7. Stock-based compensation

        Stock-based compensation expense as reflected in the Company's consolidated statements of operations and comprehensive loss was as follows (in thousands):

                                                                                                                                                                                    

        Of the $10.4 million of stock-based compensation expense recorded during the year ended December 31, 2013, approximately $9.7 million was recorded to additional paid-in capital and approximately $717,000 was recorded to a change in liability classified awards. Of the $12.1 million of stock-based compensation expense recorded during the year ended December 31, 2014, approximately $12.3 million was recorded to additional paid-in capital and approximately $(248,000) was recorded to a change in liability classified awards.

        The Company has awards outstanding under two equity compensation plans, the 2012 Incentive Plan (the "2012 Plan") and the 2010 Equity Incentive Plan (the "2010 Plan"). Terms of stock award agreements, including vesting requirements, are determined by the board of directors, subject to the provisions of the individual plans. To date, most options granted by the Company vest twenty five percent (25%) one year from vesting start date and six and a quarter percent (6.25%) for each successive three-month period, thereafter (subject to acceleration of vesting in the event of certain change of control transactions) and are exercisable from the date of grant for a period of ten years.

2012 Incentive Plan

        The 2012 Plan became effective immediately upon the closing of the Company's IPO in February 2012. Upon effectiveness of the 2012 Plan, the Company ceased making awards under the 2010 Plan. The 2012 Plan allows the Company to grant awards for up to 3,428,571 shares of common stock plus the number of shares of common stock available for grant under the 2010 Plan as of the effectiveness of the 2012 Plan (which was an additional 30,101 shares) plus that number of shares of common stock related to awards outstanding under the 2010 Plan which terminate by expiration, forfeiture, cancellation or otherwise. The 2012 Plan includes an "evergreen provision" that allows for an annual increase in the number of shares of common stock available for issuance under the 2012 Plan. The annual increase will be added on the first day of each year beginning in 2013 and each subsequent anniversary until the expiration of the 2012 Plan, equal to the lowest of 1,285,714 shares of common stock, 4.0% of the number of shares of common stock outstanding and an amount determined by the board of directors. On January 1, 2013 and January 1, 2014, the number of shares available for issuance under the 2012 Plan increased by 844,448 and 1,026,309 respectively for shares under this provision. Awards under the 2012 Plan may include the following award types: incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock awards, restricted stock units (RSUs), other stock-based or cash-based awards and any combination of the foregoing. As of December 31, 2014, under the 2012 Plan, the Company has granted stock options for 4,116,629 shares of common stock, of which 151,789 have been forfeited and restricted stock units for 909,918 shares of common stock, of which 74,515 have been forfeited. The exercise price of each option has been equal to the closing price of a share of our common stock on the grant date. On January 1, 2015, the number of shares available for issuance under the 2012 Plan increased by 1,081,045.

Inducement Plan

        In December 2014, the Company established an inducement award program (in accordance with NASDAQ Listing Rule 5635(c)(4)) under which it may grant non-statutory stock options to purchase up to an aggregate of 750,000 shares of common stock to new or prospective employees as inducement to enter into employment with the Company. The program is governed by the terms of the 2012 Plan but does not fall under the 2012 Plan. No awards have been granted under this program as of December 31, 2014.

Restricted Common Stock

        In connection with the Company's formation, the founders purchased an aggregate of 2,857,138 shares of Company's common stock at fair value on the date of issuance. The shares were issued subject to restricted stock agreements between the Company and each founder, which allow the Company, at its discretion, to repurchase unvested shares if the founder's relationship with the Company is terminated. Under these agreements, twenty five percent (25%) of the shares vested immediately and the remaining seventy-five percent (75%) of shares vest ratably in quarterly installments over the subsequent four years.

        The Company records stock-based compensation expense for the common stock subject to repurchase, or restricted common stock grants, based on the grant date fair value for employees and the reporting date and upon vesting fair value for non-employees. The fair value of the award is considered the intrinsic value as of each measurement date. All of the restricted shares were issued at a purchase price equal to the fair value of the common stock on the date of issuance. The Company recorded stock-based compensation expense associated with restricted common stock grants of approximately $3.3 million, $3.4 million and $1.7 million for the years ended December 31, 2012, 2013 and 2014, respectively.

