Stock-based Compensation

Effective February 2003, the Company implemented the 2003 Equity Incentive Plan (2003 Plan), and it was amended and approved by the Company's stockholders in 2005. The 2003 Plan originally allowed for the grant of awards in respect of an aggregate of 2,051,644 shares of the Company's common stock. Between 2006 and 2012, the maximum number of shares of common stock authorized to be issued by the Company under the 2003 Plan was increased to 4,336,730. Stock options granted under the 2003 Plan may be either incentive stock options as defined by the Internal Revenue Code (IRC), or non-qualified stock options.

In 2013, the 2003 Plan was terminated, and no further awards may be issued under the plan. Any shares of common stock subject to awards under the 2003 Plan that expire, terminate, or are otherwise surrendered, canceled, forfeited or repurchased without having been fully exercised, or resulting in any common stock being issued, will become available for issuance under the 2013 Plan, up to a specified number of shares. As of December 31, 2016, under the 2003 Plan, there were options to purchase an aggregate of 1,193,941 shares of common stock outstanding at a weighted average exercise price of $1.81 per share.

In October 2013, the Company implemented the 2013 Stock Incentive Plan (2013 Plan). The 2013 Plan provides for the grant of stock options and other stock-based awards, as well as cash-based performance awards. The aggregate number of shares of common stock initially available for issuance pursuant to awards under the 2013 Plan was 1,960,168 shares. The number of shares of common stock reserved for issuance will automatically increase on January 1 of each year from January 1, 2014 through and including January 1, 2023, by the lesser of (a) 1,960,168 shares, (b) 4.0% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or (c) the number of shares of common stock determined by the Board of Directors. During the year ended December 31, 2016, the maximum number of shares of common stock authorized to be issued by the Company under the 2013 Plan was increased to 5,375,064. If an option expires or terminates for any reason without having been fully exercised, if any shares of restricted stock are forfeited, or if any award terminates, expires or is settled without all or a portion of the shares of common stock covered by the award being issued, such shares are available for the grant of additional awards. However, any shares that are withheld (or delivered) to pay withholding taxes or to pay the exercise price of an option are not available for the grant of additional awards. As of December 31, 2016, under the 2013 Plan, there were options to purchase an aggregate of 2,644,119 shares of common stock outstanding at a weighted average exercise price of $26.66 per share.

The following stock-based compensation amounts were recognized for the periods indicated (in thousands):



	Year Ended December 31,
	2016		2015		2014

Research and development	$	5,778	$	3,623	$	1,562
General and administrative	6,387		4,224		1,682
Total stock-based compensation expense	$	12,165	$	7,847	$	3,244

Employee Stock Options

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model using the assumptions in the following table:



	Year Ended December 31,
	2016	2015	2014
Expected dividend yield	0%	0%	0%
Expected volatility	64% - 69%	73% - 75%	67%
Risk-free interest rate	1.2% - 2.4%	1.6% - 2.1%	1.8% - 2.3%
Expected term	6.25 years	6.25 years	6.25 years

Expected Dividend Yield – The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

Expected Volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. As the Company does not yet have sufficient history of its own volatility, the Company has identified several public entities of similar size, complexity and stage of development and estimates volatility based on the volatility of these companies.

Risk-Free Interest Rate – This is the U.S. Treasury rate for the week of each option grant during the year, having a term that most closely resembles the expected life of the option.

Expected Term – This is the period of time that the options granted are expected to remain unexercised. Options granted have a maximum term of ten years. The Company uses a simplified method to calculate the average expected term.

In addition to the assumptions above, the Company estimates the forfeiture rate based on turnover data with further consideration given to the class of the employees to whom the options were granted. The forfeiture rate is the estimated percentage of options granted that is expected to be forfeited or canceled on an annual basis before becoming fully vested.

The following table summarizes stock option and restricted stock unit (RSU) activity for 2016:



	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2015	4,146,064		$	16.90	7.4
Granted	399,949		23.20
Options exercised or RSUs vested	(526,715	)	3.59
Forfeited or expired	(181,238	)	26.53
Outstanding, December 31, 2016	3,838,060		18.93		7.0	$	24,862

December 31, 2016:
Exercisable	2,292,923		13.71		6.1	22,458
Vested and expected to vest	3,651,523		18.57		7.0	24,496

During 2016, 2015 and 2014 the Company issued 526,715, 374,214 and 568,906 net shares of common stock, respectively, in conjunction with stock option exercises and RSU lapses. The Company received cash proceeds from the exercise of stock options of approximately $1.9 million, $0.9 million and $0.7 million during 2016, 2015 and 2014, respectively.

The weighted-average grant-date fair value of options granted during 2016, 2015 and 2014 was $15.17, $20.90 and $17.41 per share, respectively. The total intrinsic value of options exercised during 2016, 2015 and 2014 was approximately $10.8 million, $10.9 million and $14.5 million, respectively. The total fair value of stock options which vested during 2016, 2015 and 2014 was $11.6 million, $7.3 million and $3.0 million, respectively. As of December 31, 2016, the total unrecognized compensation expense related to non-vested stock options and RSUs, net of related forfeiture estimates, was $22.2 million, which the Company expects to recognize over a weighted-average period of approximately 2.5 years.