9. Stock-Based Compensation

In March 2012, our board of directors and stockholders approved the 2012 Stock Incentive Plan (the "2012 Plan"). The 2012 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock units and other stock-based or cash awards to purchase shares of common stock to eligible employees, officers, directors and consultants. The number of shares of our common stock that are reserved for issuance under the 2012 Plan is equal to the sum of (1) 1,453,253 shares of common stock issuable under the 2012 Plan plus the number of shares of our common stock subject to outstanding awards under the 2011 Plan, described below, that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by us at their original issuance price pursuant to a contractual repurchase right (up to 679,622 shares) plus (2) an annual increase, to be added on the first day of each year beginning in 2013 and each subsequent anniversary until the expiration of the 2012 Plan, equal to the lowest of 975,000 shares of its common stock, 4.0% of the number of shares of our common stock outstanding on the first day of the year and an amount determined by our board of directors. We began making grants under the 2012 Plan following June 11, 2012, the effective date of our registration of securities on Form 10. Shares issued under the 2012 Plan are funded through the issuance of new shares. We ceased granting options under the 2011 Plan following the effective date of our registration of securities on Form 10.

Founders' stock

In April 2011, we issued 3,509,634 shares of common stock to founders at a purchase price of $0.002 per share, which was determined by the board of directors to be the fair value of the common stock on the date of issuance. The shares were issued under restricted stock purchase agreements and not pursuant to the 2011 Plan. These restricted stock purchase agreements allow us, at our discretion, to repurchase unvested shares if the founder's relationship with us is terminated. The shares issued to three of the co-founders vested with respect to 25% of the shares on the grant date and with respect to the remaining shares in approximately equal quarterly installments through the fourth anniversary of the grant date. The shares issued to the remaining two co- founders vest in approximately equal quarterly installments from and after the grant date. Additionally, 25% of the then-unvested shares issued to the remaining two co-founders vested in July 2011 in connection with the Series A Preferred Stock financing.

A summary of our Founders' stock activity and related information is as follows:

	Shares
Unvested at December 31, 2012		1,645,141
Granted		—
Vested		(658,060	)

Unvested at December 31, 2013		987,081
Granted		—
Vested		(658,060	)

Unvested at December 31, 2014		329,021

We record stock-based compensation expense for the common stock subject to repurchase based on the grant date intrinsic value for employees and the vesting date intrinsic value for non-employees. All of the restricted shares were issued at fair value. We recognized total stock-based compensation expense of $7.5 million, $1.4 million, and $0.8 million for the year ended December 31, 2014, 2013, and 2012, respectively for the Founders’ stock.

Stock options

A summary of the Company's stock option activity and related information is as follows (in thousands, except share and per share data):

	Shares			Weighted average exercise price per share		Weighted average remaining contractual term (years)		Aggregate intrinsic value
Outstanding at December 31, 2013		2,413,237		$	9.26		9.05	$	6,087
Granted		2,464,138			19.12
Exercised		(370,808	)		3.81
Forfeited		(852,564	)		11.51
Cancelled		(25,375	)		5.48

Outstanding at December 31, 2014		3,628,628			16.01		9.11		102,355
Exercisable at December 31, 2014		688,562			8.43		8.07		24,641
Vested and expected to vest at December 31, 2014		2,394,044			15.11		9.01		69,692

The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised was $4.2 million, $0.4 million, and $48 thousand for the years ended December 31, 2014 and 2013, and 2012, respectively.

The fair value of each employee stock-based award is estimated on the grant date using the Black-Scholes option pricing model.

We have used the simplified method to calculate the expected term as we do not have sufficient historical exercise and post-vest termination data to provide a reasonable basis upon which to estimate the expected term for the options granted to employees. The remaining contractual term is used for option awards granted to non-employees. Historical data will be incorporated into our assumption as it becomes available.

The computation of expected volatility is based on a hybrid approach of blending the Company's historical volatility with the historical volatility of a representative group of companies with similar characteristics to ours, including stage of potential fertility treatment development and life science industry focus. The representative group of companies consisted of ANI Pharmaceuticals, Inc., Corcept Therapeutics Inc., Neogenomics Inc., Sangamo Biosciences, Inc., and Stem Cells Inc. As a result of being an early stage fertility company with no revenues, the representative group of companies has certain similar, but not all similar, characteristics to ours. We believe the group selected has sufficient similar economic and industry characteristics and includes companies that are most representative of ours.

