Stock Option Plan

2014 Equity Incentive Plan and 2014 Inducement Plan

On January 1, 2017, the number of shares of common stock reserved for issuance under the Company’s 2014 Equity Incentive Plan, or 2014 EIP, automatically increased by 4% of the total number of shares of the Company’s common stock outstanding on December 31, 2016, or 1,145,958 shares. During the three months ended March 31, 2017, the Company granted stock options for 581,125 shares of common stock and 220,425 restricted stock awards under the 2014 EIP. As of March 31, 2017, there were 1,123,720 shares available for issuance under the 2014 EIP.

During the three months ended March 31, 2017, there were no stock options or restricted stock awards granted under the 2014 Inducement Plan (the "2014 IN"). As of March 31, 2017, there were 417,087 shares available for issuance under the 2014 IN. The grant-date fair value of the employee stock options under the 2014 EIP and 2014 IN was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	Three Months Ended March 31,
	2017		2016
Expected term (in years)	6.0		6.0
Expected volatility	68.4	%	61.1	%
Risk-free interest rate	2.1	%	1.4	%
Expected dividend rate	—	%	—	%

Fair Value of Common Stock. The fair value of the shares of common stock is based on the Company's stock price as quoted by the NASDAQ.

Expected Term. The expected term for employees and non-employee directors is based on the simplified method, as the Company’s stock options have the following characteristics: (i) granted at-the-money; (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable, or “plain vanilla” options, and the Company has a limited history of exercise data. The expected term for non-employee consultants is based on the remaining contractual term.

Expected Volatility. As of January 1, 2017, the expected volatility is based on the historical volatility of a group of similar entities combined with the historical volatility of the Company, whereas prior to 2017, the expected volatility was based solely on the historical volatility of a group of similar entities. In evaluating similarity, the Company considered factors such as industry, stage of life cycle, capital structure, and size.

Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury constant maturity rates with remaining terms similar to the expected term of the options.

Expected Dividend Rate. The Company has never paid dividends and does not plan to pay dividends in the foreseeable future, and therefore used an expected dividend rate of zero percent in the valuation model.

Forfeitures. As of January 1, 2017, the Company adopted the forfeiture rate methodology change in accordance with ASC 2016-09 to account for forfeitures as they occur (Note 2). Prior to the adoption of ASC 2016-09, the Company was required to estimate forfeitures at the time of grant and revised those estimates in subsequent periods if actual forfeitures differed from those estimates. The Company used historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that were expected to vest. To the extent actual forfeitures differed from the estimates, the difference was recorded as a cumulative adjustment in the period that the estimates were revised.

There were no stock options outstanding or granted to non-employee consultants as of and during the three months ended March 31, 2017. The fair value of the stock options granted to non-employee consultants is calculated at each reporting date using the Black-Scholes option pricing model with the following weighted-average assumptions:



	Three Months Ended March 31, 2016
Expected term (in years)	7.7
Expected volatility	73.4	%
Risk-free interest rate	1.6	%
Expected dividend rate	—	%

2014 Employee Stock Purchase Plan

On January 1, 2017, the number of shares of common stock reserved for issuance under the Company’s 2014 Employee Stock Purchase Plan, or 2014 ESPP, automatically increased by 1% of the total number of shares of the Company’s common stock outstanding on December 31, 2016, or 286,489 shares. As of March 31, 2017, there were 944,969 shares available for issuance under the 2014 ESPP.

The fair value of the option component of the shares purchased under the 2014 ESPP was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:



	Three Months Ended March 31,
	2017		2016
Expected term (in years)	0.5		0.5
Expected volatility	72.4	%	50.9	%
Risk-free interest rate	0.7	%	0.5	%
Expected dividend rate	—	%	—	%

Fair Value of Common Stock. The fair value of the shares of common stock is based on the Company’s stock price.

Expected Term. The expected term is based on the term of the purchase period under the 2014 ESPP.

Expected Volatility. As of January 1, 2017 the expected volatility is based on the historical volatility of the Company's common stock. Prior to January 1, 2017, the expected volatility was based on volatility of a group of similar entities. In evaluating similarity, the Company considered factors such as industry, stage of life cycle, capital structure, and size.

Risk-Free Interest Rate. The risk-free interest rate is based on U.S. Treasury constant maturity rates with remaining terms similar to the expected term.

Total Stock-Based Compensation

Total stock-based compensation expense related to options, restricted stock awards, and ESPP for employees, non-employee directors, and non-employee consultants was allocated as follows (in thousands):



	Three Months Ended March 31,
	2017		2016
Research and development	$	1,304	$	1,404
General and administrative	1,851		1,573
Total stock based compensation expense	$	3,155	$	2,977