Stock Based Compensation

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Based Compensation

Note 10 — Stock Based Compensation

In November 2014, the Company’s Board of Directors and stockholders adopted the 2014 Long-Term Incentive Equity Plan (“the Stock Plan”). The Stock Plan is designed to enable the Company to offer employees, officers, directors and consultants, as defined, an opportunity to acquire a proprietary interest in the Company. The Stock Plan reserves 1,951,081 shares of common stock for issuance in accordance with the Stock Plan’s terms.

All of the Company’s officers, directors, employees, and consultants, as well as those of its subsidiaries, are eligible to be granted awards under the Stock Plan. The types of awards that may be granted under the Stock Plan include stock options, stock appreciation rights, restricted stock, and other stock-based awards subject to limitations under applicable law. All awards are subject to approval by the Company’s Board of Directors.

On April 28, 2016, upon the closing of the Company’s IPO, a total of 1,588,313 stock options were granted, including 961,178 to management, 487,770 to members of the board of directors, and 139,365 to members of the Company’s medical advisory board. The stock options have a ten (10) year contractual term from date of grant, have an exercise price of $5.00 per share, and vest 3/36 on the third month after the grant date and 1/36 on each successive month thereafter for the following 33 months. In November 2016, the Company granted 25,000 stock options to a new member of the Company’s medical advisory board, with a ten (10) year contractual term from the date of grant, an exercise price of $10.50 per share, and vesting ratably on a quarterly basis over a three year period commencing December 31, 2016.

The cost of stock-based compensation awards granted to employees and directors are determined based on the grant-date fair value for stock options granted to employees and members of the board of directors and the vesting date fair value for stock options granted to non-employee members of the medical advisory board, with the cost recognized over the award’s service period. Stock-based compensation expense for the three and nine months ended September 30, 2016 and 2015 was recognized as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Formation and operating	$	292,085	$	—	$	447,232	$	—
Research and development		30,900		—		52,396		—
Total stock-based compensation	$	322,985	$	—	$	499,628	$	—

At September 30, 2016, there were 362,768 shares of common stock available for grant under the Plan. The following table summarizes information about stock options for the periods presented below:

			Weighted
	Number		Average		Aggregate
	Stock		Exercise		Intrinsic
	Options		Price		Value
Outstanding at December 31, 2014		—	$	—
Granted		1,588,313	$	5.00
Exercised		—	$	—
Forfeited		—	$	—
Outstanding at September 30, 2016		1,588,313	$	5.00	$	14,294,817
Vested and exercisable at September 30, 2016		220,599	$	5.00	$	1,985,391
Vested or expected to vest at September 30, 2016		1,588,313	$	5.00

The aggregate intrinsic value is computed as the difference between the exercise price of the underlying stock options and the quoted price of the common stock on September 30, 2016, to the extent the exercise price is less than the quoted price.

The weighted average remaining contractual term of stock options outstanding was 9.6 years at September 30, 2016. The weighted average remaining contractual term of stock options vested and exercisable was 9.6 years at September 30, 2016.

The Company uses the Black-Scholes valuation model to estimate the fair value of stock options. The Black-Scholes valuation model requires the Company to make certain estimates and assumptions, including 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 stock.

Stock options issued to employees:

The grant date fair values of stock options granted to employees and members of the board of directors was $1.32, calculated using the following Black-Scholes valuation model assumptions:

	Nine Months Ended September 30,
	2016			2015
Risk-free interest rate		1.40	%		—	%
Expected term of options (in years)		5.8			—
Expected stock price volatility		50	%		—	%
Expected dividend yield		0	%		—	%

Stock options issued to non-employees:

The weighted average fair value of stock options granted to non-employees at was $10.43 as of September 30, 2016, with such fair value calculated using the following Black-Scholes valuation model assumptions:

	Nine Months Ended
	September 30,
	2016			2015
Risk-free interest rate		1.49% - 1.55	%		—	%
Expected term of options (in years)		9.8 - 9.6			—	%
Expected stock price volatility		60	%		—	%
Expected dividend yield		0	%		—	%

The weighted-average valuation assumptions for all stock-based awards were determined as follows:

Weighted-average risk-free interest rate: The Company bases 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: The expected term of stock options represents the period of time options are expected to be outstanding, which for employees is the expected term derived using the simplified method and for non-employees is the contractual term.

Expected stock price volatility: The expected volatility is based on historical stock price volatilities of similar entities within the Company’s industry over the period commensurate with the expected term of the option.

Expected dividend yield: The estimate for annual dividends is $0.00 as the Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend.

At September 30, 2016 there was $3,007,376 of total unrecognized compensation cost related to stock options, which is expected to be recognized over the next 2.6 years (which represents the weighted average remaining requisite service periods for such awards).