Stock-Based Compensation

Employee Stock Purchase Plan

In May 2017, the Company’s stockholders approved the 2016 Employee Stock Purchase Plan (the 2016 ESPP). The 2016 ESPP is structured as a qualified employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended, and is not subject to the provisions of the Employee Retirement Income Security Act of 1974. The Company reserved 800,000 shares of common stock for issuance under the 2016 ESPP. The 2016 ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 10% of their eligible compensation, subject to any plan limitations. The 2016 ESPP provides for six-month offering periods ending on May 31 and November 30 of each year. At the end of each offering period, employees are able to purchase shares at 85% of the fair market value of the Company’s common stock on the last day of the offering period. During the three and six months ended June 30, 2017, employees purchased 19,351 shares of common stock under the ESPP plan for net proceeds to the Company of approximately $0.3 million.

Employee Stock Option Plans

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 Company's 2013 Stock Incentive Plan (2013 Plan), up to a specified number of shares. As of June 30, 2017, under the 2003 Plan, there were options to purchase an aggregate of 1,053,487 shares of common stock outstanding at a weighted average exercise price of $1.85 per share.

Under the provisions of the 2013 Plan, 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 six months ended June 30, 2017, the maximum number of shares of common stock authorized to be issued by the Company under the 2013 Plan was increased to 6,769,888. As of June 30, 2017, there were options to purchase an aggregate of 3,567,521 shares of common stock outstanding at a weighted average exercise price of $24.88 per share under the 2013 Plan.

The following table shows stock-based compensation expense for stock options, RSUs and ESPP (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
Research and development	$	1,833	$	1,445	$	3,506	$	2,841
General and administrative	1,769		1,678		3,557		3,283
Total stock-based compensation expense	$	3,602	$	3,123	$	7,063	$	6,124

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 for options issued during the period indicated:



	Six Months Ended June 30,
	2017	2016
Expected dividend yield	0%	0%
Expected volatility	66.7% - 67.7%	63.7% - 65.4%
Risk-free interest rate	2.0% - 2.3%	1.3% - 2.1%
Expected term	6.25 years	6.25 years

The following table summarizes stock option and restricted stock unit (RSU) activity during the six months ended June 30, 2017:



	Shares		Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2016	3,838,060		$	18.93	7.0
Granted	1,120,950		20.38
Exercised	(155,484	)	2.36
Forfeited or expired	(182,518	)	24.13
Outstanding, June 30, 2017	4,621,008		19.63		7.2	$	17,581
As of June 30, 2017:
Exercisable	2,534,628		15.86		5.8	16,784
Vested and expected to vest	4,407,535		19.37		7.1	17,489

The weighted-average grant-date fair value of options granted for the six months ended June 30, 2017 was $12.73. The total intrinsic value of options exercised during the six months ended June 30, 2017 was approximately $2.6 million, and the total cash received for options exercised was approximately $0.3 million. The total fair value of shares vested in the six months ended June 30, 2017 was approximately $6.1 million. As of June 30, 2017, the total unrecognized compensation expense related to non-vested stock options, net of related forfeiture estimates, was approximately $26.5 million, which the Company expects to recognize over a weighted-average period of approximately 2.6 years.