regarding our CEO’s compensation are made by the committee in executive closed sessions outside of his presence.

Role of Compensation Consultant

The committee has the authority to engage its own advisers to assist it in carrying out its responsibilities. The committee has engaged Radford as its consultant. The consultant reports directly to the committee and interacts with management, as necessary. For 2017, Radford provided the committee with market data derived from surveys and the peer comparator group discussed below. Radford also provides advisory services supporting the committee in developing and executing elements of compensation plans for all employees.

The committee considered various factors to help it determine whether Radford’s work has raised any conflicts of interest. One of those factors related to the amount of fees paid by us to Radford, a division of Aon Hewitt Consulting Company, during 2017.  In 2017, we paid Radford $58,125 for professional fees for committee support and $93,397 in net commission fees for Aon Risk Services, which included advisory services related to the procurement of various forms of insurance. The decision to engage another division of AON in non-compensation services was reviewed by the committee, and the committee determined that the work performed by Radford in 2017 did not raise any conflicts of interest.

Market Competitive Data

In order to attract and retain NEOs by offering market competitive compensation packages, the committee benchmarks NEO compensation against that paid to NEOs of comparator companies of similar size. Although the committee does not rely solely on benchmarking to determine any element of compensation or overall compensation, the committee does believe that compensation data are important to the competitive positioning of the company’s compensation levels.

The companies used for the comparisons vary from time to time. For 2017 compensation determinations, the committee reviewed, with the assistance of Radford, the competitive pay levels and compensation practices of a group of peer companies, as disclosed pursuant to such companies’ publicly filed compensation data. The peer group for 2017 compensation assessments were determined using the following criteria:

The peer group utilized in connection with 2017 compensation determinations consisted of:

In addition to the public proxy data for the peer group companies, Radford gathered competitive market data from the Radford 2016 Global Life Sciences Survey with respect to public biopharmaceutical companies with between 30 and 250 employees and $50 million to $400 million in market value, as well as the companies from our peer group that participated in that survey. To arrive at competitive market compensation for comparator purposes, Radford blended survey data using a special cut specific to our peer group companies that participated, and a broader survey cut, where possible. The survey composite was then blended with the public proxy data for the peer group companies to form a market composite. Radford also aged all cash compensation data by a 3% annual rate to reflect prevailing life sciences merit budgeting.

The committee utilized this data to assess whether our executive compensation falls within a competitive range against industry norms. Generally, for 2017 NEO compensation, the committee targeted base salary, cash bonus opportunities, and equity award opportunities at the 50 th percentile of the comparator data. The aggregate 2017 target total cash compensation (base salary and target cash bonus for 2017) for all of the NEOs was approximately at the 50 th percentile of the comparator data.

Performance-Driven Compensation

The committee emphasizes performance in annually reviewing and setting our NEOs’ base salary, bonuses and equity awards. This emphasis on performance with respect to a substantial portion of compensation is intended to motivate our NEOs to pursue our business objectives, reward them for achievement of these objectives and align their interests with those of our stockholders.

Our annual bonus program provides participants, including NEOs, with opportunities to earn cash bonuses that relate to specific goals for company and individual performance. Bonuses are paid in the following year after the committee determines the payouts to the participants. We also use equity awards to align NEOs’ incentives with the interests of stockholders. A mix of stock options and restricted stock units, or RSUs, are granted as equity awards Stock options only have value to the extent our stock price improves over the term of the options. The value of RSUs to a grantee will depend on our stock price at the time the RSUs vest.

Elements of Executive Compensation

Base Salary

We provide base salaries to our NEOs and other employees to compensate them for services rendered on a day-to-day basis during the year. Generally, the base salary element of compensation is used to recognize the experience,

skills, knowledge and responsibilities required of each NEO and over time reflects an NEO’s overall sustained performance and contributions to our business. The reviews of NEO base salary levels conducted by our CEO, except with respect to his own salary, and by the committee are subjective, based on their general experience with respect to setting salary levels and supplemented by survey data and assessments of the experience and performance of our NEOs. Survey and comparator group data also is used to validate that determinations fall within acceptable parameters relative to the market.

The following table sets forth information regarding the base salaries for 2017 for the NEOs, as well as the percentage increase from the prior year.

In February 2017, the committee approved 3% merit increases for the executive officers (except for Mr. Sherman and Mr. Andriole) to align with peer company benchmarks and in consideration of our employee engagement and retention. For Mr. Sherman, the committee approved a 3% merit increase and a 7% increase to bring his base salary closer to the 50 th percentile of comparator companies. Mr. Andriole was hired on February 20, 2017, and therefore did not receive a 2017 salary increase. The committee determined Mr. Andriole’s initial compensation based on an assessment of peer benchmarks for the CFO position and prior experience related to the role.

