10.

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,
	2016		2015		2014
	(in thousands)
Research and development	$	3,635	$	1,846	$	65
General and administrative		1,875		1,340		237

Total stock-based compensation	$	5,510	$	3,186	$	302

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,

2016

2015

2014

Expected term (in years)

5.1 – 9.9

5.2 – 10.0

5.0 – 6.0

Expected volatility

77 – 87

75 – 84

81 – 83

Risk-free interest rate

1.1 – 2.4

1.5 – 2.4

1.5 – 1.8

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. As the Company’s historical share option exercise is limited due to a lack of sufficient data points, and does not provide a reasonable basis upon which to estimate an expected term, the expected term is 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 non-employees 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 is 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 experience, analysis of employee turnover behavior and other factors.

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. As of December 31, 2016, 5,163,208 shares were reserved for issuance under the 2015 Plan. The number of shares 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.

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


				Options Outstanding
	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)
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
Awards authorized		1,202,324
Options granted		(3,710,980	)		3,710,980			3.22
Options exercised		—			(312,841	)		0.67
Options cancelled		377,298			(377,298	)		7.04

Outstanding—December 31, 2016		1,392,521			6,543,654		$	3.44		8.82	$	888

Exercisable—December 31, 2016					2,614,587		$	2.41		7.99	$	888

Vested and expected to vest—December 31, 2016					6,352,640		$	3.43		8.81	$	877

The weighted-average grant date fair values of options granted during the years ended December 31, 2016, 2015 and 2014 was $2.19, $10.51 and $0.67 per share. The aggregate intrinsic value of options exercised was $1.2 million, $0.2 million and $1.4 million for the years ended December 31, 2016, 2015 and 2014. The total grant date fair value of options vested for the years ended December 31, 2016, 2015 and 2014 was $6.1 million, $1.4 million and $0.2 million.

As of December 31, 2016, total unrecognized stock-based compensation related to unvested stock options was $13.8 million, net of estimated forfeitures, which the Company expects to recognize over a remaining weighted-average period of 2.6 years.

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, 2016, the initial offering periods had not commenced. As of December 31, 2016, 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.