10. EQUITY INCENTIVE PLANS

2008 Plan

The Company granted options under its 2008 Stock Incentive Plan (the “2008 Plan”) until June 2014 when it was terminated as to future awards, although it continues to govern the terms of options that remain outstanding under the 2008 Plan. The 2008 Plan provided for the granting of incentive and nonstatutory stock options, and stock purchase rights to employees, directors and consultants at the discretion of the Board of Directors. Stock options granted generally vest over a period of four years from the date of grant. In connection with the Board of Directors and stockholders’ approval of the 2014 Plan, all remaining shares available for future award under the 2008 Plan were transferred to 2014 Plan, and the 2008 Plan was terminated.

2014 Plan

The 2014 Equity Incentive Award Plan (“2014 Plan”) became effective on June 18, 2014, immediately prior to the time the Company’s Registration Statement on Form S-1 became effective. Under the 2014 Plan, 1,419,328 shares of common stock were initially reserved for issuance pursuant to a variety of stock-based compensation awards, including stock options, stock appreciation rights, or SARs, restricted stock awards, restricted stock unit (RSU) awards, deferred stock awards, deferred stock unit awards, dividend equivalent awards, stock payment awards and performance awards. In addition, 35,221 shares that had been available for future awards under the 2008 Plan as of June 18, 2014, were added to the initial reserve available under the 2014 Plan, bringing the total reserve upon the effective date of the 2014 Plan to 1,454,549. The number of shares initially reserved for issuance or transfer pursuant to awards under the 2014 Plan will be increased by (i) the number of shares represented by awards outstanding under 2008 Plan on June 18, 2014, that are either forfeited or lapse unexercised or that are repurchased for the original purchase price thereof, up to a maximum of 1,153,279 shares, and (ii) if approved by the Administrator of the 2014 Plan, an annual increase on the first day of each fiscal year ending in 2024, equal to the lesser of (A) four percent (4.0%) of the shares of stock outstanding (on an as converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of stock as determined by our board of directors; provided, however, that no more than 10,683,053 shares of stock may be issued upon the exercise of incentive stock options. Effective January 1, 2017, the 2014 Plan share reserve was increased by 1,892,376 shares.

2016 Plan

In November 2016, the Company’s board of directors approved the 2016 Employment Commencement Incentive Plan (the Inducement Plan) under which 1,000,000 shares were reserved. As of December 31, 2016, no shares of the Company’s common stock were subject to inducement grants that were issued pursuant to the Inducement Plan.

Stock Plan Activity

The following table summarizes activity under the 2008 Plan, the 2014 Plan, and the Inducement Plan, including grants to nonemployees issued:


				Options Issued and Outstanding
	Shares Available for Grant			Number of Shares			Weighted-Average Exercise Price per Share		Aggregate Intrinsic Value
									(in thousands)
Balance at December 31, 2013		3,914			1,162,829		$	1.03
Options authorized		1,452,661			—			—
Options granted		(188,888	)		188,888			24.41
Options exercised		—			(336,398	)		0.71
Options canceled		4,084			(4,084	)		2.21
Options repurchased		3,511			(3,511	)		0.55
Issuance of common stock for services		(10,000	)		—			—

Balance at December 31, 2014		1,265,282			1,007,724		$	5.51
Options authorized		743,569			—
Options granted		(379,709	)		379,709			19.60
Options exercised		—			(77,784	)		1.42
Options canceled		28,563			(28,563	)		12.41
Issuance of common stock for services		(13,285	)		—			—

Balance at December 31, 2015		1,644,420			1,281,086		$	9.78
Options authorized		1,038,595			—
Additional shares reserved under the Inducement Plan		1,000,000			—			—
Options granted		(1,524,014	)		1,524,014			11.42
Options exercised		—			(25,134	)		2.19
Options canceled		67,743			(67,743	)		16.67
Issuance of common stock for services		(20,118	)		—			—

Balance at December 31, 2016		2,206,626			2,712,223		$	10.60	$	13,750

Vested and expected to vest at December 31, 2016					2,640,905		$	10.54	$	13,574

Vested at December 31, 2016					1,263,430		$	7.58	$	10,187

The weighted-average grant-date estimated fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $7.69, $12.91 and $18.53 per share. The aggregate intrinsic value was calculated as the difference between the exercise price of the options and the estimated fair value of the Company’s common stock of $14.20 per share as of December 31, 2016.