Short-Term Incentives (Cash Bonuses)

NEOs are eligible to earn annual cash bonuses that relate to goals set by the committee for company and individual performance. For the 2017 bonus program, the committee approved a target cash bonus opportunity equal to the following percentage of his or her 2017 base salary: Mr. Sherman - 60%; Mr. Andriole and Drs. Leamon and Armour - 40%; and Ms. Parker - 35%. The committee established a maximum limit, such that an executive could not receive more than 150% of his or her target bonus percentage opportunity.

For purposes of determining the cash bonuses for our NEOs related to 2017 performance, the committee established Key Results Areas, or KRAs, for each NEO, with weightings assigned to each KRA. The committee selected three KRAs that it applied to all of the NEOs with varying weights depending on each NEO’s involvement in that KRA, which were in the following areas:

In addition to the aforementioned KRAs applicable to each NEO, the committee established additional KRAs in their functional areas which applied to certain individual NEOs, some of which were updated to be relevant following the company’s change in strategic direction, as follows:

In February 2018, the committee reviewed the 2017 performance of the NEOs and made a determination of the extent to which the 2017 KRAs were accomplished by the NEOs. The committee assigned a score to each 2017 KRA for each NEO, based on the extent to which the committee determined the KRA was accomplished. The assigned score was multiplied by the weight associated with that 2017 KRA for each NEO, resulting in a weighted number for each 2017 KRA. The weighted number for all of the 2017 KRAs for each NEO were added together, resulting in a total score for each NEO.

The committee then applied the total score of each NEO to his or her target cash bonus opportunity to arrive at the cash bonus payout for that NEO. The following table indicates the total KRA score, bonus amount and corresponding percentage of base salary, related to 2017 performance that was paid to each NEO:

For 2018, the committee identified individual KRAs for each NEO. When considered in aggregate, the following KRAs carried the most weight across the executive team and are considered to best align with stockholder interests:

The actual score for each KRA will be determined by the extent to which actual results meet, exceed or fall short of each KRA.

In addition, in connection with the hiring of Mr. Andriole in February 2017, the committee approved a payment to him of a $75,000 cash sign-on bonus.

Long-Term Incentives (Equity Awards)

We believe that strong corporate performance over the long term is achieved with a corporate culture that encourages a long-term focus by our NEOs through the use of equity awards, the value of which depends on our stock performance. We use equity awards to provide certain of our employees, including our NEOs, with incentives to align those employees’ interests with the interests of our stockholders and to enable them to participate in the long-term appreciation of our stockholder value. Additionally, equity awards provide an important retention tool for key

employees, as the awards generally are subject to vesting over an extended period of time based on continued service with us.

Typically, we have granted equity awards annually at the beginning of each year based primarily on corporate performance as a whole during the preceding year. In 2017, we granted annual equity awards in February. In addition, we may grant equity awards upon the occurrence of certain events during the year, for example, upon an employee’s hire, promotion or achievement of a significant business objective. In February 2017, we granted equity awards to Mr. Andriole upon his hiring as our Chief Financial Officer. The number of stock options and RSUs granted by the committee to Mr. Andriole was based on a review, in consultation with Radford, of comparator data for at-hire equity grants to chief financial officers. In addition, in October 2017, we made a special grant of RSUs to the company’s employees, including the NEOs, in recognition of the efforts and results related to the company’s new strategic focus and the entering into of the License Agreement.

All 2017 equity awards were made under our 2010 Equity Incentive Plan, or EIP. The EIP permits the grant of incentive stock options to our employees and the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants.

The EIP is administered by the committee, which has the authority to determine who among the eligible participants will receive awards and the terms of those awards, to prescribe rules and to construe and interpret the EIP and awards granted under the EIP.

The annual equity awards granted in February 2017 were designed to provide an aggregate compensation comparable to or competitive with the peer group annual equity market value. The committee granted 75% of the value of the equity awards to Mr. Sherman in the form of stock options and 25% in the form of RSUs. For all other NEOs, the committee granted 50% of the value of the equity awards in the form of stock options and 50% in the form of RSUs. In an effort to reduce stockholder dilution and be consistent with industry trends and peer group benchmarks, the committee decided to grant equity-based compensation in a combination of stock options and RSUs.

The committee made the following stock option and RSU awards to the NEOs under the EIP in 2017. Each option grant has a term of ten years, and each option and RSU grant vests in four equal annual installments, subject to maintaining continued service, with the exception of the RSUs granted on October 4, 2017 which vest in two equal annual installments, subject to maintaining continued service.

