8. Stock-Based Awards

The Company’s 2014 Stock Incentive Plan (the “2014 Plan”) permits the Company to make grants of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights and other stock-based awards to the Company’s employees, officers, directors, consultants and advisors; however, incentive stock options may only be granted to the Company’s employees. The number of shares initially reserved for issuance under the 2014 Plan was 1,745,413 shares of common stock and may be increased by the number of shares under the 2007 Stock Incentive Plan (the “2007 Plan”) that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company. The number of shares of common stock that may be issued under the plan is also subject to an annual increase on the first day of each fiscal year equal to the lesser of (i) 1,800,000 shares of the Company’s common stock, (ii) 4% of the number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year or (iii) an amount determined by the Company’s board of directors. As of December 31, 2015, 1,156,154 shares remained available for issuance under the 2014 Plan. The number of authorized shares reserved for issuance under the 2014 Plan was increased by 903,885 shares effective as of January 1, 2016.

As required by the 2007 Plan and 2014 Plan, the exercise price for stock options granted is not to be less than the fair value of common stock as of the date of grant. The Company bases fair value of common stock on the quoted market price. Prior to the IPO, the value of common stock was determined by the Company’s board of directors by taking into consideration its most recently available valuation of common stock performed by management and the board of directors as well as additional factors which might have changed since the date of the most recent contemporaneous valuation through the date of grant.

During the years ended December 31, 2015, 2014 and 2013, the Company granted options to purchase 996,845, 1,039,155 and 786,537 shares of common stock, respectively, to certain employees, consultants and directors. The vesting of most of these awards is time-based and the restrictions typically lapse over three to four years.

2014 Employee Stock Purchase Plan

Under the 2014 Employee Stock Purchase Plan (the “ESPP”), an aggregate of 225,000 shares of the Company’s common stock are reserved for issuance. The number of shares of the Company’s common stock reserved for issuance under the ESPP will automatically increase on the first day of each fiscal year equal to the lesser of (1) 450,000 shares of the Company’s common stock, (2) 1% of the total number of shares of the Company’s common stock outstanding on the first day of the applicable fiscal year and (3) an amount determined by the Company’s board of directors. No offering periods have commenced under the ESPP and the number of shares reserved for issuance under the ESPP have not increased.

 

Stock Option Valuation

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. Prior to its IPO, the Company was a private company and lacked company-specific historical and implied volatility information. Therefore, the Company estimated its expected stock volatility based on the historical volatility of a publicly traded group of peer companies. The Company expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employees is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

The following table sets forth the assumptions that the Company used to determine the fair value of the stock options granted, presented on a weighted average basis:

 

		Year Ended December 31,
		2015				2014				2013
Risk-free interest rate			1.79	%			1.83	%			1.72	%
Expected term (in years)			6.01				5.95				5.98
Expected volatility			74.2	%			79.4	%			79.7	%
Expected dividend yield			0	%			0	%			0	%

The following table summarizes the Company’s stock option activity from January 1, 2015 through December 31, 2015:

 

		Shares Issuable Under Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value
										(In years)
Outstanding as of December 31, 2014			2,146,927			$	5.54				8.6			$	19,802
Granted			996,845				10.60
Exercised			(201,153	)			2.31
Forfeited			(81,608	)			4.27
Outstanding as of December 31, 2015			2,861,011			$	7.57				8.3			$	7,906
Options vested and expected to vest as of December 31, 2015			2,822,786			$	7.52				8.2			$	7,896
Options exercisable as of December 31, 2015			1,199,676			$	4.10				7.0			$	6,455

The aggregate intrinsic value was calculated based on the positive differences between the market value of the Company’s common stock on December 31, 2015 and 2014, of $8.72 and $14.74 per share, respectively, and the exercise prices of the options.

The weighted average grant date fair value of stock options granted was $6.94, $6.70 and $1.17 per share for the years ended December 31, 2015, 2014 and 2013, respectively.

The total intrinsic value of stock options exercised was $2,236, $35 and $33 for the years ended December 31, 2015, 2014 and 2013, respectively.

 

Restricted Common Stock Units

The 2014 Plan provides for the award of restricted common stock units. The Company has granted restricted common stock units with time-based vesting conditions. Unvested shares of restricted common stock may not be sold or transferred by the holder. These restrictions lapse according to the time-based vesting conditions of each award.

The table below summarizes the Company’s restricted stock unit activity from January 1, 2015 through December 31, 2015:

 

		Shares				Weighted Average Grant Date Fair Value
Unvested restricted common stock units as of December 31, 2014			54,604			$	15.00
Issued			—				—
Vested			(13,651	)			15.00
Forfeited			—				—
Unvested restricted common stock units as of December 31, 2015			40,953			$	15.00

During 2014, the Company granted 54,604 restricted stock units with a fair value of $15.00 per share that are subject to time-based vesting conditions that lapse over four years. Upon vesting, the restricted stock units entitle the holder to one share of common stock for each restricted stock unit. All restricted stock units currently granted have been classified as equity instruments as their terms require settlement in shares. Restricted stock units with time-based vesting conditions are valued on the grant date using the grant date market price of the underlying shares. As of December 31, 2015, the Company estimates that all shares of restricted stock units with an intrinsic value of $357 and a weighted average remaining contractual term of 2.67 years will ultimately vest. The Company did not grant restricted stock units in 2015 or 2013.

Stock-based Compensation

The Company recorded stock-based compensation expense related to stock options and restricted common stock units in the following expense categories of its statements of operations:

 

		Year Ended December 31,
		2015				2014				2013
Research and development		$	634			$	552			$	91
General and administrative			2,267				1,556				147
		$	2,901			$	2,108			$	238

Stock-based compensation expense for the year ended December 31, 2014 includes $880 of stock-based compensation expense related to a performance-based option grant which vested during 2014.

As of December 31, 2015, the Company had an aggregate of $10,738 of unrecognized stock-based compensation expense, which it expects to recognize over a weighted average period of 3.06 years.