12. Stock Incentive Plans

Prior to the Company's IPO, the Company granted awards to eligible participants under its 2008 Equity Incentive Plan ("2008 Plan"). In May 2015, the Company's board of directors adopted, and in June 2015, the Company's stockholders approved, the 2015 Stock Incentive Plan ("2015 Plan"), which became effective immediately prior to the effectiveness of the Company's IPO. Subsequent to the Company's IPO, option grants are awarded to eligible participants only under the 2015 Plan.

The 2015 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards. The Company's employees, officers, directors and consultants and advisors are eligible to receive awards under the 2015 Plan. The maximum number of shares of Common Stock that may be delivered in satisfaction of awards under the 2015 Plan is 1,068,287 shares, plus (1) 25,942 shares that were available for grant under the 2008 Plan immediately prior to the closing of the IPO, (2) the number of shares of Common Stock subject to outstanding awards under the 2008 Plan upon closing of the IPO that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right and (3) an annual increase, to be added the first day of each fiscal year, beginning with the fiscal year ending December 31, 2016 and continuing until, and including, the fiscal year ending December 31, 2025, equal to the lowest of 1,297,334 shares of Common Stock, 4% of the number of shares of Common Stock outstanding on the first day of the fiscal year and an amount determined by the Company's board of directors. The January 1, 2017 and 2016 increases to the 2015 Plan added 752,700 and 612,531 authorized shares, respectively.

As of December 31, 2016, the Company had reserved 1,000,606 shares of Common Stock under the 2008 Plan, of which none remained available for future issuance. As of December 31, 2016, the Company had reserved 1,939,362 shares of Common Stock under the 2015 Plan, of which 669,799 shares remained available for future issuance. Under the 2015 Plan, stock options may not be granted with exercise prices at less than fair value on the date of the grant.

Terms of stock option agreements, including vesting requirements, are determined by the Company's board of directors, subject to the provisions of the applicable stock incentive plan. Options and restricted stock awards granted by the Company generally vest ratably over four years, with a one-year cliff, and options are exercisable from the date of grant for a period of ten years. Restricted stock issuances and early exercises of stock options are subject to a Company right of repurchase at the original issuance price, which right lapses over the vesting period of the stock. For options and restricted stock awards granted through December 31, 2016, the exercise price or purchase price, as applicable, equaled the estimated fair value of the Common Stock as determined by the Company's board of directors on the date of grant.

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

	Shares			Weighted- Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2015		1,723,554		$	6.66		7.92	$	4,267
Granted		1,068,845		$	4.49
Exercised		(230,019	)	$	2.00
Cancelled or forfeited		(292,211	)	$	6.60

Outstanding at December 31, 2016		2,270,169		$	6.11		8.14	$	613


Exercisable at December 31, 2016		851,769		$	5.79		6.64	$	607

Vested or expected to vest at December 31, 2016		2,177,976		$	6.12		8.09	$	613

The total intrinsic value of options exercised for the years ended December 31, 2016, 2015 and 2014 was $0.5 million, $0.3 million and $0.6 million, respectively. The total fair value of employee options vested for the years ended December 31, 2016, 2015 and 2014 was $2.3 million, $1.4 million and $0.5 million, respectively.

At December 31, 2016, the total unrecognized compensation expense related to unvested stock option awards, including estimated forfeitures, was $4.9 million. The Company expects to recognize that cost over a weighted-average period of approximately 2.5 years.

Stock-Based Compensation Expense

The fair value of stock options granted to employees and non-employees was estimated using the Black-Scholes option-pricing model based on the following assumptions:

	Year Ended December 31,
	2016			2015			2014
Weighted average expected volatility		72.0 - 73.9	%		73.6 - 86.8	%		75.2 - 83.4	%
Expected term (in years)		6.25			6.17 - 10.00			6.25 - 10.00
Risk free interest rate		1.24 - 2.00	%		0.92 - 2.45	%		1.71 - 3.01	%
Expected dividend yield		0	%		0	%		0	%

Volatility

Due to the lack of company-specific historical and implied volatility data of its Common Stock, the Company does not have relevant historical data to support its expected volatility. As such, the Company has used a weighted average of expected volatility based on the volatilities of a representative group of publicly traded biopharmaceutical companies. For purposes of identifying representative companies, the Company considered characteristics such as number of product candidates in early stages of product development, area of therapeutic focus, length of trading history, similar vesting provisions and a similar percentage of stock options that were in-the-money. The expected volatility was determined using a weighted average of the historical volatilities of the representative group of companies for a period equal to the expected term of the option grant. The Company intends to continue to consistently apply this process using the same representative companies until a sufficient amount of historical information regarding the volatility of the Company's own share price becomes available or until circumstances change, such that the identified entities are no longer representative companies. In the latter case, more suitable, similar entities whose share prices are publicly available would be utilized in the calculation.

Expected Term

The Company uses the "simplified method" to estimate the expected term of stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the contractual term (ten years) and the vesting term (generally four years) of the Company's stock options, taking into consideration multiple vesting tranches. The Company utilizes this method due to lack of historical exercise data and the plain-vanilla nature of the Company's share-based awards.

Risk-Free Rate

The risk-free rate was based on the yield curve of U.S. Treasury securities with periods commensurate with the expected term of the options being valued.

Forfeitures

The Company is also required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from its estimates. The Company uses historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. To the extent that actual forfeitures differ from the Company's estimates, the difference is recorded as a cumulative adjustment in the period the estimates are revised.

Employee Stock Purchase Plan

In June 2015, the Company's board of directors adopted and the Company's stockholders approved the 2015 Employee Stock Purchase Plan (the "2015 ESPP") which became effective upon closing of the IPO. The 2015 ESPP initially authorized the issuance of up to a total of 182,352 shares of Common Stock to participating eligible employees. The number of authorized shares increases each January 1, commencing on January 1, 2016 and ending on December 31, 2026, by an amount equal to the lesser of one percent of the Company's outstanding shares as of the first day of the applicable year, 364,705 shares and any lower amount determined by the Company's board of directors. The January 1, 2017 and 2016 increases to the 2015 ESPP added 188,175 and 153,132 authorized shares, respectively. As of December 31, 2016, there had been no shares issued under the 2015 ESPP.