7. Stock‑Based Compensation

2007 and 2015 Stock Plans

In January 2007, the Board of Directors (the Board) adopted, and the Company’s stockholders approved, the Company’s 2007 Stock Plan (the 2007 Plan), which was amended and restated on March 25, 2010 and amended on April 16, 2015. Pursuant to the 2007 Plan, stock options may be granted to employees, consultants, and outside directors of the Company. Options granted may be either incentive stock options or non-statutory stock options. Under the amended and restated 2007 Plan, the Company had reserved 15,999,289 shares of its common stock for issuance through September 30, 2015. The 2007 Plan was terminated in July 2015; however, the terms of the 2007 Plan will continue to govern any outstanding awards thereunder.

In June 2015, the Board adopted, and the Company’s stockholders approved, the Company’s 2015 Equity Incentive Plan (the 2015 Plan), which, by its terms, took effect as of the Company’s IPO. The Company reserved 3,451,495 shares of its common stock for issuance under the 2015 Plan; in addition, the Board and stockholders authorized the reservation of up to 9,890,310 shares of common stock to cover shares reserved but unissued under the 2007 Plan and shares subject to outstanding awards under the 2007 Plan that expire or lapse unexercised or shares issued under the 2007 Plan that are subsequently reacquired by the Company.

Early Exercise of Employee Options

Stock options granted under the 2007 Plan provide employee option holders the right to exercise unvested options in exchange for common stock. As of September 30, 2015, the Company had approximately 1.4 million exercised and unvested shares outstanding that are subject to a repurchase right held by the Company at the original issuance price in the event that the optionee’s employment is terminated, either voluntarily or involuntarily. Effective in the three months ended September 30, 2015, pursuant to the agreements with the option holders, the Company changed its estimated expiration of the Company’s repurchase right for 1.4 million exercised and unvested shares outstanding that are subject to repurchase right held by the Company through the 210 days after the date of the prospectus filed in connection with the Company’s IPO. Accordingly the unrecognized compensation expense is being accelerated over a shorter performance period through January 2016. As a result of this acceleration, the Company recorded an additional $0.6 million in stock based compensation expense during the three months ended September 30, 2015.

Stock Options

The following table summarizes option activity for the nine months ended September 30, 2015:


	Outstanding Options
					Weighted‑
			Weighted‑		Average
	Shares		Average		Remaining	Aggregate
	Available for	Number of	Exercise		Contractual	Intrinsic
(in thousands, except for contractual life and exercise price)	Grant	Shares	Price		Life	Value
					(In years)
Balance at December 31, 2014	294	8,463	$	2.28	8.83
Additional shares authorized	4,985	-
Options granted	(1,736)	1,736		10.19
Options exercised	-	(323)		1.76
Options forfeited	477	(477)		3.49
Balance at September 30, 2015	4,020	9,399		3.25	8.48	65,607
Exercisable at September 30, 2015		5,727		1.70	6.00	51,081
Vested and expected to vest at September 30, 2015		8,473		3.39	7.71	60,979

Stock‑Based Compensation Expense

Employee and non‑employee stock‑based compensation expense was calculated based on awards ultimately expected to vest and have been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates.

The following table presents the effect of employee and non‑employee stock‑based compensation expense on selected statements of operations line items for the three and nine months ended September 30, 2015 and 2014.


	Three months ended September 30,
	2015						2014
	Employee		Non‑Employee		Total		Employee		Non‑Employee		Total
	(in thousands)
Cost of revenues	$	400	$	10	$	410	$	102	$	12	$	114
Research and development		266		2		268		244		7		251
Selling, general and administrative		1,491		(3)		1,488		639		61		700
Total	$	2,157	$	9	$	2,166	$	985	$	80	$	1,065


	Nine months ended September 30,
	2015						2014
	Employee		Non‑Employee		Total		Employee		Non‑Employee		Total
	(in thousands)
Cost of revenues	$	549	$	217	$	766	$	199	$	16	$	215
Research and development		824		24		848		1,388		14		1,402
Selling, general and administrative		3,202		90		3,292		2,401		74		2,475
Total	$	4,575	$	331	$	4,906	$	3,988	$	104	$	4,092

As of September 30, 2015, approximately $15.5 million of unrecognized compensation expense, adjusted for estimated forfeitures, related to unvested stock options will be recognized over a weighted‑average period of approximately 2.18 years.

Valuation of Stock Option Grants to Employees

The Company estimates the fair value of its stock options granted to employees on the grant date using the Black‑Scholes option‑pricing model. The fair value of employee stock options is amortized on a straight‑line basis over the requisite service period of the awards, generally the vesting period. The fair value of employee stock options was estimated using the following assumptions:


	Three months ended										Nine months ended
	September 30,										September 30,
	2015					2014					2015					2014
Expected term	5.7		—	6.1		4.91		—	5.85		5.6		—	6.5		4.9		—	6.3
Expected volatility	69.7	%	—	71.9	%	73.3	%	—	82.8	%	69.7	%	—	78.8	%	73.1	%	—	87.3	%
Expected dividend rate				0	%				0	%				0	%				0	%
Risk‑free interest rate	1.65	%	—	1.80	%	1.83	%	—	2.04	%	1.56	%	—	1.96	%	1.65	%	—	2.09	%

Expected Term: The expected term of options represents the period of time that options are expected to be outstanding. The Company's historical stock option exercise experience does not provide a reasonable basis upon which to estimate an expected term due to a lack of sufficient data. For granted "at-the-money" stock options, the Company estimates the expected term by using the simplified method permitted by the Securities and Exchange Commission. The simplified method calculates the expected term as the average of the time-to-vesting and the contractual life of the options. For stock options that are not granted "at-the-money," the Company uses the binomial lattice model to calculate the expected term.

Expected Volatility: The Company derived the expected volatility from the average historical volatilities of comparable publicly traded companies within its peer group over a period approximately equal to the expected term.

Expected Dividend Rate: The Company has not paid and does not anticipate paying any dividends in the near future.

Risk-Free Interest Rate: The risk-free interest rate assumption is based on U.S. Treasury yield in effect at the time of grant for zero coupon U. S. Treasury notes with maturities approximately equal to the expected term.