11.

Stock-Based Compensation

In the accompanying consolidated statement of operations, the Company recognized stock-based compensation expense for its employees and non-employees as follows:


	Year Ended December 31,
	2015		2014		2013
	(in thousands)
Research and development	$	1,846	$	65	$	5
General and administrative		1,340		237		17

Total stock-based compensation	$	3,186	$	302	$	22

Determination of Fair Value

The estimated grant-date fair value of all the Company’s stock-based awards was calculated using the Black-Scholes option pricing model, based on the following assumptions:

Year Ended December 31,

2015

2014

2013

Expected term (in years)

5.2 – 10.0

5.0 – 6.0

Expected volatility

75 – 84

81 – 83

79 – 82

Risk-free interest rate

1.5 – 2.4

1.5 – 1.8

0.7 – 1.6

Expected dividend rate

—

The fair value of each stock option grant was determined by the Company using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment and estimation by management.

Expected Term—The expected term represents the period that stock-based awards are expected to be outstanding. The Company’s historical share option exercise is limited due to a lack of sufficient data points, and did not provide a reasonable basis upon which to estimate an expected term, the expected term was derived by using the midpoint between the vesting commencement date and the contractual expiration period of the stock-based award. The expected term for options issued to nonemployees is the contractual term.

Expected Volatility—Since the Company has limited information on the volatility of common stock due to its short trading history, the expected volatility was derived from the historical stock volatilities of comparable peer public companies within its industry that are considered to be comparable to the Company’s business over a period equivalent to the expected term of the stock-based awards.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the stock-based awards’ expected term.

Expected Dividend Rate—The expected dividend is zero as the Company has not paid nor does it anticipate paying any dividends on its common stock in the foreseeable future.

Forfeiture Rate—The forfeiture rate is estimated based on an analysis of actual forfeitures. Management will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. The impact from any forfeiture rate adjustment would be recognized in full in the period of adjustment and if the actual number of future forfeitures differs from management’s estimates, the Company might be required to record adjustments to stock-based compensation in future periods.

Fair Value of Common Stock—Prior to the closing of the Company’s IPO, the fair value of the Company’s common stock was determined by the Company’s board of directors because there was no public market for the Company’s common stock as the Company was a private company. The Company’s board of directors determined the fair value of the common stock by considering a number of objective and subjective factors, including having contemporaneous and retrospective valuations of its common stock performed by an unrelated valuation specialist, valuations of comparable peer public companies, sales of the Company’s redeemable convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of the Company’s capital stock, and general and industry-specific economic outlook. After the closing of the Company’s IPO, the fair value of the Company’s common stock is used to estimate the fair value of the stock-based awards at grant date.

Equity Incentive Plans

2015 Plan

The 2015 Equity Incentive Plan (2015 Plan) became effective on July 14, 2015. Under the 2015 Plan, 3,400,000 shares of common stock were initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, restricted stock awards, stock appreciation rights, restricted stock units, performance awards, cash awards and stock bonuses. In addition, 365,535 shares that had been available for future awards under the 2008 Plan as of July 14, 2015, were added to the initial reserve available under the 2015 Plan, bringing the total number of shares reserved for issuance under the 2015 Plan upon its effective date to 3,765,535 shares. The number of shares initially reserved for issuance under the 2015 Plan will increase automatically on January 1 of each calendar year 2016 through 2025 by the number of shares equal to 4% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31. The Company’s Board of Directors or Compensation Committee may reduce the amount of the increase in any particular year. The exercise price of each stock-based award issued under the 2015 Plan is required to be no less than the fair value of the Company’s capital stock. The vesting and exercise provisions of options or restricted awards granted are determined individually with each grant. Stock options have a 10-year life and expire if not exercised within that period or if not exercised within three months of cessation of employment with the Company or such longer period of time as specified in the option agreement.

2008 Plan

The Company granted options under the 2008 Stock Plan (2008 Plan) until July 2015 when it was terminated as to future awards, although it continues to govern the terms of options that remain outstanding under the 2008 Plan. The 2008 Plan provided for the granting of Incentive Stock Options (ISO), nonqualified stock options and stock purchase rights. In connection with the Board of Directors approval of the 2015 Plan, all remaining shares available for future award under the 2008 Plan were transferred to the 2015 Plan, and the 2008 Plan was terminated.

2005 Stock Plan

As of December 31, 2015, there were 940 awards issued and outstanding under the Company’s 2005 Plan (the “2005 Plan”). The terms of the 2005 Plan are similar to those of the 2008 Plan. On August 20, 2008, the board of directors canceled all shares available under the 2005 Plan with the intention to not issue any more shares under the plan.

