9. Stockholders’ Equity

Preferred Stock

We are authorized to issue 25,000,000 shares of preferred stock, with a par value of $0.0001, of which none were issued and outstanding at December 31, 2014 and 2015.

Common Stock

We are authorized to issue 100,000,000 shares of common stock, with a par value of $0.0001, of which 23,334,901 and 24,769,083 were issued and outstanding at December 31, 2014 and 2015, respectively.

At the Market Offering

On March 13, 2015, we entered into a Sales Agreement with Guggenheim Securities, LLC, or Guggenheim, to offer shares of our Common Stock from time to time through Guggenheim, as our sales agent for the offer and sale of the shares. We may offer and sell shares for an aggregate offering price of up to $25 million. We did not make any sales under the Sales Agreement during the year ended December 31, 2015.

Purchase Agreement

On August 24, 2015, we entered into a purchase agreement (the “Purchase Agreement”) with Lincoln Park Capital Fund, LLC (“LPC”), pursuant to which we have the right to sell to LPC up to $17,000,000 in shares of our Common Stock, subject to certain limitations and conditions set forth in the Purchase Agreement, over the period from August 24, 2015 to March 1, 2018.

As consideration for entering into the Purchase Agreement, we issued to LPC 103,364 shares of Common Stock on the date of the Purchase Agreement. As consideration for LPC’s purchase of up to an additional $15,000,000 in shares of Common Stock, we will issue up to 34,455 shares of Common Stock to LPC on a pro-rata basis on each purchase date. We will not receive any cash proceeds from the issuance of these shares.

Under the Purchase Agreement, on any business day and as often as every business day over the 30-month term of the Purchase Agreement, and up to an aggregate amount of an additional $15,000,000 (subject to certain limitations) in shares of Common Stock, we have the right at our sole discretion and subject to certain conditions to direct LPC to purchase up to 100,000 shares of Common Stock (with such amounts increasing up to 175,000 shares as the stock price increases, but not to exceed $1,000,000 in total purchase proceeds per purchase date). The purchase price of shares of Common Stock pursuant to the Purchase Agreement will be based on the prevailing market price at the time of sale as set forth in the Purchase Agreement. We will control the timing and amount of any sales of Common Stock to LPC. In addition, we may direct LPC to purchase additional amounts as accelerated purchases if on the date of a regular purchase the closing sale price of the Common Stock is not below the “threshold price” as set forth in the Purchase Agreement. We have the right to terminate the Purchase Agreement at any time, on one business days’ notice, at no cost or penalty. We have agreed with LPC that we will not enter into any “variable rate” transactions with any third party from the date of the Purchase Agreement until the expiration of the 30-month period following the date of the Purchase Agreement, subject to certain exceptions.

From the effective date of the Purchase Agreement through December 31, 2015, we issued a total of 1,435,612 shares of Common Stock to LPC, including 105,379 shares of Common Stock issued to LPC as consideration for entering into the Purchase Agreement and purchasing additional shares, for gross proceeds of $2.9 million.

Equity Compensation Plans

In March 2004, we adopted the 2004 Equity Compensation Plan, or the 2004 Plan, that authorizes us to grant option and restricted stock awards. In October 2013, our board of directors approved the reservation of an additional 1,847,738 shares of common stock for issuance under the 2004 Plan, to accommodate grants of non‑qualified stock options to new members of our executive management, our former President and Chief Executive Officer and other employees and consultants. The amount, terms of grants, and exercisability provisions are determined and set by our board of directors.

In December 2013, we adopted the 2013 Equity Compensation Plan, or the 2013 Plan, that authorizes us to grant option and restricted stock awards. Our board of directors approved the reservation of 3,659,158 shares of common stock for issuance under the 2013 Plan.

As of December 31, 2015, the number of shares of common stock reserved for issuance under the 2004 and 2013 Equity Compensation Plans was 1,724,893.

Stock‑based compensation expense

Stock-based payments to employees, including grants of employee stock options, are recognized in the statements of operations and comprehensive loss based on fair value. Stock-based payments to non-employees are recognized at fair value on the date of grant and re-measured at each subsequent reporting date through the settlement of the instrument.

In January 2015, we granted stock options for 600,000 shares of our Common Stock to certain of our executive officers that include both a service condition and a market condition. The awards vest monthly at a rate of 2% per month (service condition) and the vesting is subject to acceleration if, at any time during the vesting period, the closing price of our Common Stock on NASDAQ is equal to or greater than $20.00 per share for 5 consecutive trading days (market condition). Should this market condition occur, all remaining unvested options shall vest immediately at that time. We calculated the fair value of these options using fair value models that consider both the market condition and service condition of the awards, and we will recognize compensation expense over the vesting period using the accelerated attribution method. Should the market condition be reached during the vesting period, all remaining unamortized compensation expense will be recognized at that time. The fair value of all other stock options is calculated using the Black-Scholes valuation model, and is recognized over the vesting period using the straight line method.

