8. Stockholders’ Equity

Authorized and Outstanding Capital Stock

As of June 30, 2017, the authorized capital stock of the Company included 175,000,000 shares of common stock, par value $0.00001 per share, of which 42,490,957 and 38,615,709 shares are issued and outstanding at June 30, 2017 and December 31, 2016, respectively; and 25,000,000 shares of undesignated preferred stock, par value $0.00001 per share, of which 0 shares are issued and outstanding at June 30, 2017 and December 31, 2016.

Equity Plans

On February 28, 2014, the Company’s Board of Directors adopted its 2014 Incentive Plan (the “2014 Plan”) and its 2014 Employee Stock Purchase Plan (the “ESPP”), which were subsequently approved by its stockholders and became effective upon the closing of the Company’s initial public offering IPO on March 25, 2014. The 2014 Plan replaced the 2008 Equity Incentive Plan (as amended, the “2008 Plan”), however, options or other awards granted under the 2008 Plan prior to the adoption of the 2014 Plan that have not been settled or forfeited remain outstanding and effective. In May 2016 the Company’s Board of Directors approved an inducement award program that was separate from the Company’s equity plans and which, consistent with NASDAQ listing rules, did not require shareholder approval (the 2016 program and similar programs, each an “Inducement Award Program”) under which 350,000 shares were reserved to be issued in 2016 and awards relating to 255,000 shares were granted and remain eligible to vest. The Company continues to grant inducement awards to new hires under a 2017 authorization.

The 2014 Plan allows for the granting of stock options, stock appreciation rights (SARs), restricted stock, unrestricted stock, restricted stock units (RSUs), performance awards and other awards convertible into or otherwise based on shares of our common stock. Dividend equivalents may also be provided in connection with an award under the 2014 Plan. The Company’s employees, officers, directors and consultants and advisors are eligible to receive awards under the 2014 Plan. The Company initially reserved 1,785,000 shares of its common stock for the issuance of awards under the 2014 Plan. The 2014 Plan provides that the number of shares reserved and available for issuance under the 2014 Plan will automatically increase annually on January 1^st of each calendar year, by an amount equal to three percent (3%) of the number of shares of stock outstanding on a fully diluted basis as of the close of business on the immediately preceding December 31^st(the “2014 Plan Evergreen Provision”). The Company’s Board of Directors may act prior to January 1^st of any year to provide that there will be no automatic increase in the number of shares available for grant under the 2014 Plan for that year (or that the increase will be less than the amount that would otherwise have automatically been made). During the first six months of 2017, the Company granted 1,043,900 stock options to employees, of which 324,500 were granted under the Inducement Award program, 439,900 RSUs to employees and 87,500 stock options to directors under the 2014 Plan.

The ESPP provides for the issuance of options to purchase shares of the Company’s common stock to participating employees at a discount to their fair market value. The maximum aggregate number of shares of common stock available for purchase pursuant to the exercise of options granted under the ESPP will be the lesser of (a) 262,500 shares, increased on each anniversary of the adoption of the ESPP by one percent (1%) of the total shares of common stock then outstanding (the “ESPP Evergreen Provision”) and (b) 739,611 shares (which is equal to five percent (5%) of the total shares of common stock outstanding on the date of the adoption of the ESPP on a fully diluted, as converted basis. Under the ESPP, each offering period is six months, at the end of which employees may purchase shares of common stock through payroll deductions made over the term of the offering. The per-share purchase price at the end of each offering period is equal to the lesser of eighty-five percent (85%) of the closing price of our common stock at the beginning or end of the offering period.

Shares Reserved for Future Issuance

The Company has reserved for future issuance the following number of shares of common stock:

	June 30, 2017		December 31, 2016
Common stock options and RSU's outstanding		4,856,871		3,579,694
Shares available for issuance under the 2014 Plan ⁽¹⁾		739,579		885,328
Warrant to purchase common stock		509,611		—
Shares available for issuance under the ESPP ⁽²⁾		677,762		803,105
Total		6,783,823		5,268,127

⁽¹⁾

On January 1, 2017 and January 1, 2016, the shares reserved for future grants under the 2014 Plan increased by 1,265,863 and 986,800 shares, respectively pursuant to the 2014 Plan Evergreen Provision.

