8. Stock‑based compensation

2014 Stock Option and Grant Plan

In January 2014, the Company adopted the 2014 Stock Option and Grant Plan (the “2014 Plan”), under which it could grant incentive stock options, non‑qualified stock options, restricted stock awards, unrestricted stock awards, or restricted stock units to purchase up to 823,529 shares of common stock to employees, officers, directors and consultants of the Company.

In April 2014, the Company amended the 2014 Plan to allow for the issuance of up to 1,411,764 shares of common stock. In August 2014, April 2015, August 2015, and October 2015, the Company further amended the 2014 Plan to allow for the issuance of up to 2,000,000, 2,047,058, 2,669,411, and 2,998,823 shares of common stock, respectively. During 2014 the Company issued only restricted stock awards under the 2014 Plan and during 2015 the Company only granted stock options under the 2014 Plan.

The terms of equity award agreements, including vesting requirements, are determined by the Board of Directors and are subject to the provisions of the 2014 Plan.

Founder Awards

In January 2014, the Company issued 1,188,233 shares of restricted stock to its founders at an original issuance price of $0.0425 per share. Of the total restricted shares awarded to the founders, 835,292 shares generally vest over one to four years, based on each founder’s continued service to the Company in varying capacity as a Scientific Advisory Board member, consultant, director, officer or employee, as set forth in each grantee’s individual restricted stock purchase agreement. Stock based compensation expense associated with these time-based awards is recognized over the vesting period.

The remaining 352,941 of the shares issued will begin vesting upon the achievement of certain performance objectives as well as continued service to the Company, as set forth in the agreements. These performance conditions are tied to certain milestone events specific to the Company’s corporate goals, including but not limited to preclinical and clinical development milestones related to the Company’s product candidates. Stock‑based compensation expense associated with these performance‑based awards is recognized when the achievement of the performance condition is considered probable, using management’s best estimates. During 2016, management determined that the achievement of the performance milestone for one of the three performance‑based awards had become probable. Accordingly, stock-based compensation expense in the amount of $0.2 million and $1.5 million, was recorded related to this award during the three months ended and term to date ended March 31, 2018. No stock‑based compensation expense was recorded for the remaining two founders’ awards with performance-based vesting as of March 31, 2018 as the performance-based milestones related to these awards were not probable.

2015 Stock Option Plan

In October 2015, the Company’s board of directors and stockholders approved the 2015 Stock Option and Incentive Plan (the “2015 Stock Option Plan”), which became effective upon the completion of the Company’s initial public offering (the “IPO”). The 2015 Stock Option Plan provides the Company with the flexibility to use various equity-based incentive and other awards as compensation tools to motivate its workforce. These tools include stock options, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance share awards and cash-based awards. The 2015 Stock Option Plan replaced the 2014 Plan. Any options or awards outstanding under the 2014 Plan remained outstanding and effective. The number of shares initially reserved for issuance under the 2015 Stock Option Plan is the sum of (i) 1,311,812 shares of common stock and (ii) the number of shares under the 2014 Plan that are not needed to fulfill the Company’s obligations for awards issued under the 2014 Plan as a result of forfeiture, expiration, cancellation, termination or net issuances of awards thereunder. The number of shares of common stock that may be issued under the 2015 Stock Option Plan is also subject to increase on the first day of each fiscal year by up to 4% of the Company’s issued and outstanding shares of common stock on the immediately preceding December 31.

Effective January 1, 2016, 2017, and 2018, an additional 1,069,971, 1,070,635, and 1,285,200 shares, respectively, were added to the Company’s 2015 Stock Option Plan for future issuance. As of March 31, 2018, there were 1,988,503 shares of common stock available for future award grants under the 2015 Stock Option Plan. During the three months ended March 31, 2018, the Company issued a total of 926,091 stock options to employees under the 2015 Stock Option Plan. There were no new stock options issued to non-employees under the 2015 Stock Option Plan during the three months ended March 31, 2018.

