Stock Based Compensation

3 Months Ended

Mar. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Based Compensation

Note 11 — Stock Based Compensation

In November 2014, the Company’s board of directors and stockholders adopted the 2014 Long-Term Incentive Equity Plan (the "2014 Stock Plan”). The 2014 Stock Plan is designed to enable the Company to offer employees, officers, directors and consultants, as defined, an opportunity to acquire a proprietary interest in the Company. The types of awards that may be granted under the 2014 Stock Plan include stock options, stock appreciation rights, restricted stock, and other stock-based awards subject to limitations under applicable law. All awards are subject to approval by the compensation committee of the Company’s board of directors.

The 2014 Stock Plan reserves 1,951,081 shares of common stock for issuance in accordance with the 2014 Stock Plan’s terms. Stock option granted outside of the 2014 Stock Plan amounted to 250,000 in the three months ended March 31, 2017, and 250,854 on April 28, 2016. At March 31, 2017, there were 620,011 shares of common stock available for grant under the 2014 Stock Plan.

The following table summarizes information about stock options for the periods presented below:

				Weighted
	Number			Average		Aggregate
	Stock			Exercise		Intrinsic
	Options			Price		Value
Outstanding at December 31, 2016		1,633,313		$	5.14
Granted		275,000		$	5.86
Exercised		—		$	—
Forfeited		(76,389	)	$	5.00
Outstanding at March 31, 2017		1,831,924		$	5.25	$	—
Vested and exercisable at March 31, 2017		492,828		$	5.08	$	—
Vested or expected to vest at March 31, 2017		1,831,924		$	5.25

In March 2017, the Company granted 250,000 stock options to the Company's new Chief Financial Officer, with a ten year contractual term from date of grant, an exercise price of $5.95 per share, and vesting ratably on a quarterly basis commencing June 30, 2017 and ending March 31, 2020.

In March 2017, the Company granted 25,000 stock options to a new member of the Company's medical advisory board, with a ten year contractual term from date of grant, an exercise price of $5.01 per share, and vesting ratably on a quarterly basis commencing June 30, 2017 and ending March 31, 2020.

In March 2017, in connection with his separation from the Company, 76,389 stock options were forfeited which were previously granted to the Company's former Chief Financial Officer - see below for further information regarding the former Chief Financial Officer's stock options.

On April 28, 2016, upon the closing of the Company’s IPO, a total of 1,588,313 stock options were granted, including 961,178 to management, 487,770 to members of the board of directors, and 139,365 to members of the Company’s medical advisory board. The stock options granted on April 28, 2016, have a ten year contractual term from date of grant, an exercise price of $5.00 per share, and vest 3/36 on July 28, 2016, and 1/36 on each successive month thereafter from Aug 28, 2016 to April 28, 2019.

In November 2016, the Company granted 25,000 stock options to a new member of the Company's medical advisory board, with a ten year contractual term from date of grant, an exercise price of $10.50 per share, and vesting ratably on a quarterly basis commencing December 31, 2016 and ending September 30, 2019. In November 2016, the Company granted 20,000 stock options to a (related party) consultant, with a ten year contractual term from date of grant, an exercise price of $9.50 per share, and vesting ratably on a quarterly basis commencing December 31, 2016 and ending September 30, 2019.

The aggregate intrinsic value is computed as the difference between the exercise price of the underlying stock options and the quoted price of the common stock on March 31, 2016, to the extent the exercise price is less than the quoted price.

The weighted average remaining contractual term of stock options outstanding was 9.0 years at March 31, 2017. The weighted average remaining contractual term of stock options vested and exercisable was 8.5 years at March 31, 2017.

The stock-based compensation expense related to stock options granted to employees and directors is based on the grant-date fair value, and for stock options granted to non-employees is based on the vesting date fair value, with the cost recognized on a straight-line basis over the award’s requisite service period. Stock-based compensation expense for the three months ended March 31, 2017 and 2016 was recognized as follows:

	Three Months Ended
	March 31,
	2017		2016
General and administrative expenses	$	242,452	$	—
Research and development expenses		30,228		—
	$	272,680	$	—

Included in general and administrative expenses, is $51,389 of stock-based compensation expense related to the stock option modifications at March 31, 2017 related to the stock option grant previously awarded to the Company's former Chief Financial Officer, Richard F. Fitzgerald. Previously, on April 28, 2016, upon the closing of the Company's IPO, Mr. Fitzgerald was granted a stock option to purchase 125,000 shares of common stock with an exercise price equal to $5.00 per share. On March 31, 2017, the April 28, 2016 stock option agreement was amended wherein the stock option grant will continue to vest monthly in April, May, and June 2017, and the 48,611 vested stock options will be exercisable until April 28, 2019, with the remaining 76,389 stock options forfeited effective March 31, 2017.

At March 31, 2017, there was $2,440,452 of total unrecognized compensation cost related to stock options, which is expected to be recognized over the next 2.2 years (which represents the weighted average remaining requisite service periods for such awards).

The Company uses the Black-Scholes valuation model to estimate the fair value of stock options. The Black-Scholes valuation model requires the Company to make certain estimates and assumptions, including assumptions related to the expected price volatility of the Company’s stock, the period during which the options will be outstanding, the rate of return on risk- free investments, and the expected dividend yield for the Company’s stock.

Stock options issued to employees:

The grant date fair value of stock options granted to employees and members of the board of directors during the three months ended March 31, 2017 was $2.90 per share, calculated using the following Black-Scholes valuation model assumptions:

	Three
	Months
	Ended
	March 31,  2017
Risk free interest rate		2.1	%
Expected term of stock options (in years)		5.8
Expected stock price volatility		50	%
Expected dividend yield		0	%

Stock options issued to non-employees:

The weighted average fair value of stock options granted to non-employees was $4.23 per share as of March 31, 2017, with such fair value calculated using the following weighted-average Black-Scholes valuation model assumptions:

	Three
	Months
	Ended
	March 31, 2017
Risk free interest rate		2.3	%
Expected term of stock options (in years)		9.4
Expected stock price volatility		60	%
Expected dividend yield		0	%

The weighted-average valuation assumptions for all stock-based awards were determined as follows:

Weighted-average risk-free interest rate: The Company bases the risk-free interest rate on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period commensurate with the assumed expected option term.

Expected term of options: The expected term of stock options represents the period of time options are expected to be outstanding, which for employees is the expected term derived using the simplified method and for non-employees is the contractual term.

Expected stock price volatility: The expected volatility is based on historical stock price volatilities of similar entities within the Company’s industry over the period commensurate with the expected term of the stock option.

Expected dividend yield: The estimate for annual dividends is $0.00 as the Company has not historically paid, and does not expect for the foreseeable future to pay, a dividend.