The grant date fair value of the stock option and RSU grants are included in the Summary Compensation Table on page 31 and the Grants of Plan-Based Awards in 2017 table on page 32.  

Broad-Based Employee Benefits

Our NEOs are eligible to participate in the same group insurance and employee benefit plans as our other salaried employees. We provide employee benefits to all eligible employees, including our NEOs, which our Board of Directors and the committee believe are reasonable and consistent with its overall compensation objective to better enable us to attract and retain employees. These benefits include medical, dental, vision, and disability benefits and life insurance. We do not provide special plans or programs for our NEOs.

We sponsor a 401(k) tax-qualified retirement savings plan pursuant to which employees are entitled to participate. Employees can make contributions to the plan on a before-tax basis to the maximum amount prescribed by the U.S.

Internal Revenue Service. In January 2014, we began providing matching contributions of 50% of the amount contributed by an employee, up to 6% of the employee’s salary that he or she contributes to the plan. Other than this plan, we do not maintain any other deferred savings plans in which our NEOs participate. We do not maintain or provide any defined benefit plans for our employees.

We implemented the 2010 Employee Stock Purchase Plan, or the ESPP, effective as of January 1, 2014. The ESPP is intended to comply with Section 423 of the Internal Revenue Code of 1986, as amended, or the Code, and to provide employees with an opportunity to acquire a stock ownership interest in us. The ESPP is administered by the committee, which has complete discretion to interpret and administer the ESPP, including the terms of each offering that permits purchases of our common stock. In 2017, participants purchased 55,612 shares of common stock under the ESPP. As of January 1, 2018, 769,542 shares of our common stock were available for issuance and purchase by our employees.

Change in Control and Severance Benefits

The committee considers maintaining a stable and effective management team to be essential to maximizing stockholder value. We have entered into change in control and severance arrangements with certain key executives, including our NEOs, that provide additional benefits in the event of a change in control. For more detail on the change in control and severance agreements, see “— Estimated Post-Employment Payments Under Alternative Termination Scenarios.”

Executive Stock Ownership Guidelines

In February 2018, our Board of Directors adopted Stock Ownership Guidelines, or the Guidelines, applicable to our directors and executive officers. For a description of the provisions of the Guidelines applicable to our directors, see “Non-Employee Director Compensation.”

Under the Guidelines, our Chief Executive Officer is expected to own shares of our common stock with a value at least equal to three times his annual base salary, and our other executive officers are expected to own shares of our common stock with a value at least equal to one time their annual base salaries. Shares owned directly and indirectly count toward the ownership level under the Guidelines, but shares subject to unvested RSUs and unvested or unexercised stock options do not count toward the ownership level under the Guidelines.

The applicable ownership level is to be achieved by our executive officers within five years of the effective date of the Guidelines, which was February 7, 2018, or within five years of first appointment to that position, whichever is later. Until an executive officer has achieved the applicable ownership level, he or she must retain at least 50% of the “net profit shares” acquired through stock option exercises and the settlement of RSUs. “Net profit shares” refers to that portion of the number of shares subject to the exercise or settlement of an award that the officer would receive had he or she authorized us to withhold shares otherwise deliverable in order to satisfy any applicable exercise price or withholding taxes. The committee oversees compliance with the Guidelines.

Clawback Policy

Pursuant to our Policy on Cash I ncentive Repayment, or Clawback Policy, our executive officers are required to repay to us the amount of any annual cash incentive compensation that he or she receives to the extent that:

Prohibition on Pledging and Hedging

Under the terms of our Insider Trading Policy, our executive officers and directors are prohibited from engaging in hedging or similar transactions designed to decrease the risks associated with holding our stock, including transactions in publicly-traded options, such as puts and calls, collars, prepaid variable forward contracts, equity

swaps, exchange funds, and other derivative securities, other hedging or similar transactions, short sales and holding shares in a margin account.

Our Insider Trading Policy also prohibits our executive officers and directors from pledging our stock as collateral for loans.

Tax and Accounting Considerations

We have not provided any executive officer or director with a gross-up or other reimbursement for tax amounts the executive officer or director might pay pursuant to Section 280G or Section 409A of the Code. Section 280G and related Code sections provide that executive officers, directors who hold significant stockholder interests and certain other service providers could be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of our company that exceeds certain limits, and that we or our successor could lose a deduction on the amounts subject to the additional tax.

Section 409A also imposes additional significant taxes on the individual in the event that an executive officer, director or service provider receives “deferred compensation” that does not meet the requirements of Section 409A.