The total estimated fair value of options that vested during the years ended December 31, 2016, 2015 and 2014 was $6.4 million, $2.4 million and $0.5 million, respectively.

Restricted Stock Units

During 2016, the Compensation Committee made awards of RSUs to certain employees of the Company. The RSUs awarded under the Plan are generally subject to ratable vesting and are contingent on such employee’s continued service on such date.

RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse.

A summary of non-vested RSU activity under the Plan for the year ended December 31, 2016 is as follows:


	Number of Shares			Weighted-Average Grant Date Fair Value Per Share
Non-vested restricted stock units at December 31, 2015		9,425		$	18.04
Granted		174,389			14.34
Vested		(30,122	)		16.35
Forfieted		(5,000	)		18.04

Non-vested restricted stock units at December 31, 2016		148,692		$	14.17

The total estimated fair value of restricted stock vested during 2016 was $0.5 million.

Employee Stock Purchase Plan

The Company adopted the 2014 Employee Stock Purchase Plan (ESPP) and initially reserved 202,762 shares of common stock as of its effective date of June 18, 2014. If approved by the Administrator of the ESPP, on the first day of each calendar year, ending in 2024, the number of shares in the reserve will increase by an amount equal to the lesser of (i) one percent (1.0%) of the shares of common stock outstanding on the last day of the immediately preceding fiscal year and (ii) such number of shares of common stock as determined by the board of directors; provided, however, no more than 2,230,374 shares of our common stock may be issued under the ESPP. Effective January 1, 2015, the ESPP share reserve was increased by 185,892. Under the ESPP, participants are offered the option to purchase shares of the Company’s common stock at a discount during a series of successive offering periods normally commencing on March 1 and September 1 of each year. The initial offering period commenced on September 1, 2014 and will end on February 27, 2015. As of December 31, 2016 278,020 shares were available for future issuance under the ESPP.

The following table illustrates the weighted-average assumptions for the Black-Scholes option-pricing model used in determining the fair value of ESPP purchase rights granted to employees:


	Year Ended December 31, 2016
	2016			2015
Expected term ( years)		0.5			0.5
Volatility		76	%		97	%
Risk-free interest rate		0.48	%		0.16	%
Dividend yield		—	%		—	%

There were no shares issued during the year ended December 31, 2014 under the ESPP. In 2015, the Company sold 41,580 shares of its common stock under the ESPP. The shares were purchased at a weighted- average purchase price of $13.25 with proceeds of approximately $0.6 million. In 2016, the Company sold 69,054 shares of its common stock under the ESPP. The shares were purchased at a weighted-average purchase price of $8.34 with proceeds of approximately $0.6 million.

Modification of Stock Awards

During September 2014, the Company entered into a Transition and Separation Agreement with its Chief Scientific Officer, Dominique Charmot, under which certain restricted shares that were subject to vesting and repurchase by the Company have become fully vested as of Dr. Charmot’s separation from the Company as an employee and director on December 23, 2014. This resulted in the acceleration of the vesting for 58,969 shares of restricted stock. As a result of the acceleration, the Company has recorded a stock-based compensation charge of $0.8 million during the year ended December 31, 2014 to reflect the revised service period for the restricted stock and related vesting of shares that would otherwise not have vested.

Offering of Common Stock and Warrants

In June 2015, the Company sold and issued an aggregate of 7,242,992 shares of its common stock and warrants to purchase 2,172,899 shares of common stock for aggregate gross proceeds of approximately $77.8 million or net proceeds, after deducting issuance costs, of approximately $74.3 million. The purchase price for the common stock was $10.70 per share and the purchase price for the warrants was $0.125 per warrant. The warrants are exercisable for an exercise price of $13.91 per share at any time prior to the earlier of (i) 5 years from the date of issuance or (ii) certain changes in control of the Company. The Company has determined that the warrants should be classified as equity. In July 2015, the Company filed a registration statement with the SEC with respect to the common stock and warrants.

