Stock Incentive Plans

Stock Options

The Company maintains the 2008 Stock Incentive Plan (the “2008 Plan”) for employees, consultants, advisors, and directors. The 2008 Plan provided for the granting of incentive and non‑qualified stock option and restricted stock awards as determined by the Board. At inception of the 2008 Plan, a total of 2,213,412 shares of common stock were authorized for grants under the 2008 Plan. The Company ceased granting awards under the 2008 Plan upon the effectiveness of the 2016 Plan (as defined below); zero shares remain available for future issuance under the 2008 Plan. Shares subject to awards that were granted under the 2008 Plan and that expire, lapse or terminate following the effectiveness of the 2016 Plan become available under the 2016 Plan as shares available for future grants. All unvested stock options granted under the 2008 Plan may be exercised into restricted stock subject to forfeiture upon termination prior to vesting.

The 2008 Plan provided that the exercise price of incentive stock options cannot be less than 100% of the fair market value of the Company's common stock on the grant date for participants who own 10% or less of the total combined voting power of the Company, and not less than 110% for participants who own more than 10% of the Company’s voting power. Options and restricted stock awards granted under the 2008 Plan vest over periods as determined by the Board, which are generally four years and, for options, with terms that generally expire ten years from the grant date.

As of the effective date of the Company's Registration Statement on Form S-1 relating to the initial public offering of its common stock on June 21, 2016, the Company ceased granting awards under the 2008 Plan; however, awards issued under the 2008 Plan remain subject to the terms of the 2008 Plan and the applicable 2008 Plan agreement.

On June 7, 2016, the Company’s stockholders approved the 2016 Incentive Award Plan (the “2016 Plan”), which became effective June 20, 2016. The 2016 Plan provides for the granting of incentive and non‑qualified stock option, restricted stock and other stock and cash based awards as determined by the Board. At inception of the 2016 Plan, a total of 1,210,256 shares of common stock were authorized for future grant under the 2016 Plan. The number of shares of common stock that may be issued under the 2016 Plan automatically increases on the first day of each calendar year, beginning in 2017 and ending in and including 2026, by an amount equal to the lesser of: (i) 4% of the number of shares of the Company’s common stock outstanding on the last day of the applicable preceding calendar year and (ii) such smaller number of shares as is determined by the Board. During the three months ended March 31, 2018 and 2017, the number of shares of common stock that may be issued under the 2016 Plan was increased by 893,730 shares and 737,550 shares, respectively. As of March 31, 2018, 2,841,536 shares remain available for future issuance under the 2016 Plan.

The 2016 Plan provides that the exercise price of incentive stock options cannot be less than 100% of the fair market value of the Company's common stock on the grant date for participants who own 10% or less of the total combined voting power of the Company, and not less than 110% for participants who own more than 10% of the Company’s voting power. Options and restricted stock awards granted under the 2016 Plan vest over periods as determined by the Board, which are generally four years and, for options, with terms that generally expire ten years from the grant date.

The fair value of each option award was estimated on the grant date using Black‑Scholes. Expected volatilities are based on historical volatilities from guideline companies because the Company's common stock has not traded for a period that is at least equal to the expected term of its stock option awards. The Company uses the “simplified” method to estimate the expected life of options granted and are expected to be outstanding. The risk‑free interest rate used is the rate for a U.S. Treasury zero coupon issue with a remaining life consistent with the options expected life on the grant date. The Company has not paid, and does not expect to pay in the foreseeable future, any cash dividends. Forfeitures are estimated at the time of grant and are adjusted, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has estimated a forfeiture rate of 10% based on historical attrition trends. The Company records stock‑based compensation expense only on awards that are expected to vest.

The estimated grant date fair values of employee stock option awards granted under the 2008 Plan and 2016 Plan were calculated using the Black-Scholes option pricing model, based on the following weighted-average assumptions:



	Three Months Ended March 31,
	2018			2017
Risk-free interest rate	2.65		%	2.07		%
Dividend yield	—			—
Expected term	6.64			5.92
Expected volatility	84.81		%	84.41		%
Weighted-average fair value of common stock	$	9.53		$	10.89

The weighted average grant date fair value of stock options granted to employees during the three months ended March 31, 2018 and 2017 was $7.07 and $7.77, respectively. There were no employee stock option exercises during the three months ended March 31, 2018. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2017 was $0.6 million.

As of March 31, 2018 and December 31, 2017, total unrecognized compensation expense related to unvested employee stock options was $8.7 million and $10.2 million, respectively, which is expected to be recognized over a weighted average period of 2.7 years and 2.9 years, respectively.