Section 162(m) of the Code as in effect prior to the enactment of tax reform legislation in December 2017 limited the allowable deduction for compensation paid or accrued with respect to “covered employees,” consisting of the chief executive officer and each of the three other most highly compensated executive officers (other than the chief financial officer), of a publicly held corporation to no more than $1,000,000 per year, other than compensation that met the requirements of Section 162(m) for performance-based compensation. Additionally, under a special Code Section 162(m) exception, any compensation paid by us pursuant to a compensation plan in existence before February 9, 2011, the date we closed our initial public offering, was not subject to the $1,000,000 limitation until our 2015 annual meeting of stockholders. Because the EIP was not presented to stockholders at the 2015 annual meeting for approval, grants made under the EIP after that meeting date did not satisfy the performance-based exception to Section 162(m). As a result, any taxable compensation attributable to those later awards counted against the $1,000,000 annual limit on deductibility.

Recent tax reform legislation retained the $1,000,000 deduction limit, but repealed the performance-based compensation exemption from the deduction limit and expanded the definition of “covered employees,” effective for taxable years after December 31, 2017. “Covered employees” will now also include any person who served as chief executive officer or chief financial officer at any time during a taxable year, as well as any person who was ever identified as a “covered employee” in 2017 or any subsequent year. Consequently, compensation paid in 2018 and later years to our named executive officers in excess of $1,000,000 will not be deductible. However, at December 31, 2017, we had net operating loss carryforwards for federal income taxes totaling approximately $247.5 million. These loss carryforwards defer the impact of any tax return deduction that we might lose under Section 162(m) for one or more of the carryforward years. Although the committee cannot predict how the deductibility limit may impact our compensation program in future years, the committee believes that the potential deductibility of compensation payable to our executives should be only one of a number of relevant factors taken into consideration. The committee intends to maintain an approach to executive compensation that strongly links pay to performance.

ASSESSMENT OF COMPENSATION-RELATED RISKS

We believe that our compensation policies and practices are designed to encourage our employees to act in the long-term best interests of the company and are not reasonably likely to have a material adverse effect on our business. We believe that the following factors reduce the likelihood that our employees would be encouraged to take excessive risks:

SUMMARY COMPENSATION TABLE

The following table provides information regarding the compensation of the individual who served as our principal executive officer in 2017, the individuals who served as our principal financial officer in 2017, and each of the next three most highly compensated executive officers who were serving as executive officers at the end of 2017. We refer to these persons as our named executive officers, or NEOs. 

(1) The amount for Mr. Andriole in 2017 represents a cash bonus that he received pursuant to the terms of his hiring.

(2) Amounts shown represent the aggregate grant date fair value, computed in accordance with ASC 718, of awards of RSUs granted to the NEOs in the year indicated. The amounts ultimately realized by the NEOs from the RSU awards will depend on the price of our common stock in the future and may differ significantly from the values shown. In accordance with ASC 718, the stock awards column does not include any amount relating to the PRSU awards made in 2011 due to the performance conditions were not met during any of the years indicated. The PRSU awards were cancelled and forfeited without vesting on May 26, 2016.

(3) The amounts in this column represent the aggregate grant date fair value of the option awards and are computed in accordance with ASC 718. See Note 10 of the Notes to Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2017, for a discussion of assumptions made in determining the grant date fair value and compensation expense of the stock options. These amounts do not correspond to the actual value, if any, that may be recognized by the executives.

(4) The amounts in this column represent the annual cash bonuses for performance in 2017, 2016 and 2015 that were paid in the following year. These amounts are reported in this column, instead of the “Bonus” column, because our executive cash bonus program provides for compensation intended to serve as incentive for performance to occur over a fiscal year, and the outcomes with respect to the relevant performance targets are substantially uncertain at the time they are established by the Compensation Committee and communicated to participants. Although the annual cash bonus awards for 2017, 2016 and 2015 performance are included in this Non-Equity Incentive Plan Compensation column, we refer to our annual cash incentive compensation as “bonus” compensation elsewhere in this proxy statement. See “— Compensation Discussion and Analysis — Elements of Executive Compensation — Short-Term Incentives (Cash Bonuses)” for a discussion of our 2017 bonus program.

(5) The amounts in in this column represent cell phone allowance and employer-sponsored 401(k) tax-qualified retirement savings plan matching contributions of 50% of the amount contributed by the employee, up to 6% of the employee’s salary that he or she contributes to the plan. The amounts of the cell phone allowance and the 401(k) matching contributions were:

(6) Mr. Sherman also served as our Chief Financial Officer until Mr. Andriole’s hiring in February 2017.

(7) Mr. Andriole was hired as our Chief Financial Officer, effective February 20, 2017.

(8) Dr. Armour was hired in July 2015. As permitted by the SEC, because 2016 was Dr. Armour’s first year as a named executive officer , the compensation paid to her prior to 2016 is not included in this table.