2015 Employee Stock Purchase Plan

In October 2015, the Company’s board of directors and stockholders approved the 2015 Employee Stock Purchase Plan (the “2015 ESPP”). Under the 2015 ESPP, all full-time employees of the Company are eligible to purchase common stock of the Company twice per year, at the end of each six-month payment period. During each payment period, eligible employees who so elect, may authorize payroll deductions in an amount of 1% to 10% (whole percentages only) of the employee’s base pay for each payroll period. At the end of each payment period, the accumulated deductions are used to purchase shares of common stock from the Company at a discount. A total of 262,362 shares of common stock were initially authorized for issuance under this plan. The 2015 ESPP became effective upon the completion of the IPO. The number of shares of common stock that may be issued under the 2015 ESPP is also subject to increase on the first day of each fiscal year by up to 1% of the Company’s issued and outstanding shares of common stock on the immediately preceding December 31. Effective January 1, 2016, 2017, and 2018, 267,492, 267,658, and 321,300 shares of common stock, respectively, were added to the 2015 ESPP.

Stock‑Based Compensation Expense

Total compensation cost recognized for all stock‑based compensation awards in the statements of operations and comprehensive loss is as follows:


	Three Months Ended
	March 31,
	2018		2017
	(in thousands)
Research and development	$	1,198	$	1,258
General and administrative		1,124		907
Total stock-based compensation expense	$	2,322	$	2,165

Restricted Stock

A summary of the status of and changes in unvested restricted stock activity under the Company’s equity award plan for the three months ended March 31, 2018 was as follows:


		Weighted
		Average
		Grant Date
		Fair Value
	Shares	Per Share
Unvested restricted common stock as of December 31, 2017	557,979	$	0.70
Issued	—		—
Vested	(145,829)	$	0.77
Repurchased	—
Unvested restricted common stock as of March 31, 2018	412,150	$	0.68

The expense related to awards granted to employees and non-employees was $0.1 million and $0.2 million, respectively, for the three months ended March 31, 2018. The expense related to awards granted to employees and non-employees was $0.1 million and $0.6 million, respectively, for the three months ended March 31, 2017.

As of March 31, 2018, the Company had unrecognized stock-based compensation expense related to its unvested restricted stock awards of $0.2 million, which is expected to be recognized over the remaining average vesting period of 0.3 years.

Stock Options

The following is a summary of stock option activity for the three months ended March 31, 2018:


		Weighted		Remaining	Aggregate
		Average		Contractual	Intrinsic
		Exercise		Life	Value
	Shares	Price		(in years)	(in thousands)
Outstanding at December 31, 2017	3,143,566	$	11.82
Granted	926,091	$	24.76
Exercised	(132,733)	$	10.64
Cancelled or forfeited	(128,389)	$	14.52
Outstanding at March 31, 2018	3,808,535	$	14.92	8.5	$	21,020
Exercisable at March 31, 2018	1,039,408	$	10.61	7.4		8,548
Vested and expected to vest at March 31, 2018	3,808,535	$	14.92	8.5	$	21,020

Using the Black‑Scholes option pricing model, the weighted-average fair value of options granted to employees and directors during the three months ended March 31, 2018 was $16.49 per share. The expense related to awards granted to employees and directors was $1.9 million for the three months ended March 31, 2018. The weighted-average fair value of options granted to employees and directors during the three months ended March 31, 2017 was $7.82 per share. The expense related to awards granted to employees and directors was $1.3 million for the three months ended March 31, 2017.

The fair value of each option issued to employees and directors was estimated at the date of grant using the Black‑Scholes option pricing model with the following weighted‑average assumptions:


	Three Months Ended
	March 31,
	2018		2017
Risk-free interest rate	2.7	%	2.0	%
Expected dividend yield	—	%	—	%
Expected term (in years)	6.0		6.0
Expected volatility	74.3	%	73.6	%

There were no new options granted to non‑employees during the three months ended March 31, 2018 and 2017. Unvested options granted to non‑employees are revalued at each measurement period until fully vested. The expense related to awards granted to non‑employees was $0.1 million and $0.2 million for the three months ended March 31, 2018 and 2017, respectively.

The fair value of each option issued to non‑employees was estimated at each vesting and reporting date using the Black‑Scholes option pricing model. The reporting date fair value was determined using the following weighted‑average assumptions:


	As of March 31,
	2018		2017
Risk-free interest rate	2.7	%	2.0	%
Expected dividend yield	—	%	—	%
Expected term (in years)	8.4		8.7
Expected volatility	76.1	%	83.6	%

As of March 31, 2018, the Company had unrecognized stock-based compensation expense related to its unvested stock options of $28.2 million which is expected to be recognized over the remaining weighted-average vesting period of 2.8 years.

For the three months ended March 31, 2018 and March 31, 2017, due to a lack of company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. In the three months ended March 31, 2018, the Company’s estimate has also included the volatility of its common stock for the most recent period.