7. Share-Based Payments

2007 Stock Incentive Plan

The Company maintains the 2007 Stock Incentive Plan (the “Plan”) for employees, directors, consultants, and advisors to the Company. The Plan provides for the grant of incentive and non-qualified stock options and restricted stock grants as determined by the Board of Directors. The Company has reserved 5,079,642 shares of common stock under the Plan, and at June 30, 2013 and December 31, 2012, the Company had 114,393 and 684,124 shares available for future issuance under the Plan, respectively.

During the six months ended June 30, 2013, the Company granted 3,636 stock options to consultants of the Company. These awards are included within the following table which summarizes the activity of the Plan for the six months ended June 30, 2013:


	Number of Stock Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)

Outstanding at December 31, 2012		3,145,544		$	0.88		7.72	$	15,402
Granted		613,600			9.05
Exercised		(57,985	)		0.70
Forfeited		(44,014	)		2.08

Outstanding at June 30, 2013		3,657,145			2.24		7.65		24,897

Exercisable at June 30, 2013		2,130,507			0.57		6.75		18,084

Vested and expected to vest at June 30, 2013		2,887,672			1.33		7.23		22,299

The weighted-average grant date fair value of options granted was $6.88, $1.83, $6.88 and $1.84 during the three months ended June 30, 2013 and 2012 and the six months ended June 30, 2013 and 2012, respectively. The total intrinsic value of options exercised was $352,000, $19,000, $380,000, and $188,000 during the three months ended June 30, 2013 and 2012 and the six months ended June 30, 2013 and 2012, respectively.

At June 30, 2013, the total unrecognized compensation expense related to unvested stock option awards, including estimated forfeitures, was $2.1 million, which the Company expects to recognize over a weighted-average period of approximately 1.8 years. The Company also has unrecognized stock-based compensation expense of $2.9 million related to stock options with performance-based vesting criteria that are not considered probable of achievement as of June 30, 2013; therefore the Company has not yet begun to recognize the expense on these awards.

Restricted Stock and Early Exercise of Stock Options

At June 30, 2013, there were 63,840 shares of unvested restricted stock which remain subject to the Company’s right of repurchase.

Unvested restricted stock activity for the six months ended June 30, 2013 is summarized as follows:


	Six Months Ended June 30, 2013
Unvested shares beginning of period		160,053
Vested		(96,213	)

Unvested shares end of period		63,840

Performance-Based Stock Option Grants

During the three months ended June 30, 2013 and 2012, the Company granted options to purchase 355,454 and 375,636, shares of common stock, respectively, to employees, including executive officers, which contain both performance-based and service-based vesting criteria. Milestone events are specific to the Company’s corporate goals, including but not limited to certain preclinical and clinical development milestones related to the Company’s product candidates. Stock-based compensation expense associated with these performance-based stock options is recognized if the performance condition is considered probable of achievement using management’s best estimates. During the three and six months ended June 30, 2013 management assessed the probability of achieving the milestones and determined that certain performance-based milestones are probable of achievement as of June 30, 2013. Accordingly, the Company recorded stock-based compensation expense of $45,000 and $217,000 during the three and six months ended June 30, 2013, respectively. There were no such milestones that were deemed probable of achievement during the three and six months ended June 30, 2012 and as such, no stock-based compensation expense related to performance-based milestones was recorded during the periods. The remaining milestones were not deemed to be probable of achievement as of June 30, 2013.

Stock-Based Compensation Expense

During the three and six months ended June 30, 2013 and 2012, the Company recorded stock-based compensation expense for employee and non-employee stock options and restricted stock, which was allocated as follows in the consolidated statements of operations (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Research and development expense	$	246	$	60	$	533	$	126
General and administrative expense		83		31		220		63

	$	329	$	91	$	753	$	189

The fair value of each stock option granted to employees is estimated on the date of grant and for non-employees on each vesting and reporting date using the Black-Scholes option-pricing model. The following table summarizes the weighted average assumptions used in calculating the fair value of the awards:


	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012
Risk-free interest rate		1.00	%		1.18	%		1.00	%		1.13	%
Expected dividend yield		—			—			—			—
Expected term (in years)		6.49			6.42			6.49			6.12
Expected volatility		91.85	%		104.80	%		91.85	%		99.05	%