Stockholders' Equity

6 Months Ended

Jun. 30, 2016

Stockholders' Equity

Stockholders' Equity

5. Stockholders’ Equity

Under its certificate of incorporation, the Company was authorized to issue up to 100,000,000 shares of common stock as of June 30, 2016. The Company also was authorized to issue up to 5,000,000 shares of preferred stock as of June 30, 2016. The Company is required, at all times, to reserve and keep available out of its authorized but unissued shares of common stock sufficient shares to effect the conversion of the shares of any outstanding preferred stock and all outstanding stock options and warrants.

Equity Offerings

In February 2016, the Company issued and sold 1,350,755 shares of common stock through Cowen and Company, LLC, pursuant to an at-the-market sales facility dated December 14, 2015. The shares were sold at a weighted average price per share of $9.00. The net offering proceeds to the Company were approximately $11.8 million after deducting related expenses, including commissions.

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 March 31, 2014 (collectively, the “2013 Plan”). The 2013 Plan became effective upon the Company’s entry into the underwriting agreement related to its initial public offering 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 automatically increases on January 1 of each year beginning in 2015. As of January 1, 2016, the number of shares of common stock that may be issued under the 2013 Plan was automatically increased by 2,032,104 shares, representing 4% of the total number of shares of common stock outstanding on December 31, 2015.

Under both the 2008 Plan and the 2013 Plan, the amount, terms of grants and exercisability provisions are determined by the board of directors or its designee. The term of the options may be up to 10 years, and options are exercisable in cash or as otherwise determined by the board of directors. Vesting generally occurs over a period of not greater than four years.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Research and development	$	622,746	$	350,022	$	1,128,796	$	577,823
General and administrative		887,637		494,198		1,584,312		880,284
Total stock-based compensation	$	1,510,383	$	844,220	$	2,713,108	$	1,458,107

	Options Outstanding
				Weighted
				Average
		Weighted		Remaining
		Average		Contractual
	Number of	Exercise		Term (in
	Shares	Price		years)
Balance, December 31, 2015	4,630,073	$	4.98	7.87
Granted	1,902,500		8.61
Exercised	(23,618)		2.60
Forfeited/Cancelled	(28,375)		6.22
Balance, June 30, 2016	6,480,580	$	6.05	8.05
Vested or expected to vest at June 30, 2016	6,209,938	$	5.95	7.99
Exercisable at June 30, 2016	2,579,905	$	3.81	6.66

The intrinsic value of the options exercisable as of June 30, 2016 was $7.3 million, based on the Company’s closing stock price of $6.30 per share and a weighted average exercise price of $3.81 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 common stock.

The per-share weighted-average grant date fair value of the options granted to employees and directors during the quarter ended June 30, 2016 and 2015 was estimated at $5.34 and $4.26 per share, respectively, on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

	Six Months Ended
	June 30,
	2016		2015
Expected term of options (in years)	6.2		6.2
Risk-free interest rate	1.47	%	1.68	%
Expected volatility	67.9	%	68.9	%
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 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’ stock 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%.

· Estimated forfeiture rate: The Company’s estimated annual forfeiture rate on stock option grants during 2016 and 2015 was 9%, based on the historical forfeiture experience.

At June 30, 2016, there was $15.7 million of total unrecognized compensation expense related to unvested options that will be recognized over the weighted average remaining period of 3.01 years.

Shares Available for Future Grant

At June 30, 2016, the Company has the following shares available to be granted under the 2013 Plan:

Available at December 31, 2015	959,354
Authorized	2,032,104
Granted	(1,902,500)
Forfeited/Cancelled	28,375
Available at June 30, 2016	1,117,333

Shares Reserved for Future Issuance

At June 30, 2016, the Company has reserved the following shares of common stock for issuance:

Stock options outstanding	6,480,580
Shares available for future grant under 2013 Plan	1,117,333
Employee stock purchase plan	225,806
Warrants outstanding	60,850
	7,884,569