The fair value of each stock option is estimated using the Black-Scholes option pricing model using the following assumptions:

	December 31,
	2014	2013	2012
Risk-free interest rate	1.62% - 2.17%	0.91% - 2.11%	0.8% - 1.78%
Dividend yield	—	—	—
Volatility	76% - 84%	83% - 91%	79% - 89%
Expected term (years)	5.3 - 9.97	5.1 - 9.93	5.1 - 9.93

During the year ended December 31, 2014, we granted 2,434,138 options to purchase common stock to employees with a weighted average exercise price of $19.19 per share at a weighted average grant date fair value of $13.41. During the year ended December 31, 2013, we granted 1,537,172 options to purchase common stock to employees with a weighted average exercise price of $12.87 per share at a weighted average grant date fair value of $9.34.

We recognized total stock-based compensation expense for employee stock option grants of $3.3 million, $2.3 million, and $0.3 million for the years ended December 31, 2014, 2013 and 2012, respectively.

During 2014, we granted 30,000 options to purchase common stock with a weighted average exercise price of $13.26 per share to non-employees. There were no stock options granted to nonemployees in 2013.

Stock-based awards including Founders’ stock issued to non-employees are accounted for using the fair value method. These stock-based awards are revalued at each reporting date until vested. We recognized total stock-based compensation of $8.3 million, $2.2 million, and $1.0 million for the year ended December 31, 2014, 2013, and 2012, respectively for these non-employee awards.

At December 31, 2014 there was $27.3 million of total unrecognized compensation cost related to non-vested stock options and restricted stock. We expect to recognize these costs over a remaining weighted average period of 2.9 years.

Restricted stock units

On December 5, 2012, we issued a total of 192,308 restricted stock units ("RSUs") to our Chief Executive Officer. This included a grant of 128,205 RSUs with service-based vesting as follows: 16,025 shares on March 31, 2013 and 16,025 shares each quarter thereafter until December 31, 2014. The fair value of the service-based RSUs is based on the closing price of our common stock on the award date, or $7.80 per share. The stock-based compensation expense for this grant will be recognized on a straight-line basis over the vesting period. We also granted 64,103 RSUs to our Chief Executive Officer that will vest only upon the achievement of performance conditions as determined by the Company's board of directors. On March 20, 2013 the board of directors established the 2013 performance criteria for the first tranche of the award and communicated the performance criteria to the Chief Executive Officer. The grant date stock price of these performance-based RSUs was $10.00 per share. In December 2013, 19,230 performance-based RSUs vested out of a total of 32,051 performance-based RSUs granted. The total fair value of RSUs vested during 2013 (measured on the date of vesting) was $0.8 million. On February 7, 2014 the board of directors established the 2014 performance criteria for the second tranche of the award and communicated the performance criteria to the Chief Executive Officer. The closing price of our common stock on the grant date, the date the board established the 2014 performance criteria, of these performance-based RSUs was $8.75 per share. As of December 31, 2014, we determined that all of the 2014 performance conditions were achieved and has recognized the remaining expense for these awards. We recognized total stock-based compensation for the service-based awards and performance-based awards of $0.8 million, $0.7 million and $36 thousand for the years ended December 31, 2014, 2013, and 2012, respectively.

On December 9, 2014, we issued a total of 54,078 restricted stock units ("RSUs") to our Chief Executive Officer. This included a grant of 30,902 RSUs with service condition-based vesting as follows: 3,863 shares on March 31, 2015 and 3,863 shares each quarter thereafter until December 31, 2016. The fair value of the service condition-based RSUs is based on the closing price of our common stock on the award date, or $32.36 per share. The stock-based compensation expense for this grant will be recognized on a straight-line basis over the vesting period. We also granted 23,176 RSUs that will vest only upon the achievement of performance conditions in 2015 and 2016 as determined by the Company's board of directors. As of December 31, 2014, the Company recognized $30 thousand in expense related to the service based awards.

The performance conditions for the 2015 and 2016 tranches of the performance-based RSUs had not been established as of December 31, 2014. As a result, the measurement date and grant date have not occurred for accounting purposes and no expense has been taken related to these awards as of December 31, 2014.

As of December 31, 2014, there was $1.0 million of total unrecognized compensation cost related to non-vested service-based RSUs granted under the 2012 Plan. The expense is expected to be recognized over a weighted average period of 2.0 years.