⁽²⁾

On February 28, 2016, the shares reserved for future issuance under the ESPP increased by 273,404 shares pursuant to the ESPP Evergreen Provision.

Stock-Based Compensation

Stock Options

On February 21, 2017, as part of the Company’s annual grant of equity, the Company issued 719,400 stock options to employees. In addition, the Company issues stock options to new hires and occasionally to other employees not in connection with the annual grant process. Options granted by the Company vest over periods of between 12 and 48 months, subject, in each case, to the individual’s continued service through the applicable vesting date. Options vest in installments of (i) 25% at the one year anniversary and (ii) in either 36 or 48 equal monthly or 12 equal quarterly installments beginning in the thirteenth month after the initial vesting commencement date or grant date, subject to the individual’s continuous service with the Company. Options generally expire ten years after the date of grant. The Company recorded approximately $1.7 million and approximately $1.0 million of stock-based compensation expense related to stock options during the three months ended June 30, 2017 and 2016, respectively and approximately $3.3 million and $2.1 million during the six months ended June 30, 2017 and 2016, respectively.

Restricted Stock

On December 23, 2013, the Company issued 450,224 shares of restricted stock to employees and 79,067 shares of restricted stock to non-employees at a grant date fair value of $7.42 per share. The aggregate grant date fair value for the shares of restricted stock issued on December 23, 2013 totaled approximately $3.9 million. The awards of restricted stock contained a performance condition wherein vesting is contingent upon the Company’s consummation of a liquidity event, as defined, prior to the fifth anniversary of the date of grant. Certain of the awards of restricted stock have a requisite service period that was complete upon grant. The remainder of the awards of restricted stock have a requisite service period of four years whereby the award vests 25% on the one year anniversary of the Vesting Commencement Date (as defined), then ratably on the first day of each calendar quarter for 12 quarters, subject to continuous service by the individual and achievement of the performance target. Due to the nature of the performance condition, the Company had concluded that the performance condition was not probable of achievement and therefore, recognition of compensation cost had been deferred until the occurrence of a liquidity event, as defined. Compensation expense related to the restricted stock awards is being recognized over the associated requisite service period which commenced on March 25, 2014. The Company recorded approximately $49,000 and $27,000 of stock-based compensation expense related to restricted stock during the three months ended June 30, 2017 and 2016, respectively and approximately $0.1 million and $13,000 during the six months ended June 30, 2017 and 2016, respectively, as a result of mark to market adjustments related to non-employees.

Restricted Stock Units

On February 21, 2017, as part of the Company’s annual grant of equity, the Company issued 423,650 RSUs to employees. In addition, the Company occasionally issues RSUs not in connection with the annual grant process to employees. 100% of each RSU grant vests on the third anniversary of the grant date, subject, in each case, to the individual’s continued service through the applicable vesting date. Total stock-compensation expense to be recognized over the life of the RSUs is $2.9 million and will be recognized on a straight-line basis over the vesting period. The Company recorded approximately $0.6 million and $0.2 million of stock-based compensation expense related to the RSUs during the three months ended June 30, 2017 and 2016, respectively, and approximately $1.1 million and $0.3 million during the six months ended June 30, 2017 and 2016, respectively.

Employee Stock Purchase Plan

The first offering period under the ESPP opened on January 2, 2015. The Company issued 19,317 shares during the first quarter of 2017. The Company recorded approximately $42,000 and $16,000 of stock-based compensation expense related to ESPP during the three months ended June 30, 2017 and 2016, respectively and approximately $0.1 million and $47,000 during the six months ended June 30, 2017 and 2016, respectively.

Stock-Based Compensation Expense Summary

The Company has classified its stock-based compensation expense related to share-based awards as follows:

	Three months ended				Six months ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
	(in thousands)				(in thousands)
Research and development	$	997	$	365	$	5,171	$	757
General and administrative		1,508		857		2,762		1,716
Total	$	2,505	$	1,222	$	7,933	$	2,473

Compensation expense by type of award:

	Three months ended				Six months ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
	(in thousands)				(in thousands)
Stock options	$	1,747	$	1,021	$	3,322	$	2,149
Restricted stock		57		27		65		13
Restricted stock units		659		158		1,050		264
Employee stock purchase plan		42		16		83		47
Warrant		—		—		3,413		—
Total	$	2,505	$	1,222	$	7,933	$	2,473