A summary of activity under the 2005 Plan, 2008 Plan and 2015 Plan and related information is as follows:


				Options Outstanding									Non-Vested Stock
	Shares Available for Grant			Number of Shares Outstanding			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value of Outstanding Options (in thousands)		Number of Shares Outstanding			Weighted- Average Grant Date Fair Value Per Share
Outstanding—December 31, 2012		555,135			271,276		$	0.32		7.66	$	—		404		$	0.30
Awards authorized		520,134
Options granted		(403,759	)		403,759			0.37
Non-vested stock granted		(35,353	)		—									35,353			0.29
Options exercised		—			(91,272	)		0.27
Non-vested stock vested		—			—									(35,757	)		0.29
Options cancelled		1,611			(1,611	)		0.26

Outstanding—December 31, 2013		637,768			582,152			0.37		8.63		48		—			—
Awards authorized		3,221,477
Options granted		(2,309,681	)		2,309,681			0.93
Options exercised		—			(752,698	)		0.54
Options cancelled		537			(1,039	)		2.08

Outstanding—December 31, 2014		1,550,101			2,138,096			0.91		9.29		3,153		—			—
Awards authorized		3,400,000
Options granted		(1,471,664	)		1,471,664			8.06
Options exercised		—			(41,505	)		0.76
Options cancelled		45,442			(45,442	)		7.76

Outstanding—December 31, 2015		3,523,879			3,522,813		$	3.81		8.78	$	40,425		—			—

Exercisable—December 31, 2015					2,152,742		$	1.04		8.35	$	30,140

Vested and expected to vest—December 31, 2015					3,417,287		$	3.74		8.77	$	39,437

The weighted-average grant date fair values of options granted during the years ended December 31, 2015, 2014 and 2013 was $10.51, $0.67 and $0.15 per share. The aggregate intrinsic value of options exercised was $0.2 million, $1.4 million and $0 for the years ended December 31, 2015, 2014 and 2013. The total grant date fair value of options vested for the years ended December 31, 2015, 2014 and 2013 was $1.4 million, $0.2 million and $18,000.

The aggregate intrinsic value totaled $0 for options outstanding at December 31, 2012 because the exercise price of the options was greater than the fair market value of the options for this date.

As of December 31, 2015, total unrecognized stock-based compensation related to unvested stock options was $13.0 million, net of estimated forfeitures, which the Company expects to recognize over a remaining weighted-average period of 3.3 years. Certain stock options are subject to occurrence of a performance condition.

Performance-Based Stock Option Grant

During the year ended December 31, 2014, the Company granted options to purchase 217,305 shares of common stock to an executive officer which contains both performance-based and service-based vesting criteria. Stock-based compensation associated with these performance-based stock options is recognized if the performance condition is achieved. Management concluded that the performance-based milestone was not probable of achievement as of December 31, 2014. As such, no stock-based compensation was recorded during the year ended December 31, 2014 related to these options. If the performance condition had been achieved at December 31, 2014, the Company would have recorded $17,000 in additional stock-based compensation related to these stock options.

On January 24, 2015, the Company amended the terms of the performance-based stock options to extend the date of the performance-based milestone. Upon the completion of the IPO in July 2015, the performance-based criteria of the stock options was achieved and the Company recorded additional stock-based compensation of $0.2 million during the year ended December 31, 2015.

Liability for Early Exercise of Stock Options

The 2008 Plan allows for the granting of options that may be exercised before the options have vested. In December 2014, an executive officer early exercised 103,252 stock options. In February 2015, an executive officer early exercised 13,422 stock options. On early exercise, the awards became subject to a restricted stock agreement. The shares of restricted stock granted upon early exercise of the options are subject to the same vesting provisions as the original stock option awards. Shares issued as a result of early exercise that have not vested are subject to repurchase by the Company upon termination of the purchaser’s employment or services, at the price paid by the purchaser, and are not deemed to be issued for accounting purposes until those related shares vest. The liability is reclassified into common stock and additional paid-in capital as the shares vest and the repurchase right lapses. Accordingly, the Company has recorded the unvested portion of the exercise proceeds of $23,000 as a current liability as of December 31, 2015 and $0.1 million as a long term liability as of December 31, 2014 from the early exercise in the accompanying consolidated balance sheet. As of December 31, 2015 and 2014, 23,554 and 103,252 shares held by the employees remain unvested and subject to repurchase.

2015 Employee Stock Purchase Plan

The Company adopted the 2015 Employee Stock Purchase Plan (ESPP) and initially reserved 700,000 shares of common stock as of its effective date of July 15, 2015. The number of shares initially reserved for issuance under the ESPP will increase automatically on January 1 for nine years from the first offering date by the number of shares equal to 1% of the total outstanding shares of the Company’s common stock as of the immediately preceding December 31. The aggregate number of shares issued over the term of the 2015 Employee Stock Purchase Plan will not exceed 3,400,000 shares of common stock.

Under the ESPP, participants are offered the options to purchase shares of Company’s common stock at a 15% discount during a series of discrete offering periods, subject to any plan limitations. The ESPP will not become effective until such time as the Compensation Committee determines in the future, and as of December 31, 2015, the initial offering periods had not commenced. As of December 31, 2015, no shares of common stock have been issued to employees participating in the ESPP and 700,000 shares were available for issuance under the ESPP.