Stock‑based compensation expense recognized by award type is as follows:



	Year Ended December 31,
	2014		2015
Options awards	$	3,299,870	$	4,933,916
Restricted stock awards		84,930		746,437
Total stock-based compensation expense	$	3,384,800	$	5,680,353

Total compensation cost recognized for all stock‑based compensation awards in the statements of operations is as follows:



	Year Ended December 31,
	2014		2015
Research and development	$	933,814	$	1,569,886
General and administrative		2,450,986		4,110,467
Total stock-based compensation expense	$	3,384,800	$	5,680,353

Stock Options

A summary of activity for all options is presented below:


					Fair Value
		Weighted Average		Weighted Average	of		Aggregate
		Exercise Price		Contractual	Options		Intrinsic
	Shares	Per Share		Life (In Years)	Granted		Value
Outstanding—December 31, 2013	3,263,417	$	5.36	9.0			$	13,575,815
Granted	253,750		5.77		$	1,145,545
Exercised	(121,816)		1.49
Forfeited	(118,043)		5.56
Outstanding—December 31, 2014	3,277,308	$	5.53	8.5			$	—
Granted	785,900		5.15		$	2,944,407
Exercised	(24,261)		1.35
Forfeited	(18,164)		5.51
Outstanding—December 31, 2015	4,020,783	$	5.48	7.8			$	—
Vested and expected to vest—December 31, 2015	3,965,121	$	5.48	7.8			$	—
Exercisable at December 31, 2015	2,612,588	$	5.41	7.5			$	—

The per‑share weighted‑average fair value of the options granted to employees and non‑employees was estimated at the date of grant utilizing fair value models with the following weighted‑average assumptions:


	2014			2015			2015
	All grants			Executive grants			All others
Expected stock price volatility		90	%		75	%		91	%
Expected term of options		6.9	years		8	years		5.3	years
Risk‑free interest rate		2.19	%		1.73	%		1.33	%
Expected annual dividend yield		—	%		—	%		—	%
Weighted average grant date fair value	$	4.51		$	3.84		$	3.44

The weighted‑average valuation assumptions were determined as follows:

Expected stock price volatility: The expected volatility is based on historical volatilities of similar entities within our industry which were commensurate with our expected term assumption as described in the SEC’s Staff Accounting Bulletin, or SAB, No. 107.

Expected term of options: We estimated the expected term of our stock options with service‑based vesting using the “simplified” method, as prescribed in SAB No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to our lack of sufficient historical data.

Risk‑free interest rate: We base the risk‑free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the assumed expected option term.

Expected annual dividend yield: The estimated annual dividend yield is 0% because we have not historically paid, and do not expect for the foreseeable future to pay, a dividend on our common stock.

As of December 31, 2015, there was $5.1 million of total unrecognized compensation expense related to unvested options granted under the 2004 and 2013 Plans, which we expect to recognize as compensation expense over a weighted average attribution period of 1.5 years, subject to acceleration if the market condition is met for those awards that contain a market condition. That expense is expected to be recognized in the years ended as follows:


December 31, 2016	$	3,926,109
December 31, 2017		871,911
December 31, 2018		283,294
December 31, 2019		19,046
	$	5,100,360

The intrinsic value of stock options exercised for the years ended December 31, 2014 and 2015 were $948,417 and $110,724, respectively. The estimated fair value of shares that vested for the years ended December 31, 2014 and 2015 were $3,235,533 and $5,560,150, respectively.

Restricted Stock

In January 2015, we granted 450,000 shares of restricted stock to certain of our executive officers that include both a service and market condition. The awards cliff vest in their entirety 3 years from the date of grant (service condition), and the vesting is subject to acceleration if, at any time during the vesting period, the closing price of our Common Stock on NASDAQ is equal to or greater than $20.00 per share for 5 consecutive trading days (market condition). We calculated the fair value of the awards using fair value models that consider both the market condition and the service condition of the awards, and we will recognize compensation expense over the vesting period using the straight line method. Should the market condition be reached during the vesting period, all remaining unamortized compensation expense will be recognized at that time.

A summary of our restricted stock activity and related information is as follows:


		Weighted
		Average
		Grant Date
		Fair Value
	Shares	per Share
Unvested Balance—December 31, 2013	80,237
Granted	—	$	—
Vested	(59,279)
Forfeited	(9,193)
Unvested Balance—December 31, 2014	11,765
Granted	450,000	$	5.25
Vested	(11,765)
Forfeited	—
Unvested Balance—December 31, 2015	450,000

As of December 31, 2015, there was $1.6 million of total unrecognized compensation expense related to unvested shares of restricted stock granted under the Plan, which we expect to recognize as compensation expense over a weighted average attribution period of 2.1 years, subject to acceleration if the market condition is met for those awards that contain a market condition.

We record restricted stock based on its estimated fair value on the date of issuance. The expense related to restricted stock is recognized over the vesting period, which is generally over a three to four year period.

Warrants

We presently have the following warrants outstanding to purchase shares of our common stock:


		Number of
		Shares	Exercise
Warrant Series	Underlying Equity Security	Issuable	Price		Expiration Date
2007 Warrant	common stock	1,961	$	7.65	May 2017
2006 Warrants	common stock	21,786	$	7.65	March 2016-May 2016
2009/2010 Warrants	common stock	52,815	$	0.85	November 2019-March 2020

Our 2006 Warrants and 2009/2010 Warrants are classified as derivative liabilities on our balance sheets with subsequent changes to fair value recorded through earnings at each reporting period on our statement of operations and comprehensive loss as change in fair value of derivative liabilities. See Note 8 for additional information and Note 3 with respect to fair value.