9.	STOCK OPTION PLANS

2007 Stock Incentive Plan – The Company’s 2007 Incentive Stock Plan, or the 2007 Plan, provides for the grant of qualified incentive stock options and nonqualified stock options or other awards to the Company’s employees, officers, directors, advisors, and outside consultants to purchase up to an aggregate of 1,275,211 shares of the Company’s common stock, as amended in January 2014. The stock options generally vest over a four-year period and expire 10 years from the date of grant. Certain options provide for accelerated vesting if there is a change in control, as defined in the 2007 Plan. Effective with the IPO, no additional grants will be issued from the 2007 Plan and all shares available for grant under the 2007 Plan were transferred to the 2014 Plan. Accordingly, at December 31, 2015 and 2014, there were no shares available for future grant under the 2007 Plan.

Prior to the IPO, in determining the exercise prices for options granted, the Company’s board of directors considered the fair value of the common stock as of the measurement date. The fair value of the common stock was determined by the board of directors at each award grant date based upon a variety of factors, including the results obtained from a common stock valuation, the Company’s financial position and historical financial performance, the status of technological developments within the Company’s products, the composition and ability of the current research and management team, an evaluation or benchmark of the Company’s competition, the current business climate in the marketplace, the illiquid nature of the common stock, arm’s-length sales of the Company’s capital stock (including redeemable convertible preferred stock), the effect of the rights and preferences of the preferred shareholders, and the prospects of a liquidity event, among others.

2014 Stock Incentive Plan – In March 2014, the Company’s board of directors adopted and its stockholders approved the 2014 Stock Incentive Plan, or the 2014 Plan, which became effective upon the closing of the IPO. The 2014 Plan provides for the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. The 2014 Plan provides an annual increase in the number of shares available for grant on the first day of each calendar year beginning with the fiscal year ended December 31, 2015 and continuing for each fiscal year until, and including, the fiscal year ending December 31, 2024, equal to the lesser of (i) 1,000,000 shares of common stock, (ii) 4% of the number of outstanding shares of common stock on such date and (iii) an amount determined by the Company’s board of directors. As of December 31, 2015, there were 540,950 shares available for future grant under the 2014 Plan.

A summary of stock option activity for employee and nonemployee awards under the 2007 Plan and the 2014 Plan during the year ended December 31, 2015 is presented below (Aggregate Intrinsic Value in thousands):

	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding — January 1, 2015		2,126,176		$	4.97		6.7	$	2,701
Granted		2,360,682			5.66
Exercised		(370,230	)		4.40
Forfeited		(661,702	)		5.86
Outstanding — December 31, 2015		3,454,926		$	5.39		8.9	$	—
Options expected to vest — December 31, 2015		2,336,878		$	5.32		9.4	$	—
Options exercisable — December 31, 2015		1,001,415		$	5.56		7.7	$	—

The total intrinsic value of stock options exercised in the years ended December 31, 2015, 2014, and 2013 was $0, $161,000, and $15,000, respectively.

The weighted-average per share grant date fair value of options granted during 2015, 2014, and 2013 was $3.22, $3.33, and $2.90, respectively.

The Company has recorded stock-based compensation expense of $2.4 million, $885,000, and $622,000 during the years ended December 31, 2015, 2014, and 2013, respectively, which is based on the number of awards ultimately expected to vest. As of December 31, 2015, there was $6.1 million of unrecognized compensation cost related to unvested stock-based compensation arrangements granted under the 2007 Plan and the 2014 Plan. The compensation is expected to be recognized over a weighted-average period of 2.88 years at December 31, 2015.

Stock-based compensation expense recorded as research and development and general and administrative expenses is as follows (in thousands):

	As of December 31,
	2015		2014		2013
Research and development	$	795	$	317	$	284
General and administrative		1,580		568		338
Total	$	2,375	$	885	$	622

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions noted in the table below. Expected volatility for the Company’s common stock was determined based on an average of the historical volatility of a peer-group of similar public companies. The Company has limited option exercise information, as such, the expected term of the options granted was calculated using the simplified method that represents the average of the contractual term of the option and the weighted-average vesting period of the option. The assumed dividend yield is based upon the Company’s expectation of not paying dividends in the foreseeable future. The risk-free rate for periods within the contractual life of the option is based upon the U.S. Treasury yield curve in effect at the time of grant.

