12. Stock Option Plans

Equity Incentive Plan

In July 2016, the Company’s board of directors and stockholders approved the 2016 Equity Incentive Plan (the “2016 Plan”) to replace the 2007 Stock Option Plan and became effective upon the IPO. The 2016 Plan is administered by the Board of Directors or a committee appointed by the Board of Directors, which determines the types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. Under the 2016 Plan, 1,200,000 shares of the Company’s common stock have been initially reserved for the issuance of stock options, restricted stock units and other awards to employees, directors and consultants. Options granted under the 2016 Plan expire no later than 10 years from the date of grant. The exercise price of each option may not be less than 100% of the fair market value of the common stock at the date of grant. Options may be granted to stockholders possessing more than 10% of the total combined voting power of all classes of stocks of the Company at an exercise price at least 110% of the fair value of the common stock at the date of grant and the options are not exercisable after the expiration of 10 years from the date of grant. Employee stock options generally vest 25% upon one year of continued service to the Company, with the remainder in monthly increments over three additional years. Upon adoption of the 2016 Plan, no additional stock awards will be issued under the 2007 Stock Option Plan. Options granted under the 2007 Stock Option Plan that were outstanding on the date the 2016 plan became effective remain subject to the terms of the 2007 Stock Option Plan. As of September 30, 2016, the Company has reserved 1,200,000 shares of common stock for issuance under the 2016 Plan.

Employee Stock Purchase Plan

In July 2016, the Company’s board of directors and stockholders approved the 2016 Employee Stock Purchase Plan (the “2016 ESPP”), which became effective upon the IPO. The 2016 ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended, and is administered by the Company’s board of directors and the Compensation Committee of the board of directors. Under the 2016 ESPP, 150,000 shares of the Company’s common stock have been initially reserved for employee purchases of the Company’s common stock, with an automatic annual increase to the shares issuable under the 2016 ESPP on the first day of each fiscal year for a period of up to 10 years in an amount equal to (i) the lesser of 1% of the total number of shares of common stock outstanding on December 31 of the preceding fiscal year and 300,000 shares of the Company’s common stock, or (ii) a lower number determined by the Board of Directors. The 2016 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation. At the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock at the beginning of the offering period or at the end of each applicable purchase period.

Stock Options

Activity under the Company’s stock option plan is set forth below:


							Options Outstanding
	Options Available for Grant			Options Outstanding			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Life (years)		Aggregate Intrinsic Value
											(in thousands)
Balances at December 31, 2015		147,219			833,178		$	1.33		8.56
Additional options authorized		1,697,088			—
Options granted		(774,479	)		774,479			5.55
Options exercised		—			(111,501	)		1.28

Balances at September 30, 2016		1,069,828			1,496,156			3.52		8.65	$	26,347

Options exercisable – September 30, 2016					338,784			1.97		7.26	$	6,490

Options vested and expected to vest – September 30, 2016					1,481,620			3.51		8.64	$	26,100

The aggregate intrinsic values of options outstanding, exercisable, vested and expected to vest were calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock on September 30, 2016.

During the three months ended September 30, 2016, the estimated weighted-average grant-date fair value of common stock underlying options granted was $6.09 per share. No options were granted during the three months ended September 30, 2015. During the nine months ended September 30, 2016 and 2015, the estimated weighted-average grant-date fair value of common stock underlying options granted was $3.16 and $1.04 per share, respectively.

Employee Stock Options Valuation

The fair value of employee and director stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016			2015
Expected term (in years)		4.16 - 5.70			—		4.16 - 5.94			5.89
Expected volatility		62.8	%		—		62.5% - 64.8	%		59.8	%
Risk-free interest rate		1.28	%		—		1.27% - 1.38	%		1.57	%
Dividend yield		—			—		—			—

Stock Options Granted to Non-employees

Stock-based compensation related to stock options granted to non-employees is recognized as the stock options are earned. The fair value of the stock options granted is calculated at each reporting date using the Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016			2015
Expected term (in years)		5.70 - 7.04			—		5.70 - 9.93			—
Expected volatility		62.8	%		—		62.5% - 62.8	%		—
Risk-free interest rate		1.29	%		—		1.29% - 1.36	%		—
Dividend yield		—			—		—			—

During the three and nine months ended September 30, 2016, the Company granted 7,752 shares and 25,647 shares, respectively, to non-employee consultants. No shares were granted to non-employee consultants during the three and nine months ended September 30, 2015. The Company recorded stock-based compensation expense during the three and nine months ended September 30, 2016 and 2015 of $226,000, $264,000, $4,000 and $14,000, respectively.

Stock-Based Compensation

Total stock-based compensation expense recognized for both employees and non-employees for stock options and the 2016 ESPP was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Research and development	$	285	$	8	$	360	$	24
General and administrative		163		14		250		38

Total stock-based compensation expense	$	448	$	22	$	610	$	62

As of September 30, 2016 there was $2.8 million of total unrecognized stock-based compensation costs related to stock options that the Company expects to recognize over a period of approximately 3.0 years.