Stockholders' Equity

6 Months Ended

Jun. 30, 2016

Stockholders' Equity

Stockholders' Equity

6. Stockholders’ Equity

Stock-Based Compensation

2006 Stock Incentive Plan

The Company’s 2006 Stock Option Plan (“2006 Plan”) was established for granting stock incentive awards to directors, officers, employees and consultants of the Company.  Upon closing of the Company’s IPO in August 2014, the Company ceased granting stock incentive awards under the 2006 Plan.  The 2006 Plan provided for the grant of incentive and non-qualified stock options and restricted stock grants as determined by the Company’s board of directors.  Under the 2006 Plan, stock options were generally granted with exercise prices equal to or greater than the fair value of the common stock as determined by the board of directors, expired no later than 10 years from the date of grant, and vest over various periods not exceeding 4 years. 

2014 Stock Incentive Plan

The Company’s 2014 Plan, as amended in June 2016 (“2014 Plan”, and together with the 2006 Plan, the “Plans”), provides for the issuance of shares of common stock in the form of stock options, awards of restricted stock, awards of restricted stock units, performance awards, dividend equivalent awards, stock payment awards and stock appreciation rights to directors, officers, employees and consultants of the Company. Since the establishment of the 2014 Plan, the Company has only granted stock options.  Generally, stock options are granted with exercise prices equal to or greater than the fair value of the common stock on the date of grant, expire no later than 10 years from the date of grant, and vest over various periods not exceeding 4 years. 

The number of shares reserved for future issuance under the 2014 Plan is the sum of (1) 823,529 shares, (2) any shares that were granted under the 2006 Plan which are forfeited, lapsed unexercised or are settled in cash subsequent to the effective date of the 2014 Plan and (3) an annual increase on the first day of each calendar year beginning January 1, 2015 and ending on January 1, 2024, equal to the lesser of (A) 4% of the shares outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year, and (B) such smaller number of shares determined by the Company’s board of directors.  As of June 30, 2016 there were 419,766 shares available for future grant under the 2014 Plan.

Stock Options

During the six months ended June 30, 2016, the Company granted options with an aggregate fair value of $5.8 million, which are being amortized into compensation expense over the vesting period of the options as the services are being provided. The following is a summary of option activity under the Plans:

				Weighted-Average
		Weighted-Average		Remaining
	Number of	Exercise Price Per		Contractual Term	Aggregate Intrinsic
	Shares	Share		(In years)	Value
Outstanding at December 31, 2015	3,484,298	$	8.79	7.64	$	14,620
Granted	1,179,208		8.79
Exercised	(149,897)		2.85			863
Cancelled	(346,314)		13.48
Outstanding at June 30, 2016	4,167,295		8.61	7.83		8,186
Exercisable at June 30, 2016	1,907,836		6.24	6.32		7,255
Vested or expected to vest at June 30, 2016	3,848,043		8.48	7.70		8,145

Included in the stock options granted during the six months ended June 30, 2016 are 166,066 options to purchase common stock granted to certain executive officers of the Company that vest upon the achievement of certain performance conditions, which include the attainment of specified operating result and regulatory targets, by December 31, 2017.  The Company has determined the fair value of these awards on the date of grant, and commenced recognition of expense totaling $51,000 during the six months ended June 30, 2016, as certain of the performance conditions were deemed probable in the period.  The total unrecognized compensation expense on the performance-based awards deemed probable of vesting at June 30, 2016 is $211,000.  The total unrecognized compensation expense on the performance-based awards not deemed probable of vesting at June 30, 2016 is $589,000.  The Company will continually evaluate the probability of achievement of each performance condition and will commence recognition of stock-based compensation expense on these awards in the period the achievement of each performance condition is deemed probable, including a catch-up adjustment from the grant date.

The weighted‑average fair values of options granted in the six-month periods ended June 30, 2016 and 2015 were $4.90 per share and $9.53 per share, respectively, and were calculated using the following estimated assumptions:

	Six months ended
	June 30,
	2016		2015
Weighted-average risk-free interest rate	1.45	%	1.69	%
Expected dividend yield	0.00	%	0.00	%
Expected volatility	60	%	55	%
Expected terms	6.0	years	5.9	years

Employee Stock Purchase Plan

The Company’s 2014 Employee Stock Purchase Plan (the “2014 ESPP”) provides initially for granting up to 220,588 shares of the Company’s common stock to eligible employees.  The 2014 ESPP plan period is semi-annual and allows participants to purchase the Company’s common stock at 85% of the lower of (i) the market value per share of common stock on the first day of the offering period or (ii) the market value per share of the common stock on the purchase date.  Each participant can purchase up to a maximum of $25,000 per calendar year in fair market value.  In May 2016, participants purchased 40,000 shares of common stock under the 2014 ESPP, resulting in proceeds to the Company of $282,000.  

Stock‑Based Compensation Expense

The following table summarizes the stock-based compensation expense resulting from awards granted under stock incentive plans, including the 2014 ESPP, that was recorded in the Company’s results of operations for the periods presented (in thousands):

	Three months ended				Six months ended
	June 30,				June 30,
	2016		2015		2016		2015
Cost of product revenue	$	33	$	—	$	59	$	—
Research and development		341		297		610		577
Selling, general and administrative		826		558		1,793		1,000
Total stock-based compensation expense	$	1,200	$	855	$	2,462	$	1,577

For the three and six months ended June 30, 2016, $37,000 and $65,000 of stock-based compensation expenses was capitalized as part of inventory or T2 instruments and components, respectively.

As of June 30, 2016, there was $12.1 million of total unrecognized compensation cost related to unvested stock options granted under the Plans, including the unrecognized compensation expense of stock options with performance conditions deemed probable of vesting. Total unrecognized compensation cost will be adjusted for future changes in the estimated forfeiture rate. The Company expects to recognize that cost over a remaining weighted‑average period of 2.8 years as of June 30, 2016.