12. Stock-Based Compensation

2014 Equity Incentive Plan

The Company’s 2014 Equity Incentive Plan, or the 2014 Plan, is administered by the Company’s Board of Directors or a duly authorized committee thereof, referred to as the Plan administrator. The 2014 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance stock awards and other forms of equity compensation, collectively referred to as Stock Awards. Additionally, the 2014 Plan provides for the grant of performance cash awards. Incentive stock options may be granted only to employees. All other awards may be granted to employees, including officers, non-employee directors, and consultants. No incentive stock options may be granted under the 2014 Plan after the tenth anniversary of the effective date of the 2014 Plan. Stock Awards granted under the 2014 Plan vest at the rate specified by the Plan administrator. Initial grants of Stock Awards made to employees and non-employee consultants generally vest as to 25% on the first anniversary of the date of grant and the balance ratably over the next 36 months. However, as of January 1, 2015 for officers and January 1, 2016 for employees and non-employee consultants, subsequent grants of Stock Awards vest monthly over a period of four years from the grant date. Stock options initially granted to members of the Company’s Board of Directors vest on the date of the Annual Meeting of Stockholders at which their initial term expires based on the class of Director. Subsequent grants to Directors that are made automatically at Annual Meetings of Stockholders vest fully on the first anniversary of the date of grant. The Plan administrator determines the term of Stock Awards granted under the 2014 Plan up to a maximum of ten years.

The aggregate number of shares of the Company’s common stock reserved for issuance under the 2014 Plan has automatically increased on January 1 of each year, beginning on January 1, 2015 and will continue to increase on January 1 of each year through and including January 1, 2024, by 3% of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Company’s Board of Directors. On January 1, 2018, the aggregate number of shares of common stock that may be issued pursuant to Stock Awards under the 2014 Plan automatically increased from 3,920,613 to 4,900,481. The maximum number of shares that may be issued pursuant to the exercise of incentive stock options under the 2014 Plan is 30,000,000 shares.

2004 Stock Incentive Plan

The Company’s 2004 Stock Incentive Plan, or the 2004 Plan, as amended, was adopted by the Company’s Board of Directors and stockholders. Under the 2004 Plan, the Company has granted stock options to selected officers, employees and consultants of the Company. The Company’s Board of Directors administers the 2004 Plan. Options granted under the 2004 Plan have a maximum term of ten years. Options issued generally vest 25% on the first anniversary date of grant and the balance ratably over the next 36 months. Following the effectiveness of the 2014 Plan in January 2014, no additional options or restricted share awards were granted under the 2004 Plan. As of September 30, 2014, the 2004 Plan expired and no further grants of stock options or restricted stock are allowed.

The Company accounts for stock options granted to employees and non-employee members of the Board of Directors in accordance with ASC 718, Compensation – Stock Compensation. The Company also occasionally grants stock options to non-employee consultants. Such grants are accounted for pursuant to ASC 505-50, Equity-Based Payments to Non-Employees (refer to Note 2, Summary of Significant Accounting Policies - Stock-Based Compensation).

A summary of the Company’s stock option activity related to employees, non-employee members of the Board of Directors and non-employee consultants as of and for the year ended December 31, 2017 is as follows:

				Weighted-		Aggregate
	Number of			Average		Intrinsic
	Options			Exercise Price		Value
Outstanding at December 31, 2016		2,548,408		$	8.75
Granted		1,328,500			16.16
Exercised		(247,892	)		6.85
Forfeited		(136,875	)		7.55
Outstanding at December 31, 2017		3,492,141		$	11.75	$	7,739
Weighted average remaining contractual life as of December 31, 2017 (in years)		8.00
Options exercisable at December 31, 2017		1,556,102		$	10.25	$	4,451
Weighted average remaining contractual life as of December 31, 2017 (in years)		6.96
Options vested and expected to vest as of December 31, 2017		3,492,141		$	11.75	$	7,739
Weighted average remaining contractual life as of December 31, 2017 (in years)		8.00

The total fair value of options vested during the years ended December 31, 2017, 2016 and 2015 was $5,303, $3,589 and $2,489, respectively. The intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $2,285, $126 and $1,748, respectively.

During the years ended December 31, 2017, 2016 and 2015, the Company granted 1,328,500, 1,078,000 and 774,000 stock options, respectively, to employees, non-employee members of the Board of Directors or non-employee consultants. The fair values of the stock options granted to those groups were estimated using the Black-Scholes option valuation model with the following ranges of assumptions (see Note 2, Summary of Significant Accounting Policies - Stock-Based Compensation):

	Year Ended December 31,
	2017	2016	2015
Risk-free interest rate	1.85% -2.57%	1.19% - 1.93%	1.43% - 1.89%
Expected volatility	75.3% - 84.5%	67.8% - 77.8%	64.0% - 67.4%
Expected dividend yield	0%	0%	0%
Expected life of employee and Board of Directors' options (in years)	6.25	6.25	6.25
Expected life of non-employee options (in years)	10	10	10

The weighted average grant date fair value of options granted to employees, non-employee members of the Board of Directors for their Board service and non-employee consultants during the years ended December 31, 2017, 2016 and 2015 was $11.46, $4.28 and $7.17, respectively.