        A summary of the Company's restricted stock activity and related information is as follows:

                                                                                                                                                                                    

        No restricted stock was granted during the years ended December 31, 2012, 2013 and 2014. The total fair value of shares vested during the years ended December 31, 2012, 2013 and 2014 was approximately, $3.4 million, $3.3 million and $2.2 million, respectively. As of December 31, 2014, there was no unrecognized stock-based compensation expense related to unvested restricted stock.

Restricted Stock Units

        A summary of the Company's restricted stock units ("RSU") and related information is as follows:

                                                                                                                                                                                    

        The weighted-average grant date fair value of restricted stock units granted during the year ended December 31, 2012 was $10.62. No restricted stock units were granted during the years ended December 31, 2013 and 2014. The total fair value of restricted stock units vested during the years ended December 31, 2013 and 2014 was $3.4 million and $2.2 million, respectively. No restricted stock units vested during the year ended December 31, 2012. As of December 31, 2014, there was $1.8 million of total unrecognized stock-based compensation expense related to unvested RSUs granted under the 2012 Plan. The expense is expected to be recognized over a weighted-average period of 1.1 years.

        During 2012, the Company issued a restricted stock unit for 103,306 shares to an employee. The award vests up to 25% per year based on the achievement of stated objectives. The objectives related to 2013 were established on January 15, 2013 and the objectives were determined to be met on December 17, 2013. The Company recorded $294,000 of stock-based compensation expense during the year ended December 31, 2013 based on the achievement of the stated objectives. The objectives related to 2014 were established on January 7, 2014 and the objectives were determined to be met on January 8, 2015. The Company recorded $158,000 of stock-based compensation expense during the year ended December 31, 2014 based on the achievement of the stated objectives.

        The objectives related to 2015 were not determined as of December 31, 2014 and therefore the Company did not have sufficient information to determine if the achievement of the objectives was probable, and therefore no expense related to these objectives has been recorded as of December 31, 2014.

        During the first quarter of 2013, the Company amended the terms of certain RSUs related to a total of 697,060 shares of common stock to allow for tax withholdings greater than the minimum required statutory withholding amount. As a result of this change in the terms of the awards, the outstanding RSUs are considered to be liability instruments. As a result of this modification, the Company records a liability for the fair value of the awards as of each reporting date with the change in fair value recorded through the statement of operations. The Company will record stock-based compensation expense equal to the greater of the original grant date fair value of the awards or the settlement date fair value. During the year ended December 31, 2013 and 2014, the Company deposited with tax authorities $1.3 million and approximately $780,000, respectively, to settle the tax liability for awards that settled during the respective periods. The liability related to these awards of approximately $717,000 and $469,000 is recorded as liability classified stock-based compensation awards on the consolidated balance sheet as of December 31, 2013 and 2014, respectively.

Stock Options

        A summary of the Company's stock option activity and related information follows:

                                                                                                                                                                                    

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        The fair value of each employee stock option was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

                                                                                                                                                                                    

        The Company uses the simplified method as prescribed by the Securities and Exchange Commission Staff Accounting Bulletin Topic 14.D.2 to calculate the expected term as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term for options granted to employees. The expected term is applied to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its employee population. The computation of expected volatility is based on the historical volatility of a representative group of public biotechnology and life sciences companies with similar characteristics to the Company, including early stage of product development and therapeutic focus. The Company also considers its own historical volatility. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. Management assesses expected forfeitures based on the experience of the Company coupled with comparison to data from the representative group of companies and recognizes compensation costs only for those equity awards expected to vest.

        The Company recorded stock-based compensation expense associated with employee stock options of $1.6 million, $6.8 million and $9.9 million for the years ended December 31, 2012, 2013 and 2014, respectively. The weighted-average grant date fair value of options granted in the years ended December 31, 2012, 2013 and 2014 was $6.03, $6.55 and $8.61 per share, respectively.

        At December 31, 2014, there was $13.9 million of total unrecognized compensation cost related to unvested stock options. As of December 31, 2014, the Company expects to recognize this cost over a remaining weighted-average period of 2.5 years.