Stockholders' Equity

9 Months Ended

Sep. 30, 2015

Stockholders' Equity

Stockholders' Equity

5. Stockholders’ Equity

Equity Offerings

On September 16, 2015, the Company issued and sold 7,475,000 shares of common stock in a public offering at a price of $9.75 per share, for gross proceeds of approximately $72.9 million. The net offering proceeds to the Company from the combined sales were approximately $68.4 million, after deducting underwriting discounts and commissions of approximately $4.4 million and offering costs of $0.1 million recognized through September 30, 2015.

On July 7, 2015, the Company issued and sold 1,000,000 shares of common stock through Cowen and Company, LLC (Cowen), pursuant to an at-the-market (ATM) sales facility dated April 3, 2015.  The shares were sold at a weighted average price per share of $6.0001, for aggregate gross proceeds of $6.0 million. The net offering proceeds to the Company were approximately $5.8 million after deducting related expenses, including commissions of approximately $0.2 million.

On May 8, 2015, the Company issued and sold 2,700,000 shares of common stock through Cowen pursuant to the ATM facility at a weighted average price per share of $6.2503, for aggregate gross proceeds of $16.9 million. The net offering proceeds to the Company were approximately $16.2 million after deducting related expenses, including commissions of approximately $0.5 million.

Equity Incentive Plans

In 2008, the Company adopted the 2008 Equity Incentive Plan, as amended on February 29, 2008, January 7, 2010, July 8, 2010, December 10, 2010, June 23, 2011 and June 17, 2013 (collectively, the “2008 Plan”) that authorized the Company to grant restricted stock and stock options to eligible employees, directors and consultants to the Company.

In 2013, the Company adopted the 2013 Equity Incentive Plan, as amended on May 14, 2014 and January 1, 2015 (collectively, the “2013 Plan”). The 2013 Plan became effective upon the Company’s entry into the underwriting agreement related to its initial public offering (IPO) in January 2014 and, as of such date, the Company may not make further grants under the 2008 Plan. The 2013 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance-based stock awards and other forms of equity compensation (collectively, stock awards), all of which may be granted to employees, including officers, non-employee directors and consultants of the Company. Additionally, the 2013 Plan provides for the grant of cash and stock based performance awards. The 2013 Plan contains an “evergreen” provision, pursuant to which the number of shares of common stock available for issuance under the plan will automatically increase on January 1 of each year beginning in 2015.

The estimated grant-date fair value of the Company’s share-based awards is amortized ratably over the awards’ service periods. Share-based compensation expense recognized was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Research and development	$	349,698	$	304,885	$	927,521	$	921,069
General and administrative	540,720		389,481		1,421,005		968,863
Total stock-based compensation	$	890,418	$	694,366	$	2,348,526	$	1,889,932

A summary of stock option activity for the nine months ended September 30, 2015 is as follows:

	Options Outstanding
	Number of Shares		Weighted- Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Balance, December 31, 2014	3,574,450		$	3.75	8.06
Granted	1,554,960		6.95
Exercised	(317,681	)	2.15
Forfeitures/Expirations	(153,780	)	6.04
Balance, September 30, 2015	4,657,949		$	4.85	8.08
Vested or expected to vest at September 30, 2015	4,500,954		$	4.78
Exercisable at September 30, 2015	1,830,274		$	2.96

The intrinsic value of the options exercisable as of September 30, 2015 was $13.5 million, based on the Company’s closing stock price of $10.35 per share and a weighted average exercise price of $2.96 per share.

The Company uses the Black-Scholes option-pricing model to estimate the fair value of stock options at the grant date. The Black-Scholes model requires the Company to make certain estimates and assumptions, including estimating the fair value of the Company’s common stock, assumptions related to the expected price volatility of the Company’s stock, the period during which the options will be outstanding, the rate of return on risk-free investments and the expected dividend yield for the Company’s stock.

The per-share weighted-average grant date fair value of the options granted to employees and directors during the nine months ended September 30, 2015 and 2014 was estimated at $4.37 and $4.50 per share, respectively, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Nine Months Ended September 30,
	2015		2014
Expected term of options (in years)	6.22		5.87
Risk-free interest rate	1.69	%	1.82	%
Expected volatility	69	%	76	%
Dividend yield	0	%	0	%

The weighted-average valuation assumptions were determined as follows:

· Risk-free interest rate:  The Company based 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 term of options:  Due to its lack of sufficient historical data, the Company estimates the expected life of its employee stock options using the “simplified” method, as prescribed in Staff Accounting Bulletin (SAB) No. 107, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option.

· Expected stock price volatility:  The Company estimated the expected volatility based on actual historical volatility of the stock price of similar companies with publicly-traded equity securities. The Company calculated the historical volatility of the selected companies by using daily closing prices over a period of the expected term of the associated award. The companies were selected based on their enterprise value, risk profiles, position within the industry and with historical share price information sufficient to meet the expected term of the associated award. A decrease in the selected volatility would have decreased the fair value of the underlying instrument.

· Expected annual dividend yield:  The Company estimated the expected dividend yield based on consideration of its historical dividend experience and future dividend expectations. The Company has not historically declared or paid dividends to stockholders. Moreover, it does not intend to pay dividends in the future, but instead expects to retain any earnings to invest in the continued growth of the business. Accordingly, the Company assumed an expected dividend yield of 0.0%.

· Estimated forfeiture rate:  The Company’s estimated annual forfeiture rate for the nine months ended September 30, 2015 and 2014 stock option grants was 9% and 7%, respectively, based on the historical forfeiture experience.

The fair value of the Company’s common stock, prior to the IPO, was determined by its board of directors with assistance from its management. The board of directors and management considered numerous objective and subjective factors in the assessment of fair value, including the price for the Company’s preferred stock that was sold to investors and the rights, preferences and privileges of the preferred stock and common stock, the Company’s financial condition and results of operations during the relevant periods and the status of strategic initiatives. These estimates involved a significant level of judgment.

As of September 30, 2015, there was $9.5 million of total unrecognized compensation expense related to unvested options that will be recognized over the weighted average remaining period of 2.90 years.

Shares Available for Future Grant

At September 30, 2015, the Company has the following shares available to be granted under the 2013 Plan:

Available at December 31, 2014	829,364
Authorized	1,569,646
Granted	(1,554,960	)
Forfeitures/Expirations	153,780
Available at September 30, 2015	997,830

Shares Reserved for Future Issuance

At September 30, 2015, the Company has reserved the following shares of common stock for issuance:

Stock options outstanding	4,657,949
Shares available for future grant under 2013 Plan	997,830
Employee stock purchase plan	225,806
Warrants outstanding	27,839
	5,909,424