13. STOCK‑BASED COMPENSATION

Stock Options, Restricted Stock Awards and Restricted Stock Units

In May 2015, the Company adopted the Amended and Restated 2014 Stock Incentive Plan (the “Plan”), under which an aggregate of 2,700,000 shares of common stock were authorized for issuance to employees, officers, directors, consultants and advisors of the Company, plus an annual increase to be added on the first day of each fiscal year until the expiration of the Plan equal to 4% of the total number of outstanding shares of common stock on December 31st of the immediately preceding calendar year (or a lower amount as otherwise determined by the board of directors prior to January 1st). As of December 31, 2016,  1,021,509 shares of common stock were available for issuance pursuant to the Plan.  The Plan provides for granting of both Internal Revenue Service qualified incentive stock options (“ISOs”) and non‑qualified options (“NQs”), restricted stock awards (“RSAs”) and restricted stock units (“RSUs”). Stock options generally vest over a four year period of service; however, certain options contain performance conditions. The options generally have a ten year contractual life and, upon termination, vested options are generally exercisable between one and three months following the termination date, while unvested options are forfeited immediately.

Stock option activity under the Plan is summarized as follows:

The total intrinsic value of stock options exercised for the year ended December 31, 2016 was $952. As of December 31, 2016, the unrecognized compensation cost related to outstanding options was $14,499, and is expected to be recognized as expense over approximately 2.8 years.

As of December 31, 2016, the weighted average fair value of vested options was $6.35. The weighted-average grant date fair value of options granted during the year ended December 31, 2016 was $10.98. The fair value of options that vested during the year ended December 31, 2016 was $7.37.

 

 

Restricted stock awards under the Plan are summarized as follows:

(1) Excludes 39,247 shares of unvested restricted stock remaining from the early exercise of stock options as of December 31, 2016.

The total fair value of restricted stock awards vested during the years ended December 31, 2016, was $186. As of December 31, 2016, the unrecognized compensation cost related to restricted stock awards was $233, and is expected to be recognized as expense over approximately 1.2 years.  

Restricted stock units under the Plan are summarized as follows:

As of December 31, 2016, the unrecognized compensation cost related to restricted stock units was $509, and is expected to be recognized as expense over approximately 3.0 years.  

Employee Stock Purchase Plan

 

The Company’s 2015 Employee Stock Purchase Plan allows employees as designated by the Company’s Board of Directors to purchase shares of the Company’s common stock. The purchase price is equal to 85% of the lower of the closing price of our common stock on (1) the first day of the purchase period or (2) the last day of the purchase period. The first purchase period commenced in the year ended December 31, 2016. The expense for the year ended December 31, 2016 was $457.  

 

Stock‑Based Compensation Expense

The Company granted stock options to employees for the years ended December 31, 2016,  2015 and 2014. The Company estimates the fair value of stock options as of the date of grant using the Black‑Scholes option pricing model and restricted stock awards and restricted stock units based on the fair value of the award. Stock options and restricted stock issued to non‑board member, non‑employees are accounted for using the fair value approach and are subject to periodic revaluation over their vesting terms.

Stock‑based compensation for all stock options, restricted stock awards, restricted stock units and for the employee stock purchase plan are reported within:

 

The weighted‑average assumptions used in the Black‑Scholes option pricing model to determine the fair value of the employee stock option grants were as follows:

Risk‑free Interest Rate. The risk‑free interest rate assumption is based on observed interest rates appropriate for the expected term of the stock option grants.

Expected Volatility. Due to the Company’s limited operating history and lack of company‑specific historical or implied volatility, the expected volatility assumption is based on historical volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology and pharmaceutical industries. In evaluating similarity, we consider factors such as industry, stage of life cycle and size.

Expected Term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, through December 31, 2016 it determined the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.

Expected Dividend Yield. The expected dividend yield assumption is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends.