8. Stock-Based Compensation

In June 2012, the Company adopted the 2012 Equity Incentive Plan (as amended, the “2012 Plan”). The 2012 Plan provides for the granting of incentive stock options, nonstatutory stock options, stock bonuses and rights to acquire restricted stock to employees, officers, directors and consultants. Incentive stock options may be granted with exercise prices of not less than 100% of the estimated fair value of the common stock and nonstatutory stock options may be granted with an exercise price of not less than 85% of the estimated fair value of the common stock on the date of grant. Stock options granted to a stockholder owning more than 10% of the voting stock must have an exercise price of not less than 110% of the estimated fair value of the common stock on the date of grant. The Board of Directors determines the estimated fair value of common stock. Stock options are generally granted with terms of up to ten years and vest over a period of four years. Upon the exercise of options, the Company issues new common stock from its authorized shares.

In October 2015, the Company’s Board of Directors and stockholders adopted the 2015 Stock Option and Incentive Plan (the “2015 Plan”) and the 2015 Employee Stock Purchase Plan. Under the 2015 Plan, 1,650,000 shares of common stock were initially reserved for issuance, as of the pricing of the Company’s initial public offering. The number of shares initially reserved for issuance under the 2015 Plan will be increased by (i) the number of shares represented by awards outstanding under the Company’s 2012 Equity Incentive Plan that are forfeited or lapse unexercised and which following the pricing date are not issued under the 2012 Plan, and (ii) an annual increase on January 1 of each year beginning on January 1, 2017. On January 1, 2017, the Company reserved an additional 1,257,160 shares of common stock for issuance under the plan.

In October 2015, the Company adopted the 2015 Employee Stock Purchase Plan, or ESPP, which provides eligible employees with the opportunity to acquire an ownership interest in the Company through periodic payroll deductions, based on a six -month look-back period, at a price equal to the lesser of 85% of the fair market value of the common stock at either the first business day or last business day of the relevant offering period, provided that no more than 2,500 shares of common stock may be purchased by any one employee during each offering period. The ESPP is intended to constitute an “employee stock purchase plan” under Section 423(b) of the Internal Revenue Code of 1986, as amended. The ESPP may be terminated by the Company’s board of directors at any time. A total of 255,000 shares of common stock were initially reserved for issuance under the ESPP, subject to an annual increase on January 1 of each year beginning on January 1, 2017. On January 1, 2017, the Company reserved an additional 314,289 shares of common stock for issuance under the ESPP.

The following summarizes option activity under the 2012 Plan and 2015 Plan:

	Shares Available for Grant			Shares Subject to Outstanding Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Balance at December 31, 2014		312,911			554,669		$	0.43		9.2	$	109
Options authorized		2,595,138			—			—
Options retired		(348,150	)		—			—
Options granted		(1,124,406	)		1,124,406		$	2.80
Options exercised		—			(352,978	)	$	1.00
Options repurchased		54,128			—		$	0.36
Options canceled		7,450			(7,450	)	$	0.72
Balance at December 31, 2015		1,497,071			1,318,647		$	2.29		9.0	$	16,305
Options granted		(1,069,534	)		1,069,534		$	11.57
Options exercised		—			(18,913	)	$	0.71
Options repurchased		65,984			—		$	0.74
Options canceled		227,400			(227,400	)	$	7.16
Balance at December 31, 2016		720,921			2,141,868		$	6.42		8.4	$	14,963
Options outstanding and exercisable as of December 31, 2016					623,901		$	3.28		7.5	$	6,058
Options vested and expected to vest as of December 31, 2016					1,898,243		$	6.61		8.4	$	12,886

The aggregate intrinsic values were calculated as the difference between the exercise price of the options and the estimated fair value of common stock. The aggregate intrinsic value of options exercised was $337,000, $417,000 and $46,000 for the years ended December 31, 2016, 2015 and 2014, respectively. The total estimated grant date fair value of options vested during the years ended December 31, 2016, 2015 and 2014 was $2.1 million, $186,000 and $82,000, respectively.

The following table summarizes information with respect to stock options outstanding and currently exercisable as of December 31, 2016:

	Options Outstanding				Options Outstanding and Exercisable
Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life (in Years)		Number Exercisable		Weighted Average Exercise Price Per Share
$0.18 - $0.62		374,597		6.7		276,598	$	0.29
$1.51 - $1.51		654,861		8.2		172,886		1.51
$4.04 - $9.08		450,121		8.6		94,969		8.17
$10.00 - $15.73		443,789		9.3		79,448		11.67
$15.95 - $21.31		218,500		9.9		—		—
		2,141,868		8.4		623,901	$	3.28

Stock-Based Compensation

Stock-based compensation expense, net of estimated forfeitures, is reflected in the statements of operations and comprehensive income (loss) as follows (in thousands):

	Year Ended December 31,
	2016		2015		2014

Research and development	$	1,252	$	206	$	38
General and administrative		1,561		310		54
Total stock-based compensation	$	2,813	$	516	$	92

As of December 31, 2016, total unamortized stock-based compensation was $7.5 million relating to stock options, which is expected to be recognized over the average remaining vesting period of 2.7 years. As of December 31, 2015, total unamortized stock-based compensation was $3.3 million, which was expected to be recognized over the average remaining vesting period of 3.3 years. As of December 31, 2014, total unamortized stock-based compensation was $0.4 million, which was expected to be recognized over the remaining vesting period of 3.0 years.

In relation to stock options to purchase common stock that vest upon the achievement of performance criteria, $180,000 of stock-based compensation expense had been recorded as of December 31, 2016, because the Company concluded that the achievement of the applicable performance criteria had been considered probable. As of December 31, 2015, no stock-based compensation expense had been recorded, because the Company concluded that the achievement of the applicable performance criteria had not been considered probable.

The weighted‑average grant date fair value of options granted under the Company’s stock plans in the years ended December 31, 2016, 2015 and 2014 was $7.59, $4.00 and $0.33 per share, respectively. The following table illustrates the assumptions for the Black-Scholes option-pricing model used in determining the fair value of time-based and performance-based options granted to employees:

	Year Ended December 31,
	2016		2015		2014

Risk-free interest rate	1.05%-2.10%		1.53%-1.94%		1.7%–2.0%
Expected life (in years)	5.3-6.1		5.5-6.5		6.0–6.1
Volatility	71%-73%		79%-109%		84%–94%
Dividend yield		0%		0%		0%

In relation to stock options that vest upon the achievement of market-based stock price target, the Company estimated the fair value on the original grant date using a Monte-Carlo simulation model. Since its IPO, the Company has recognized the stock-based compensation expense on a straight-line basis over the implicit service period as derived under that simulation model.

Prior to the Company’s IPO in October 2015, the fair value of the shares of common stock underlying the stock options was determined by the Board of Directors. The Board of Directors determined the fair value of the common stock at the time of grant by considering a number of objective and subjective factors including valuation of comparable companies, sales of redeemable convertible preferred stock, operating and financial performance and general and industry-specific economic outlook, amongst other factors. The fair value of the underlying common stock shall be determined by the Board of Directors until such time as the Company’s common stock is listed on an established stock exchange or national market system. The fair value was determined in accordance with applicable elements of the practice aid issued by the American Institute of Certified Public Accountants entitled Valuation of Privately Held Company Equity Securities Issued as Compensation. Subsequent to the Company’s IPO, the fair value of common stock has been determined on the grant date using the Company’s closing stock price on The NASDAQ Global Select Market.

Estimating the fair value of equity-settled awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop.

Expected Term—The expected term assumption represents the weighted-average period that the Company’s stock-based awards are expected to be outstanding. The Company has opted to use the “simplified method” for estimating the expected term of the options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option.

Expected Volatility—For all stock options granted to date, the volatility data was estimated based on a study of publicly traded industry peer companies. For purposes of identifying these peer companies, the Company considered the industry, stage of development, size and financial leverage of potential comparable companies.

Expected Dividend—The Black-Scholes valuation model calls for a single expected dividend yield as an input. The Company currently has no history or expectation of paying cash dividends on its common stock.

Risk-Free Interest Rate—The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the equity-settled award.

Liability for Early Exercise of Stock Options

As of December 31, 2016 and 2015, there were 409,839 and 948,092, respectively, of unvested common shares outstanding that were issued upon the early exercise of stock options prior to the vesting of the underlying shares and subject to repurchase by the Company at the original issuance price upon termination of the stockholders’ services. The right to repurchase these shares generally lapses with respect to 25% of the shares underlying the option after one year of service to the Company and 1/48 of the shares underlying the original grant per month for 36 months thereafter. The shares purchased by the employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be issued until those shares vest. The cash received in exchange for exercised and unvested shares related to stock options granted is recorded as a liability for the early exercise of stock options on the consolidated balance sheets and will be reclassified to common stock and additional paid-in capital as the shares vest. As of December 31, 2016 and 2015, the Company recorded $253,000 and $526,000, respectively, within accrued liabilities and other long-term liabilities associated with shares issued subject to repurchase rights.