13. 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.

Under the 2014 Plan, the Company granted 136,500 and 90,000 stock options during the three months ended June 30, 2018 and 2017, respectively, and 732,500 and 838,500 stock options during the six months ended June 30, 2018 and 2017, respectively. The fair values of stock options granted during the three and six months ended June 30, 2018 and 2017 were estimated as of the dates of grant using the Black-Scholes option pricing model with the following assumptions:

	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017

Risk-free interest rate	2.85% - 2.94%	1.85% - 1.88%	2.51% - 2.94%	1.85% - 2.57%
Expected volatility	85.7% - 92.8%	83.3%	85.7% - 92.8%	75.3% - 83.3%
Expected dividend yield	0%	0%	0%	0%
Expected life of employee options (in years)	6.25	6.25	6.25	6.25
Expected life of non-employee options (in years)	NA	10	NA	10

The weighted-average grant date fair value of options granted to employees, non-employee members of the Company’s Board of Directors for their Board service and non-employee consultants during the three months ended June 30, 2018 and 2017 was $10.49 and $13.53, respectively, and during the six months ended June 30, 2018 and 2017 was $10.51 and $12.41, respectively.

As of June 30, 2018 and 2017, 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:

	June 30,
	2018	2017
Risk-free interest rate	1.92% - 2.82%	2.02% - 2.28%
Expected volatility	60.4% - 96.2%	76.4% - 81.3%
Expected dividend yield	0%	0%
Expected life of non-employee options (in years)	0.25 - 8.69	6.58 - 9.69

The weighted-average fair value of outstanding options that had been granted to non-employee consultants, as re-measured during the vesting period of each tranche in accordance with ASC 505-50, was $9.97 and $12.18 as of June 30, 2018 and 2017, respectively.

On January 1, 2017, the Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09. 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 three and six months ended June 30, 2018 and 2017, the Company recognized compensation expense in the accompanying Condensed Statements of Comprehensive Loss relating to stock options, as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Research and development	$	852	$	603	$	1,500		1,166
General and administrative		1,217		715		2,440		1,260
Total stock option expense	$	2,069	$	1,318	$	3,940	$	2,426

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:

	Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018		2017
Research and development	$	93	$	3		$	121	$	146
General and administrative		40		(7	)		179		32
Total stock option expense	$	133	$	(4	)	$	300	$	179

A summary of stock option award activity related to employees, non-employee members of the Company’s Board of Directors and non-employee consultants as of and for the six months ended June 30, 2018 is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding, December 31, 2017		3,492,141		$	11.75
Granted		732,500			14.13
Exercised		(222,132	)		7.87
Expired		(6,562	)		17.41
Forfeited		(124,753	)		10.95
Outstanding, June 30, 2018		3,871,194		$	12.44

Options exercisable, June 30, 2018		1,746,033

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 for the six months ended June 30, 2018 and 2017.