8. Stock-Based Awards

Stock Option Plans

The Company’s Amended and Restated 2006 Stock Option Plan (the “2006 Plan”) provided for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the board of directors and consultants of the Company. The 2006 Plan was administered by the board of directors, or at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions were determined at the discretion of the board of directors, or a committee of the board of directors if so delegated, except that the exercise price per share of stock options could not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option could not be greater than ten years. The total number of shares of common stock that could have been issued under the 2006 Plan was 1,889,150 shares. Upon closing of the Company’s IPO, 168,221 shares reserved and not then subject to outstanding options were transferred to the 2014 Stock Option and Incentive Plan, and no further awards will be made under the 2006 Plan.

On June 5, 2014, the Company’s stockholders approved the 2014 Stock Option and Incentive Plan (the “2014 Stock Option Plan”), which became effective upon the completion of the IPO of the Company’s shares of common stock in June 2014. The 2014 Stock Option Plan provides for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, unrestricted stock awards, performance-share awards, cash-based awards and dividend equivalent rights. The number of shares initially reserved for issuance under the 2014 Stock Option Plan is 2,168,221 shares of common stock and may be increased by the number of shares under the 2006 Plan that are not needed to fulfill the Company’s obligations for awards issued under the 2006 Plan as a result of forfeiture, expiration, cancellation, termination or net issuances of awards thereunder. The number of shares of common stock that may be issued under the 2014 Stock Option Plan is also subject to increase on the first day of each fiscal year by the lesser of (i) 4% of the Company’s outstanding shares of common stock as of that date, or (ii) an amount determined by the board of directors. As of December 31, 2016, 2,107,295 shares are available for grant under the 2014 Stock Option Plan, including 1,089,700 shares automatically added to the 2014 Stock Option Plan on January 1, 2016 as a result of a provision in the 2014 Stock Option Plan.

The Company generally grants stock-based awards with service conditions only (“service-based” awards).

As required by the 2006 Plan and 2014 Stock Option Plan, the exercise price for stock options granted is not to be less than the fair value of common shares as of the date of grant. Prior to the IPO, the value of common stock was determined by the board of directors by taking into consideration its most recently available valuation of common shares 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 year ended December 31, 2016, the Company granted stock options for the purchase of 1,527,559 shares of common stock, of which options for the purchase of 1,519,559 shares were granted to employees and directors and options for the purchase of 8,000 shares were granted to a consultant.

 

During the year ended December 31, 2015, the Company granted stock options for the purchase of 992,505 shares of common stock, of which options for the purchase of 988,505 shares were granted to employees and directors and options for the purchase of 4,000 shares were granted to a consultant.

2014 Employee Stock Purchase Plan

On June 5, 2014, the Company’s stockholders approved the 2014 Employee Stock Purchase Plan (the “ESPP”). A total of 265,000 shares of common stock were reserved for issuance under this plan. The ESPP became effective upon the completion of the IPO of the Company’s shares of common stock. The first offering period commenced on September 1, 2014 and ended on December 31, 2014. During both 2016 and 2015 there were two offering periods, January 1 through June 30 and July 1 through December 31. The per share purchase price for offerings is equal to the lesser of 85% of the closing market price of the Company’s common stock on the first day or last day of the offering period. The Company issued 37,663 and 7,540 shares during the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015, there are 219,797 and 257,460 shares, respectively, of common stock available for issuance to participating employees under the ESPP.

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 in June 2014, the Company was a private company and lacks company-specific historical and implied volatility information. Therefore, the Company estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and 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 nonemployees 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 assumptions that the Company used to determine the fair value of the stock options granted to employees and directors are as follows, presented on a weighted average basis:

 

		2016				2015				2014
Risk-free interest rate			1.40	%			1.75	%			1.90	%
Expected term (in years)			6.18				6.25				6.25
Expected volatility			87	%			87	%			90	%
Expected dividend yield			0	%			0	%			0	%

The following table summarizes the Company’s stock option activity since December 31, 2015:

 

		Shares Issuable Under Options				Weighted Average Exercise Price				Average Remaining Contractual Term				Aggregate Intrinsic Value
										(in years)				(in thousands)
Outstanding as of December 31, 2015			2,555,110			$	19.76
Granted			1,527,559			$	6.65
Exercised			(35,000	)		$	0.75
Forfeited			(932,666	)		$	16.90
Outstanding as of December 31, 2016			3,115,003			$	14.40				7.2			$	1,038
Options vested and expected to vest as of December 31, 2016			3,080,777			$	14.40				7.2			$	1,038
Options exercisable as of December 31, 2016			1,605,537			$	14.18				5.5			$	1,036

 

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised was $0.1 million and $13.9 million during the years ended December 31, 2016 and 2015, respectively.

The Company received cash proceeds from the exercise of stock options of less than $0.1 million and $0.8 million during the years ended December 31, 2016 and 2015, respectively.

The weighted average grant-date fair value of stock options granted to employees and directors during the years ended December 31, 2016, 2015 and 2014 was $4.86, $28.97 and $11.73 per share, respectively.

As of December 31, 2016 and 2015, there were outstanding unvested service-based stock options held by nonemployees for the purchase of 6,401 and 9,363 shares of common stock, respectively.

Restricted Stock Awards

The 2006 Plan provides for the award of restricted stock awards. The Company has granted restricted stock awards with time-based vesting conditions. Unvested shares of restricted stock awards may not be sold or transferred by the holder. These restrictions lapse according to the time-based vesting conditions of each award. The Company values restricted stock awards on the grant-date using the grant-date market price of the Company’s common stock.

There were no restricted stock awards that vested in the years ended December 31, 2016, 2015 or 2014. The aggregate intrinsic value of restricted stock awards is calculated as the fair value of the Company’s common stock on the date it vests and is released. The Company did not grant any restricted stock awards during the years ended December 31, 2016, 2015 or 2014. As of December 31, 2016, 2015 and 2014, there were no unvested restricted stock awards subject to repurchase.

Restricted Stock Units

The 2014 Stock Option Plan provides for the award of restricted stock units. The Company has granted restricted stock units with time-based vesting conditions. The restrictions lapse according to the time based vesting conditions of each award. The Company values restricted stock units on the grant-date using the grant-date market price of the Company’s common stock.

The aggregate intrinsic value of restricted stock units that vested during the years ended December 31, 2016 and 2015 was $0.1 million. There were no restricted stock units that vested in the year ended December 31, 2014. The aggregate intrinsic value of restricted stock units is calculated as the fair value of the Company’s common stock on the date it vests and is released. During the years ended December 31, 2016 and 2015, the Company granted 13,273 and 4,769 restricted stock units, all of which vested during 2016 and 2015, respectively, at a weighted average grant-date fair value of $7.91 and $34.46, respectively. The Company did not grant any restricted stock units during the year ended December 31, 2014. As of December 31, 2016, 2015 and 2014, there were no unvested restricted stock units outstanding.

 

Stock-based Compensation

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

 

		Year Ended December 31,
		2016				2015				2014
		(in thousands)
Research and development		$	3,543			$	2,930			$	490
General and administrative			6,390				5,652				1,063
		$	9,933			$	8,582			$	1,553

In addition, during the year ended December 31, 2016, in connection with its strategic restructuring further discussed in Note 14, the Company recorded a one-time, non-cash stock option modification expense of $0.2 million, which is included in the stock-based compensation expense line items of both the consolidated statements of cash flows and the consolidated statements of changes in redeemable convertible preferred stock and stockholders’ equity (deficit).

As of December 31, 2016, the Company had an aggregate of $14.1 million of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of 2.2 years.