At the end of each fiscal quarter during the years ended December 31, 2017, 2016 and 2015, the Company used the Black-Scholes option valuation model with the following ranges of assumptions to re-measure the fair value of all outstanding options that had been granted to non-employee consultants during the vesting period of each tranche in accordance with ASC 505-50:

	Year Ended December 31,
	2017	2016	2015
Risk-free interest rate	1.28% - 2.39%	1.35% - 2.38%	1.81% - 2.15%
Expected volatility	74.6% - 87.3%	70.8% - 75.5%	70.6% - 72.2%
Expected dividend yield	0%	0%	0%
Expected life of non-employee options (in years)	0.62 - 9.94	7.08 - 9.60	8.1 - 8.8

Under ASC 505-50, upon re-measurement of each award, income or expense is recognized during its vesting term.

The weighted average fair value of outstanding options that had been granted to nonemployee consultants, as re-measured during the vesting period of each tranche in accordance with ASC 505-50 during the years ended December 31, 2017, 2016 and 2015 was $10.16, $4.81 and $10.05, respectively.

On January 1, 2017, the Company adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (see Note 2, Basis of Presentation - Recently Adopted Accounting Pronouncements). On the date of adoption of ASU 2016-09, the Company began to account for forfeitures of unvested stock options as they occur rather than estimate forfeiture rates that were applied to unvested stock option awards, as under the previous accounting guidance. Accordingly, on the date of adoption, the Company recorded a cumulative-effect adjustment to stockholders’ equity of $45 for all stock option awards that were unvested as of that date.

During the years ended December 31, 2017, 2016 and 2015, the Company recognized compensation expense in the accompanying Statements of Comprehensive Loss relating to stock options, as follows:

	Year Ended December 31,
	2017		2016		2015
Research and development	$	2,433	$	1,301	$	1,073
General and administrative		3,897		1,499		1,441
Total stock option expense	$	6,330	$	2,800	$	2,514

Included in the table above are the following amounts of compensation expense recognized with regard to stock options that were granted to non-employee consultants, including the effect of re-measurement of the fair values of those options, as described above:

	Year Ended December 31,
	2017		2016			2015
Research and development	$	170	$	(79	)	$	250
General and administrative		200		(20	)		100
Total stock option expense	$	370	$	(99	)	$	350

In connection with the retirement of the Company’s former Chief Financial Officer, effective August 15, 2017, or the Modification Date, the Company modified the terms of the former Chief Financial Officer’s outstanding Stock Awards to: (1) accelerate 50% of the 98,771 unvested shares underlying his outstanding Stock Awards immediately as of the Modification Date, and specify that the remainder will vest monthly through the date of termination of his continuous service to the Company and (2) extend the period during which his outstanding Stock Awards for an aggregate of 183,000 shares may be exercised through the six-month anniversary of the date of termination of his continuous service to the Company. As of the Modification Date, the Company entered into a consulting agreement with the former Chief Financial Officer under which he provided continuous service to the Company by assisting with the transition of his role to the Company’s Chief Financial Officer. Pursuant to the terms of the 2014 Plan and his outstanding Stock Awards, such Stock Awards continued to vest under their original vesting conditions as long as he provided continuous service to the Company (including as a consultant). The term of his consulting agreement ended on February 15, 2018.

The Company determined that the acceleration of vesting for Stock Awards that would have vested based on their original vesting terms through the term of the consulting services was a Type 1 modification pursuant to ASC 718, Compensation-Stock Compensation because those Stock Awards would have vested whether or not the vesting of those Stock Awards had been accelerated. However, acceleration of vesting for the remaining Stock Awards was a Type 3 modification pursuant to ASC 718 because absent the modification terms, those Stock Awards would have been forfeited as of the last day that the former Chief Financial Officer provides continuous service as a consultant.

During the year ended December 31, 2017, with respect to these modifications, the Company recognized $537 of compensation expense, including expense based on marking to market the fair value of the modified Stock Awards in accordance with ASC 505-50, which is included in General and administrative expense in the table above.

As of December 31, 2017, the total compensation expense relating to unvested options granted to employees, non-employee members of the Board of Directors and non-employee consultants that had not yet been recognized was $15,913, which is expected to be realized over a weighted average period of 2.96 years. The Company will issue shares upon exercise of options from common stock reserved.

The Company does not expect to realize any tax benefits from its stock option activity or the recognition of stock-based compensation expense because the Company currently has net operating losses and has a full valuation allowance against its deferred tax assets. Accordingly, no amounts related to excess tax benefits have been reported in cash flows from operations or cash flows from financing activities for the years ended December 31, 2017, 2016 and 2015.