10. Stock Option Plans

On December 26, 2006, the Company adopted the 2006 Equity Incentive Plan, which was amended by the board of directors on November 15, 2012 (2006 Plan). The 2006 Plan allowed for the granting of ISOs and NSOs to the employees, members of the board of directors and consultants of the Company. ISOs were granted only to the Company’s employees, including officers and directors who are also employees. NSOs were granted to the employees and consultants. In July 2014, the Company’s board of directors and its stockholders approved the establishment of the 2014 Equity Incentive Award Plan (2014 Plan), effective upon the date upon which the registration statement for the IPO was declared effective, which was July 30, 2014. As of the date of the IPO, the Company reserved for issuance under the 2014 Plan a total of 2,088,332 shares of its common stock, plus any additional shares that would otherwise return to the 2006 Plan as a result of forfeiture, termination or expiration of awards previously granted under the 2006 Plan. Options may no longer be issued under the 2006 Plan after July 30, 2014, the effective date of the 2014 Plan. In addition, the 2014 Plan provides for annual increases in the number of shares available for issuance thereunder on the first business day of each fiscal year, beginning with 2015, equal to four percent (4%) of the number of shares of the Company’s common stock outstanding as of such date or a lesser number of shares as determined by the Company’s board of directors.

As of March 31, 2015, a total of 8,454,368 shares of common stock were authorized for issuance and 2,812,326 shares were available for future grants under the 2014 Plan.

Options under the 2014 Plan may be granted for periods of up to 10 years and at prices no less than 100% of the estimated fair value of the shares on the date of grant as determined by the board of directors, provided, however, that the exercise price of an ISO and NSO granted to a 10% shareholder may not be less than 110% of the estimated fair value of the shares on the date of grant. Options granted to employees and non-employees generally vest ratably over four years.

In July 2014, the Company’s board of directors and its stockholders approved the establishment of the 2014 Employee Stock Purchase Plan (2014 ESPP). The Company reserved for issuance 208,833 shares of its common stock and provided for annual increases in the number of shares available for issuance on the first business day of each fiscal year, beginning in 2015, equal to the lesser of one percent (1%) of the number of shares of the Company’s common stock outstanding as of such date or a number of shares as determined by the Company’s board of directors. During 2015, no shares were issued under the 2014 ESPP. A total of 436,373 shares of common stock have been reserved for issuance under the 2014 ESPP and were available for issuance under the 2014 ESPP as of March 31, 2015.

The following table summarizes option activity under our stock plans and related information:


	NUMBER OF SHARES			WEIGHTED- AVERAGE EXERCISE PRICE		WEIGHTED- AVERAGE REMAINING CONTRACTUAL LIFE (IN YEARS)		AGGREGATE INTRINSIC VALUE ^(a) (IN THOUSANDS)
Balances, January 1, 2015		4,931,858		$	5.61		8.2	$	238,653
Options granted		142,750		$	50.15
Options exercised		(120,526	)	$	0.26
Options cancelled		(1,200	)	$	11.50

Balances, March 31, 2015		4,952,882		$	7.03		7.9	$	165,855
Vested and expected to vest as of March 31, 2015		4,910,656		$	6.97		7.9	$	164,768
Exercisable as of March 31, 2015		1,998,130		$	0.53		7.0	$	79,984

^(a)	The aggregate intrinsic value is calculated as the difference between the option exercise price and the closing price of common stock of $40.52 per share as of March 31, 2015.

The weighted-average fair values of options granted during the three months ended March 31, 2015 and 2014 were $34.00 and $1.93, respectively. The total intrinsic value of options exercised during the three months ended March 31, 2015 was $4.4 million. There were no options exercised during the three months ended March 31, 2014.

The following table summarizes information with respect to stock options outstanding and currently exercisable and vested.

As of March 31, 2015:


	OPTIONS OUTSTANDING				OPTIONS EXERCISABLE AND VESTED
RANGE OF EXERCISE PRICES	NUMBER OUTSTANDING		WEIGHTED- AVERAGE REMAINING CONTRACTUAL LIFE (IN YEARS)		NUMBER OUTSTANDING		WEIGHTED- AVERAGE REMAINING CONTRACTUAL LIFE (IN YEARS)
$ .0001 – $0.27		2,961,075		7.0		1,853,993		6.8
$ 0.28 – $2.95		473,757		8.9		136,845		8.8
$ 2.96 – $9.16		265,000		9.1		—		—
$ 9.17 – $11.50		277,200		9.3		—		—
$ 11.51 – $35.00		769,850		9.4		—		—
$ 35.01 – $58.92		206,000		9.8		7,292		9.7

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards to employees and nonemployees in the condensed consolidated statement of operations and comprehensive loss as follows (in thousands):


	Three Months Ended March 31,
	2015		2014
Research and development	$	284	$	69
General and administrative		489		46

Total share-based compensation	$	773	$	115

Stock Options Granted to Employees

The fair value of each option issued to employees was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:


	Three Months Ended March 31,
	2015			2014
Option grants:
Expected volatility		78	%		78	%
Expected term (in years)		6.1			6.0
Expected dividend yield		—			—
Risk-free interest rate		1.8	%		1.8	%

As of March 31, 2015, there was $18.6 million of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of 3.3 years.

Stock Options Granted to Non-Employees

Stock-based compensation related to stock options granted to non-employees is recognized as the stock options are earned. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered. The following weighted-average assumptions were used in estimating non-employees’ stock-based compensation expenses:


	Three Months Ended March 31,
	2015			2014
Option grants:
Expected volatility		80	%		77	%
Contractual term remaining (in years)		7.7			7.8
Expected dividend yield		—			—
Risk-free interest rate		1.7	%		2.6	%

As of March 31, 2015, there was $2.0 million of unrecognized stock-based compensation expense related to non-employees’ awards that is expected to be recognized over a weighted-average period of 2.7 years.

Fair Value of Common Stock

In determining the exercise prices for options granted, the Company’s board of directors has considered the fair value of the common stock as of each grant date. Prior to the IPO, the fair value of the common stock underlying the stock options was determined by the board of directors at each award grant date based upon a variety of factors, including the results obtained from an independent third party valuation, the Company’s financial position and historical financial performance, the status of technological developments within the Company’s products, the composition and ability of the current management team, an evaluation or benchmark of the Company’s competition, the current business climate in the marketplace, the illiquid nature of the common stock, arm’s-length sales of the Company’s capital stock (including convertible preferred stock), the effect of the rights and preferences of the preferred shareholders and the prospects of a liquidity event, among others. After the completion of the Company’s IPO in August 2014, the fair value of the common stock is based on the closing price of the common stock on the date of grant.