Stock-based Compensation

August

21,

2014,

the Company’s Board of Directors adopted the

2014

Equity Incentive Plan (the

“2014

Plan”), the

2014

Employee Stock Purchase Plan (the

“2014

ESPP”) and the

2006

Equity Incentive Plan (the

“2006

Plan”), as amended and restated (collectively the “Plans”). On

October

2014,

the stockholders approved these plans.

The Plans provide for the grant of incentive and non-statutory stock options, stock appreciation rights, restricted stock and stock unit awards, performance units, stock grants and qualified performance-based awards. Under the

2006

Plan, no new stock compensation awards will be granted subsequent to the completion of the Company’s IPO. The Company initially reserved

704,000

shares of Common Stock for issuance under the

2014

Plan. The

2014

Plan provides that the number of shares reserved and available for issuance under the

2014

Plan will automatically increase each

January

beginning

January

2015

four

percent of the outstanding shares of Common Stock on the immediately preceding

December

or such lesser number of shares as determined by the Company’s Board of Directors prior to each such

January

1st.

Terms of the stock awards, including vesting requirements, are determined by the Board of Directors, subject to the provisions of the Plans. Options granted by the Company typically vest over

three

four

years. Certain awards provide for accelerated vesting if there is a change in control as defined in the Plans. Stock options outstanding under the

2006

Plan are exercisable from the date of grant for a period of

ten

years. Stock options granted under the

2014

Plan are exercisable only upon vesting. For options granted to date, the exercise price equaled the fair value of the Common Stock as determined by the Board of Directors on the date of grant.

Stock-based compensation expense

Total stock-based compensation expense is recognized for stock options granted to employees and non-employees and has been reported in the Company’s consolidated statements of operations as follows (in thousands):

	Year Ended December 31,
	2016		2015		2014

Research and development	$	1,114	$	650	$	114
General and administrative		2,229		1,514		345
Total	$	3,343	$	2,164	$	459

The Company estimates the fair value of each employee stock award on the grant date using the Black-Scholes option-pricing model based on the following assumptions regarding the fair value of the underlying Common Stock on each measurement date:

	Year Ended December 31,
	2016			2015			2014
Weighted average expected volatility		84.4	%		79.8	%		79.5	%
Expected term (in years)		6.05			6.11			6.00
Risk free interest rate		1.45	%		1.76	%		1.88	%
Expected dividend yield		0	%		0	%		0	%

Stock options issued to non-employees are accounted for using the fair value method of accounting; they are periodically revalued as the options vest and are recognized as expense over the related service period. The total expense related to all options granted to non-employees for the years ended

December

31,

2016,

2015

and

2014

was

$0,

$2,000

and

$4,000,

respectively.

Stock Options

The following table summarizes stock option activity for employees and non-employees:

	Options			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregate Intrinsic Value

Outstanding at December 31, 2015		2,200,369		$	8.52		7.8	$	15,705
Granted		132,495		$	7.11
Exercised		(97,521	)	$	2.01
Cancelled or forfeited		(69,089	)	$	14.12
Outstanding at December 31, 2016		2,166,254		$	8.55		7.1	$	124
Exercisable at December 31, 2016		1,227,575		$	6.80		6.0	$	124
Vested or expected to vest at December 31, 2016 (1)		2,052,214		$	8.37		7.0	$	124

_______________________

(1)

Represents the number of vested options at

December

31,

2016

plus the number of unvested options expected to vest based on the unvested options outstanding at

December

31,

2016.

During the year ended

December

31,

2016,

the Company granted stock options to purchase an aggregate of

132,495

shares of its Common Stock with a weighted-average exercise price of

$7.11

and a weighted-average grant date fair value of

$5.08.

During the year ended

December

31,

2015,

the Company granted stock options to purchase an aggregate of

1,010,256

shares of its Common Stock with a weighted-average grant date fair value of

$9.34.

During the year ended

December

31,

2014,

the Company granted stock options to purchase an aggregate of

659,865

shares of its Common Stock with a weighted-average grant date fair value of

$4.07.

The total intrinsic value of options exercised in the years ended

December

31,

2016

and

2015

was

$0.6

million and

$0.5

million, respectively. As of

December

31,

2016,

there was

$5.6

million of total unrecognized compensation cost related to employee non-vested stock options. As of

December

31,

2016,

total compensation cost related to non-employee, non-vested stock options was fully recognized. The total unrecognized compensation cost for employee awards will be adjusted for future forfeitures. The Company expects to recognize its remaining stock-based compensation expense over a weighted-average period of

2.2

years.

Employee Stock Purchase Plan

The

2014

ESPP initially authorized the issuance of up to

140,500

shares of Common Stock. The number of shares increases each

January

commencing on

January

2015

and ending on (and including)

January

2024,

by an amount equal to the lesser of

one

percent of the outstanding shares as of the end of the immediately preceding fiscal year,

281,000

shares and any lower amount determined by the Company’s Board of Directors prior to each such

January

1st.

As of

December

31,

2016,

the

2014

ESPP authorized the issuance of up to

304,991

shares of Common Stock. The Company’s Board of Directors has determined there was to be no increase on

January

2017.

The

third

offering under the

2014

ESPP began on

January

2016

and ended on

June

30,

2016.

The

fourth

offering under the

2014

ESPP began on

July

2016

and ended on

December

31,

2016.

During the years ended

December

31,

2016

and

2015,

4,538

and

7,632

shares, respectively, were issued under the

2014

ESPP resulting in

292,821

shares remaining for future issuance under the plan as of

December

31,

2016.

The Company incurred

$93,000

and

$32,000

in stock-based compensation expense related to the

2014

ESPP for the years ended

December

31,

2016

and

2015,

respectively.