9. Equity Incentive Plans

2015 Plan

In March 2015, the Company’s board of directors adopted and in April 2015 the Company’s stockholders approved the 2015 Equity Incentive Plan, or the 2015 Plan, which became effective upon the IPO and provides for the granting of incentive stock options, nonstatutory stock options, and other forms of stock awards to its employees, directors and consultants. The Company’s 2009 Stock Incentive Plan, or the 2009 Plan, terminated on the date the 2015 Plan was adopted. Options granted or shares issued under the 2009 Plan that were outstanding on the date the 2015 Plan became effective will remain subject to the terms of the 2009 Plan.

The 2015 Plan is administered by the board of directors or a committee appointed by the board of directors, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. The exercise price of incentive stock options and nonqualified stock options will be no less than 100% of the fair value per share of the Company’s common stock on the date of grant. If an individual owns capital stock representing more than 10% of the voting shares, the price of each share will be at least 110% of the fair value on the date of grant. Options expire after 10 years (five years for stockholders owning greater than 10% of the voting stock). The number of shares of common stock initially reserved for issuance under the 2015 Plan was 6,134,292 shares with an automatic annual increase to the shares issuable under the 2015 Plan to the lower of (i) 4% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or (ii) a lower number determined by the board of directors. On January 1, 2016 the shares issuable under the 2015 Plan increased by 2,543,513. The Company had 5,570,694 shares available for future grant under the 2015 Plan as of September 30, 2016.

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2016:

	Options Outstanding
	Shares Available for Grant				Number of Options			Weighted- Average Exercise Price		Aggregate Intrinsic Value
										(In thousands)
Balance—December 31, 2015		4,810,271				9,931,229		$	5.29	$	229,591
Authorized		2,543,513
RSUs granted, net		(660,800	)
Granted		(1,165,660	)			1,165,660			12.84
Exercised		—				(457,654	)		1.03
Canceled		43,370		⁽¹⁾		(94,328	)		15.45
Balance—September 30, 2016		5,570,694				10,544,907		$	6.22	$	87,430
Options exercisable—September 30, 2016						5,569,984		$	3.24	$	56,838
Options vested and expected to vest—September 30, 2016						10,293,961		$	6.11	$	86,148

⁽¹⁾	This excludes 50,958 canceled options for the nine months ended September 30, 2016 initially granted from the legacy stock option plans. As these plans have been terminated, any options canceled are not added back to the existing option plan pool.

The aggregate intrinsic value represents the difference between the exercise price of the options and the closing price of the Company’s common stock. The Company’s closing stock price as reported on the NASDAQ as of September 30, 2016 was $12.43. The aggregate intrinsic value of options exercised for the three and nine months ended September 30, 2016 was $3.2 million and $7.1 million, respectively.

As of September 30, 2016, the total unrecognized compensation expense related to unvested options, net of estimated forfeitures, was $32.6 million, which the Company expects to recognize over an estimated weighted-average period of 2.4 years.

Restricted Stock Units (RSUs)

In September 2016, the Company’s board of directors authorized the issuance of Restricted Stock Units, or RSUs, under the 2015 Plan and adopted a form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement, or the RSU Agreement, which is intended to serve as a standard form agreement for restricted stock unit grants issued to employees, executive officers, directors and consultants. In September 2016, the Company granted RSU equity awards to certain of its employees in accordance with the terms of the RSU Agreement.

The following table summarizes restricted stock unit activity for the nine months ended September 30, 2016:

	RSUs Outstanding
	Number of Restricted Stock Units			Weighted- Average Grant Date Fair Value Per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
								(In thousands)
Balance—December 31, 2015		—		$	—		—	$	—
Granted		662,800			14.29
Vested		—
Canceled/forfeited		(2,000	)		14.29
Balance—September 30, 2016		660,800		$	14.29		2.45	$	8,214

The fair value of RSUs is determined on the date of grant based on the market price of the Company’s common stock on that date. As of September 30, 2016, there was $9.0 million of unrecognized stock-based compensation expense, net of estimated forfeitures, related to RSUs to be recognized over a weighted-average period of 4.0 years.

2015 Employee Stock Purchase Plan

In March 2015, the Company’s board of directors adopted and in April 2015 the Company’s stockholders approved the 2015 Employee Stock Purchase Plan, or 2015 ESPP, which became effective upon the IPO. The 2015 ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Code, and is administered by the Company’s board of directors and the Compensation Committee of the board of directors.

The number of shares of common stock initially reserved for issuance under the 2015 ESPP was 720,000 shares with an automatic annual increase to the shares issuable under the 2015 ESPP to the lower of (i) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or (ii) a lower number determined by the board of directors. On January 1, 2016 the shares issuable under the 2015 ESPP increased by 635,878. The Company had 1,259,761 shares available for future issuance under the 2015 ESPP as of September 30, 2016. Under the Aduro Biotech, Inc. Employee Stock Purchase Plan (“ESPP”) employees purchased 56,544 shares for $0.5 million during the nine months ended September 30, 2016.

Stock-based Compensation Expense

Total stock-based compensation expense recognized was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Research and development	$	2,257	$	499	$	6,226	$	1,250
General and administrative		1,527		1,388		4,626		3,982
Total stock-based compensation expense	$	3,784	$	1,887	$	10,852	$	5,232

In determining the fair value of the stock-based awards, the Company uses the Black-Scholes option-pricing model. The fair value of stock option awards granted to employees was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions for the nine months ended September 30, 2016:

	2015 Plan		2015 ESPP
	Nine Months Ended September 30,		Nine Months Ended September 30,
	2016	2015	2016		2015
Expected term (in years)	5.31 - 6.05	5.30 - 6.10	0.5		0.5
Volatility	72.0 -75.0%	70.2 - 82.8%		73.8%		71.7%
Risk-free interest rate	1.25 - 1.72%	1.38 - 1.93%		0.36%		0.10%
Dividend yield	—%	—%	—%		—%