The assumptions used in the Black-Scholes option-pricing model for stock options granted to employees during the years ended December 31, 2015, 2014, and 2013 are as follows:

	December 31,
	2015	2014	2013
Expected life	6 years	6 years	6 years
Risk-free interest rate	1.45%-2.02%	1.71%-2.00%	1.09%-1.92%
Expected volatility	51%-63%	54%-60%	59%-79%
Expected dividend rate	—%	—%	—%

The Company recorded stock-based compensation expense related to nonemployee awards of $173,000, $56,000, and $85,000 for the years ended December 31, 2015, 2014, and 2013, respectively. The compensation expense related to the nonemployee awards is included in the total stock-based compensation each year and is subject to re-measurement until the options vest. The Black-Scholes assumptions used to estimate the fair value of these awards for the years ended December 31, 2015, 2014, and 2013 were as follows:

	December 31,
	2015	2014	2013
Expected life	10 years	8 years	7 years
Risk-free interest rate	2.10%-2.25%	1.86%-2.53%	1.11%-2.86%
Expected volatility	60%-61%	56%-62%	56%-79%
Expected dividend rate	—%	—%	—%

During the year ended December 31, 2015, the Company granted nonemployee stock options to consultants for the purchase of 204,000 shares of the Company’s common stock. The weighted-average exercise price and the weighted-average fair value of nonemployee stock options granted for the year ended December 31, 2015, was $5.17 per share and $1.58 per share, respectively. The fair value of the grants is being expensed over the vesting period of the options on a straight-line basis as the services are being provided. On September 4, 2015, nonemployee stock options to purchase 90,000 shares of the Company’s common stock were converted to employee stock options upon the appointment of the Company’s Chief Medical Officer who had been serving as a consultant to the Company until his appointment. The exercise price and the fair value of these stock options is $4.71 per share and $2.71 per share, respectively. The Company did not grant any nonemployee stock option grants in 2014 or in 2013, except for a performance award grant in 2013 to the Company’s board chairman for non-board related services. During the year ended December 31, 2014, the board of directors changed the vesting conditions of this award from performance-based vesting to time-based vesting and reduced the total number of shares subject to the stock option. As a result, the 16,000 shares subject to this stock option now vest over three years, with the first third vesting on March 26, 2014. The change in vesting condition was accounted for as a modification of this stock option, which had an immaterial impact on the Company’s financial statements.

In 2012, the Company granted options to purchase 60,934 common shares to an officer of the Company, now the Company’s Chief Executive Officer, that will vest upon the achievement of business milestones as defined within the stock option agreement. These awards have not vested as of December 31, 2015. Compensation expense for the awards will be recorded if and when the awards are determined to be probable.

2014 Employee Stock Purchase Plan – In March 2014, the Company’s board of directors adopted and its stockholders approved the 2014 Employee Stock Purchase Plan (the “2014 ESPP”), which became effective upon the closing of the IPO. The 2014 ESPP will be administered by the Company’s board of directors or by a committee appointed by the Company’s board of directors. The 2014 ESPP initially provides participating employees with the opportunity to purchase up to an aggregate 500,000 of shares of the Company’s common stock. The number of shares of the Company’s common stock reserved for issuance under the 2014 ESPP will automatically increase on the first day of each fiscal year, commencing on January 1, 2015 and ending January 1, 2024, in an amount equal to the least of (i) 600,000 shares of the Company’s common stock, (ii) 1% of the total number of shares of the Company’s common stock outstanding on the first day of the applicable year, or (iii) an amount determined by the Company’s board of directors. There are two six-month offerings per year. The first offering period under the 2014 ESPP began on July 1, 2015. The compensation expense related to the 2014 ESPP is included in the total stock-based compensation. The stock-based compensation expense related to the ESPP for the year ended December 31, 2015, was $27,000. There was no stock-based compensation related to the 2014 ESPP recorded for the year ended December 31, 2014.