Other than with respect to warrants issued to holders affiliated with New Enterprise Associates, the warrants contain limitations that prevent each holder of warrants from acquiring shares upon exercise of the warrants that would cause the number of shares beneficially owned by it and its affiliates to exceed 9.99% of the total number of shares of the Company’s common stock then issued and outstanding. In addition, upon certain changes in control of the Company, each holder of a warrant can elect to receive, subject to certain limitations and assumptions, securities in a successor entity. None of the warrants issued in June 2015 have been exercised during each of the years ended December 31, 2015 and December 31, 2016.

Stock-based Compensation

Total stock-based compensation recognized was as follows (in thousands):


	Year Ended December 31,
	2016		2015		2014
	(in thousands)
Research and development	$	2,786	$	1,327	$	1,376
General and administrative		2,531		1,307		316

Total stock-based compensation	$	5,317	$	2,634	$	1,692

As of December 31, 2016, the Company had $11.5 million, $2.1 million and $0.1 million of total unrecognized compensation expense, net of estimated forfeitures, related to stock option grants, restricted stock unit grants and ESPP, respectively, that will be recognized over an average vesting period of 2.9 years, 3.5 years and 0.2 years, respectively.

The estimated grant date fair value of employee stock options was calculated using the Black-Scholes option-pricing model, based on the following weighted assumptions:


	Year Ended December 31,
	2016			2015			2014
Expected term ( years)		5.99			5.89			5.97
Volatility		77	%		75	%		94	%
Risk-free interest rate		1.62	%		1.64	%		1.79	%
Dividend yield		—	%		—	%		—	%

Expected Term—The Company has very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock-option grants. As such, the expected term was estimated using the simplified method whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option.

Expected Volatility—Since the Company has only been publicly traded for a short period and does not have adequate trading history for its common stock, the expected stock price volatility was calculated based on the average historical volatility for comparable publicly traded pharmaceutical companies. The Company selected companies with comparable characteristics, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the Company’s stock-based awards.

Risk-Free Interest Rate—The risk-free interest rate assumption is based on the zero-coupon U.S. Treasury instruments on the date of grant with a maturity date consistent with the expected term of the Company’s stock option grants.

Expected Dividend—To date, the Company has not declared or paid any cash dividends and does not have any plans to do so in the future. Therefore, the Company used an expected dividend yield of zero.

Options Granted to Nonemployees.

The Company has granted options to purchase shares of common stock to consultants in exchange for services performed. The Company granted options to purchase 12,500, 5,000 and 10,000 shares with average exercise prices of $13.71, $18.58 and $20.77 per share, respectively, during the years ended December 31, 2016, 2015 and 2014, respectively. These options vest upon grant or various terms up to three years. The Company recognized non-employee stock compensation expense of $0.1 million, $0.2 million and $0.1 million during the years ended December 31, 2016, 2015 and 2014, respectively. Compensation expense for non-employee stock options is calculated using the Black-Scholes option-pricing model and is recorded as the options vest. Options subject to vesting are required to be periodically revalued over their service period, which is generally the same as the vesting period.

Issuance of Common Stock for Services

During the year ended December 31, 2016, the Company issued 20,118 shares of common stock in exchange for services performed. The shares issued were valued at $0.2 million based on the fair value of the common stock on the date of grant. During the year ended December 31, 2015, the Company issued 13,285 shares of common stock in exchange for services performed. The shares issued were valued at $0.2 million based on the fair value of the common stock on the date of grant. During the year ended December 31, 2014, the Company issued 10,000 shares of common stock in exchange for services performed. The shares issued were valued at $0.2 million based on the fair value of the common stock on the date of grant.