12. Common Stock and Stock Option Plan

Common stock

Prior to the IPO, voting, dividend and liquidation rights of the holders of the common stock were subject to and qualified by the rights, powers and preferences of the holders of the preferred stock.

Voting

The holders of the common stock are entitled to one vote for each share of common stock held at all meetings of stockholders. The number of authorized shares of common stock may be increased or decreased (but not below the number of shares thereof) by the affirmative vote of the holders of shares of capital stock of the Company representing a majority of the votes represented by all outstanding shares of capital stock of the Company entitled to vote.

Stock option plan

On July 1, 2007, the Board of Directors approved the 2007 Employee, Director, and Consultant Stock Plan, which provides for the grant of qualified incentive stock options, nonqualified stock options, and restricted stock to employees, directors, and non-employees. On May 5, 2010, the Board of Directors approved the Fourth Amended and Restated 2007 Employee, Director, and Consultant Stock Plan (the “2007 Plan”), which authorizes further issuances of up to 30,254 shares of the Company’s common stock. On October 14, 2010, the Board of Directors approved the retirement of the 2007 Plan and adopted the 2010 Employee Director and Consultant Equity Incentive Plan (the “2010 Plan”). The 2010 Plan, as adopted, authorizes further issuances of up to 45,214 shares of the Company’s common stock. On February 9, 2012, the Board of Directors approved an amendment to the 2010 Plan to increase the number of shares authorized for purchase by 4,800 shares, thereby providing for the purchase of up to 49,014 shares of the Company’s common stock. On July 30, 2013, the Board of Directors approved an amendment to the 2010 Plan to increase the number of shares authorized for purchase by 1,715,851 shares, thereby providing for the purchase of up to 1,764,865 shares of the Company’s common stock. The stock options generally vest 25% after 12 months, followed by ratable vesting over 36 months and expire 10 years from the grant date. On January 14, 2014, the Board of Directors approved the retirement of the 2010 Plan and adopted the 2014 Performance Incentive Plan (the “2014 Plan”). The 2014 Plan, as adopted, authorizes the issuances of up to 1,900,000 shares of the Company’s common stock, with an additional 4% of the total outstanding common shares becoming available at each year ending December 31. In June 2015, the 2014 plan was amended to increase the replenishment percentage from 4% to 5% of outstanding common shares annually and to allow the reissuance thereunder of awards and grants that expire or are canceled, terminated, forfeited or fail to vest under the 2007 Plan and the 2010 Plan. The stock options for new hires generally vest 25% after 12 months, followed by ratable vesting over 36 months and expire 10 years from the grant date.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses 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 companies. The Company has limited stock option exercise information, as such; the expected term of stock options granted was calculated using the simplified method, which represents the average of the contractual term of the stock option and the weighted-average vesting period of the stock 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 expected life of the stock 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 during the years ended December 31, 2015, 2014 and 2013 are as follows:

 

		DECEMBER 31,
		2015				2014				2013
Expected option term (in years)			5.5 – 6.3				5.5 – 6.3				6.0
Expected volatility			67% – 71	%			64% – 65	%			64% – 69	%
Risk-free interest rate			1.5% – 1.9	%			1.7% – 2.0	%			1.2% – 1.9	%
Expected dividend yield			0.0	%			0.0	%			0.0	%

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2015, 2014 and 2013 was $9.67, $9.62, and $2.52 per share, respectively. As of December 31, 2015, there was $18.6 million of unrecognized compensation cost related to unvested employee stock options which are expected to be recognized over a weighted-average period of approximately 3 years. The intrinsic value of stock options exercised was $0.4 million, $3.2 million and $0 for the years ended December 31, 2015, 2014 and 2013, respectively. Cash received from stock option exercises for the year ended December 31, 2015 was $0.1 million.

On September 24, 2013, the Board of Directors approved the repricing of all of the then outstanding 24,811 stock options, with an original per-share weighted average exercise price of $45.16, to a new per-share exercise price of $3.42, which represented the current per-share fair market value. The repricing was treated by the Company as an exchange of the original awards for new awards. The incremental fair value of the modification, which was $30, was recognized in the statement of operations in 2013, representing the value of vested awards.

A summary of stock option activity for employee and non-employee awards under the Plan are presented below:

 

		NUMBER OF OPTIONS				WEIGHTED- AVERAGE PRICE PER SHARE				WEIGHTED- AVERAGE REMAINING CONTRACTUAL TERM (YEARS)
OUTSTANDING—January 1, 2015			3,604,713			$	11.28				9.1
Granted			1,160,626				15.39
Exercised			(29,506	)			4.98
Forfeited/Canceled			(336,408	)			13.46
OUTSTANDING—December 31, 2015			4,399,425				12.24				8.1
EXERCISABLE—December 31, 2015			2,058,772				11.05				7.5
Vested and expected to vest as of December 31, 2015			4,281,737			$	12.22				8.1

Under the Company’s 2014 stock option plans, the Company has reserved 429,821 shares of common stock for future issuance at December 31, 2015.

 

Stock options granted to non-employees

In September 2013, the Company granted stock options to purchase 132,500 shares of common stock to non-employees with an initial fair value of $0.3 million. These options vest ratably over forty-eight months from the initial vesting date of July 30, 2013. Based on the terms of the non-employee stock option agreements, the Company recorded stock-based compensation expense of $0.2 million, $1.9 million and $0 during the years ended December 31, 2015, 2014 and 2013, respectively. The assumptions used to estimate fair value were as follows:

 

		DECEMBER 31,
		2015				2014				2013
Stock price		$	8.21 – $24.43			$	9.37 – $41.12			$	7.42
Expected option term (in years)			4.37 – 5.29				0.25 – 6.86				7.0
Expected volatility			66% – 73	%			56% – 68	%			66	%
Risk-free interest rate			1.2% – 1.6	%			0.1% – 2.3	%			2.8	%
Expected dividend yield			0.0	%			0.0	%			0.0	%

As of December 31, 2015, there were 26,250 unvested stock options held by non-employees. The remaining unrecognized compensation cost related to unvested non-employee stock options is dependent on the valuation inputs used on each re-measurement date and will be recognized over a weighted-average period of thirty months.

Restricted common stock

During 2014, the Company issued a total of 44,000 shares of the Company’s restricted common stock, of which 4,000 were fully-vested at grant date. The fair value of these shares were $0.7 million at the grant date.

As of December 31, 2015 and 2014 the unrecognized compensation cost related to restricted common stock was $0.4 million and $0.5 million, respectively. The total fair value of restricted stock awards that vested during the years ended December 31, 2015, 2014 and 2013 (measured on the date of vesting) was $0.2 million, $0.1 million and $0.

A summary of the Company’s restricted common stock is presented below:

 

		SHARES				WEIGHTED- AVERAGE GRANT DATE FAIR VALUE PER SHARE
Nonvested—January 1, 2014			—			$	—
Issued			44,000				16.30
Vested			(4,000	)			14.34
Nonvested—December 31, 2014			40,000				16.30
Issued			—				—
Vested			(10,000	)			16.30
Nonvested—December 31, 2015			30,000			$	16.30

Stock-based compensation expense is classified in the statements of operations as follows:

 

		YEAR ENDED DECEMBER 31,
		2015				2014				2013
Research and development		$	4,202			$	4,183			$	124
General and administrative			5,530				4,054				371
Total		$	9,732			$	8,237			$	495