9. Stock-based Compensation

In September 2014, the Board of Directors adopted the 2014 Stock Plan (2014 Plan). In June 2015, the Board of Directors adopted the 2015 Equity Incentive Plan (2015 Plan), which became effective on September 16, 2015, the date on which the registration statement for the IPO was declared effective. The 2015 Plan replaced the 2014 Plan, and as of the effective date of the 2015 Plan, no further awards may be issued under the 2014 Plan. Any options or awards outstanding under the 2014 Plan as of the effective date of the 2015 Plan remained outstanding and effective. The number of authorized shares under the 2015 Plan automatically increases annually on January 1, beginning January 1, 2016, by the lesser of (i) 4% of the total number of shares of common stock outstanding on December 31 of the prior year, or (ii) a number of common shares determined by the Board of Directors. In January 2016, the Board of Directors authorized an additional 1,052,538 shares to be issued under the 2015 Plan. As of December 31, 2016, the total number of shares of common stock authorized for issuance under the 2015 Plan and 2014 Plan was 7,177,538 of which 1,729,912 remain available for future grants under the 2015 Plan. In January 2017, the Board of Directors authorized an additional 1,059,065 shares to be issued under the 2015 Plan.

The 2014 Plan and 2015 Plan provide for the issuance of stock options, stock appreciation rights, restricted and unrestricted stock and unit awards, and performance cash awards to employees, members of the Board of Directors and consultants of the Company. Since the inception of the plans, the Company has issued only stock options and restricted stock units under the plans. Stock options under the 2014 Plan and 2015 Plan generally expire ten years following the date of grant. Options typically vest over a four year period, but vesting provisions can vary by award based on the discretion of the Board of Directors. Certain stock option awards granted by the Company include performance conditions that must be achieved in order for vesting to occur. Stock options under the 2014 Plan and 2015 Plan carry an exercise price at least equal to the estimated fair value of the Company’s common stock on the date of grant. Restricted stock units vest in accordance with the underlying award agreements and, upon vesting, are settled in common stock of the Company.

Shares of common stock underlying awards previously issued under the 2014 Plan and 2015 Plan which are reacquired by the Company, withheld by the Company in payment of the purchase price, exercise price or withholding taxes, expired, cancelled due to forfeiture or otherwise terminated other than by exercise or settlement, are added to the number of shares of common stock available for issuance under the 2015 Plan. Shares available for issuance under the 2015 Plan may be either authorized but unissued shares of the Company’s common stock or common stock reacquired by the Company and held in treasury. The 2015 Plan expires in June 2025, ten years from the date it was adopted by the Board of Directors, unless earlier terminated.

Stock-based Compensation Expense

The Company’s stock-based compensation expense by award type is as follows (in thousands):

	Years Ended December 31,
	2016		2015		2014
Stock options	$	6,950	$	2,921	$	319
Restricted stock units		23		—		—
Employee stock purchase plan		58		—		—
	$	7,031	$	2,921	$	319

The Company has recorded aggregate stock-based compensation expense in the statement of operations and comprehensive loss as follows (in thousands):

	Years Ended December 31,
	2016		2015		2014
Research and development	$	2,743	$	1,760	$	60
General and administrative		4,288		1,161		259
	$	7,031	$	2,921	$	319

Stock Options

The following table summarizes stock option activity under the 2014 Plan and 2015 Plan (in thousands, except per share data):

						Weighted-
						average
				Weighted-		Remaining
				average		Contractual		Aggregate
				Exercise		Life		Intrinsic
	Shares			Price		(Years)		Value (a)
Outstanding at December 31, 2015		3,684		$	5.52		9.1	$	44,472
Granted		1,796		$	12.58
Exercised		(163	)	$	1.10
Cancelled or forfeited		(199	)	$	15.04
Outstanding at December 31, 2016		5,118		$	7.77		8.5	$	57,400
Exercisable at December 31, 2016		2,147		$	3.90		8.0	$	32,198
Vested and expected to vest at December 31, 2016		5,118		$	7.77		8.5	$	57,400

(a)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of the common stock for the options that were in the money at the dates reported.

The weighted-average grant date fair value per share of options granted during the years ended December 31, 2016, 2015 and 2014 was $8.37, $7.08 and $0.51, respectively. The weighted-average grant date fair value per share of options vested during the years ended December 31, 2016, 2015 and 2014 was $4.16, $1.10 and $0.51, respectively. During the years ended December 31, 2016, 2015 and 2014, the total number of stock options exercised was 163,158, 125,563 and 1,900, respectively, resulting in total proceeds of $0.2 million, $0.1 million and less than $0.1 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $1.7 million, $0.5 million and $0, respectively.

Valuation of Common Stock. Prior to the Company’s IPO, the Company estimated the fair value of its common stock underlying stock option awards at the grant date of the award. Valuation estimates were prepared by management in accordance with the framework of the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, as well as through independent third-party valuations, and were approved by the Company’s Board of Directors. Valuation estimates were based on a variety of factors including the Company’s financial position and historical financial performance, the Company’s stage of development, the valuations of comparable publicly traded companies, marketplace and macro-economic factors, the illiquid nature of the common stock, arm’s-length sales of the Company’s preferred equity securities, the effect of the rights, preferences and privileges of preferred shareholders and preferred unit holders and the prospects of a liquidity event, among others. After the completion of the Company’s IPO in September 2015, the fair value of the common stock is based on the closing price of the common stock on the date of grant.

Stock Options Granted to Employees. For the years ended December 31, 2016, 2015 and 2014, the Company recorded $6.4 million, $1.4 million and $0.3 million, respectively, of stock-based compensation expense related to stock options granted to employees and directors. The fair value of options granted to employees and directors was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:

	Years Ended December 31,
	2016			2015			2014
Expected volatility		75	%		68	%		64	%
Expected term (in years)		6.2			6.1			6.0
Risk-free interest rate		1.5	%		1.7	%		2.0	%
Expected dividend yield		0.0	%		0.0	%		0.0	%

As of December 31, 2016, there was $18.4 million of unrecognized stock-based compensation expense related to stock option awards to employees and directors, which is expected to be recognized over a weighted-average period of 3.04 years.

Stock Options Granted to Non-employees. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock options are earned. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered. For the years ended December 31, 2016, 2015 and 2014, the Company recorded $0.6 million, $1.5 million and less than $0.1 million, respectively, of stock-based compensation expense related to stock options granted to non-employees. The fair value of options granted to non-employees was estimated at each measurement date using the Black-Scholes valuation model with the following weighted-average assumptions:

	Years Ended December 31,
	2016			2015			2014
Expected volatility		83	%		75	%		65	%
Expected term (in years)		8.5			9.5			9.9
Risk-free interest rate		1.7	%		2.1	%		2.4	%
Expected dividend yield		0.0	%		0.0	%		0.0	%

Restricted Stock Units

The following table summarize restricted stock unit activity under the 2015 Plan (in thousands, except per share data):

			Weighted-
			average
			Grant Date
	Shares		Fair Value
Unvested balance at December 31, 2015		—	$	—
Granted		40	$	20.90
Vested		—	$	—
Forfeited		—	$	—
Unvested balance at December 31, 2016		40	$	20.90

As of December 31, 2016, there was $0.8 million of unrecognized stock-based compensation expense related to restricted stock units awarded to employees, which is expected to be recognized over a weighted-average period of 2.94 years.

Employee Stock Purchase Plan

In June 2015, the Company’s Board of Directors adopted the 2015 Employee Stock Purchase Plan (2015 ESPP), which became effective on September 16, 2015, the date on which the registration statement for the IPO was declared effective. The 2015 ESPP authorizes the initial issuance of up to a total of 254,000 shares of the Company’s common stock to participating employees. The number of shares reserved for issuance under the 2015 ESPP automatically increases on the first business day of each fiscal year, commencing in 2016, by a number equal to the lesser of (i) 1% of the shares of common stock outstanding on the last business day of the prior fiscal year; or (ii) the number of shares determined by the Company’s Board of Directors. Unless otherwise determined by the administrator of the 2015 ESPP, two offering periods of six months’ duration will begin each year on January 1 and July 1. The Board of Directors did not authorize any further shares to be reserved for issuance under the 2015 ESPP in January 2016 or 2017. As of December 31, 2016, no shares had been issued under the 2015 ESPP. In January 2017, the Company issued 21,706 shares of common stock to participants of the 2015 ESPP for the offering period ended December 31, 2016.