During the year ended December 31, 2017, the status of an executive changed from an employee to a consultant (non-employee). Stock-based compensation expense relating to the individual's stock option awards was recognized through the employee's termination date. In accordance with ASC 505-50, the consultant's 55,073 unvested stock option awards were subsequently remeasured using the then-current fair value of the Company's common stock and updated assumption inputs in the Black-Scholes option pricing model. The Company will remeasure the consultant's stock option awards quarterly based on the fair value of the award on the date at which the related service is complete. Stock-based compensation expense will be recognized over the consulting period until services are completed. The 55,073 stock option awards are presented in the employee awards stock option table below.

One of the Company's executive officers resigned effective December 31, 2017, and immediately entered into a consulting arrangement with the Company during the period January 1, 2018 to December 31, 2018. In connection with his resignation, (i) all of his unvested stock option awards (62,546 shares in aggregate) were forfeited and expired as of December 31, 2017; (ii) his right to exercise his vested, exercisable stock option awards (126,457 shares in aggregate) as of December 31, 2017 was extended to March 31, 2019, resulting in a modification; and (iii) during the first quarter of 2018, he was granted a stock option award to purchase 20,000 shares of the Company's common stock. For accounting purposes, this has been treated as a cancellation and replacement award, subject to modification accounting. All granted stock awards are presented in the employee awards stock option table below.

There were no stock option awards granted to non-employees during the three months ended March 31 2018 and 2017. The unvested options held by non‑employees are revalued using the Company’s estimate of fair value on each vesting and reporting date through the remaining vesting period.

As of March 31, 2018 and December 31, 2017, total unrecognized compensation expense related to unvested non‑employee stock options was $0.4 million and $0.6 million, respectively.

The following table summarizes the activity under the 2008 Plan and the 2016 Plan:



					Weighted‑average
					remaining	Aggregate
	Number of		Weighted-average		contractual term	intrinsic value
	options		exercise price ($)		(in years)	(in thousands)
Employee Awards
Outstanding at December 31, 2017	2,411,237		$	10.58	7.50	$	4,729
Granted	52,200		$	9.53
Exercised	—		$	—
Forfeited	(51,352	)	$	16.37
Outstanding at March 31, 2018	2,412,085		$	10.43	7.33	$	5,193
Vested at March 31, 2018	1,172,413		$	7.12	5.67	$	4,645
Vested and expected to vest at March 31, 2018	2,255,453		$	10.22	7.21	$	5,144

Non‑Employee Awards
Outstanding at December 31, 2017	245,950		$	4.32	5.10	$	1,351
Granted	—		$	—
Exercised	—		$	—
Forfeited	—		$	—
Outstanding at March 31, 2018	245,950		$	4.32	4.86	$	1,444
Vested at March 31, 2018	212,308		$	3.89	4.37	$	1,338
Vested and expected to vest at March 31, 2018	245,950		$	4.32	4.86	$	1,444

Employee Stock Purchase Plan

On June 7, 2016, the Company’s stockholders approved the 2016 Employee Stock Purchase Plan (the “ESPP”), which became effective June 20, 2016. The ESPP is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986 with the purpose of providing employees with an opportunity to purchase the Company's common stock through accumulated payroll deductions.

Under the ESPP, the Company has set two six-month offering periods during each calendar year, one beginning March 1^st and the other beginning September 1^st of each calendar year, during which employees may elect to have up to 25% of their eligible compensation deducted on each payday on an after-tax basis for use in purchasing the Company's common stock on the last trading day of each offering period, subject to limits imposed by the Internal Revenue Code. The purchase price of the shares may not be less than 85% of the fair market value on the first or last trading day of the offering period, whichever is lower. The first ESPP offer period began on March 1, 2017.

At inception of the ESPP, a total of 173,076 shares of common stock were authorized and reserved for future issuance under the ESPP. The number of shares of common stock that may be issued under the ESPP will automatically increase on the first day of each calendar year, beginning in 2017 and ending in and including 2026, by an amount equal to the lesser of: (i) 1% of the number of shares of the Company’s common stock outstanding on the last day of the applicable preceding calendar year and (ii) such smaller number of shares as is determined by the Company’s Board of Directors. During the three months ended March 31, 2018 and 2017, the number of shares of common stock that may be issued under the ESPP was increased by 223,432 shares and 184,387 shares, respectively. During the three months ended March 31, 2018, the Company issued 6,586 shares of common stock under the ESPP. As of March 31, 2018, 558,046 shares remain available for future issuance under the ESPP.

For the three months ended March 31, 2018 and 2017, the Company recognized less than $0.1 million of stock-based compensation expense under the ESPP.

The Company recorded stock-based compensation expense related to stock option awards and the ESPP in the following expense categories of its consolidated statements of operations and comprehensive loss (in thousands):



	Three Months Ended March 31,
	2018		2017
Research and development	$	511	$	335
General and administrative	642		358
Total stock-based compensation expense	$	1,153	$	693