10. Stock-based Compensation

2014 Stock Plan (the "2014 Plan") and 2016 Equity Incentive Plan (the "2016 Plan")

In May 2014, the Company's Board of Directors adopted the 2014 Stock Plan (the "2014 Plan"), and in January 2016, the Company adopted the 2016 Equity Incentive Plan (the "2016 Plan" and, together with the 2014 Plan, the "Plans"). The 2016 Plan became effective on February 10, 2016, or the IPO Date. On and after the IPO Date, no additional stock awards may be granted under the 2014 Plan. The Board may amend or suspend the 2016 Plan at any time, although no such action may materially impair the rights under any then-outstanding award without the holder's consent. The Company will obtain stockholder approval for any amendments to the 2016 Plan as required by law. No incentive stock options may be granted under the 2016 Plan after the tenth anniversary of the effective date of the 2016 Plan. Initially, the aggregate number of shares of the Company's common stock that was available to be issued pursuant to stock awards under the 2016 Plan was 4,339,451 shares, which was the sum of (1) 2,400,000 new shares, plus (2) the number of shares reserved for issuance under the 2014 Plan on the IPO Date, plus (3) any shares subject to outstanding stock awards that would have otherwise been returned to the 2014 Plan. Additionally, the number of shares of the Company's common stock reserved for issuance under the 2016 Plan will automatically increase on January 1 of each year, beginning on January 1, 2017 and continuing through and including January 1, 2026, by 4.0% of the total number of shares of the Company's capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Board. The maximum number of shares that may be issued pursuant to the exercise of incentive stock options under the 2016 Plan is 8,678,902 shares.

The Company has not granted stock appreciation rights to directors, officers or employees under the Plan since its inception. The Company granted 57,500 restricted stock awards to several employees in August 2016. Options generally expire ten years following the date of grant. Options typically vest over a period of two to four years, but vesting provisions can vary by award based on the discretion of the Board of Directors. Certain awards issued by the Company include performance conditions that must be achieved in order for vesting to occur. Options to purchase common stock carry an exercise price equal to the estimated fair value of the Company's common stock on the date of grant. Options to purchase shares of the Company's common stock may be exercised by payment of the exercise price in cash, by the delivery of previously acquired shares of common stock having a fair value equal to the exercise price payable or the withholding of common shares equal to the fair value of the aggregate exercise price. Upon the termination of service of a holder of stock options awarded under the Plan, all unvested options are immediately forfeited and vested options may be exercised within three months of termination.

Shares of common stock underlying awards previously issued under the Plan which are reacquired by the Company, withheld by the Company in payment of the purchase price, exercise price, or withholding taxes, expired, cancelled due to forfeiture, or otherwise terminated other than by exercise, are added to the number of shares of common stock available for issuance under the Plan. Shares available for issuance under the Plan may be authorized but unissued shares of the Company's common stock or common stock reacquired by the Company and held in treasury. The Plan expires ten years from the date it was approved by the Board of Directors.

The following table summarizes stock option activity:

						Weighted Average
				Weighted Average Exercise Price		Weighted Average
	Number of Shares			Weighted Average Exercise Price		Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2015		1,748,875		$	15.04		9.38	$	8,224,947
Granted		973,638		$	33.10
Exercised		(84,127	)	$	5.11
Cancelled or forfeited		(61,275	)	$	22.19

Outstanding at December 31, 2016		2,577,111		$	22.01		8.79	$	66,466,245


Exercisable at December 31, 2015		168,360		$	2.47		8.41	$	2,907,260


Vested at December 31, 2015 and expected to vest		1,668,837		$	15.64		9.42	$	6,842,807


Exercisable at December 31, 2016		704,111		$	14.86		8.42	$	23,146,606


Vested and expected to vest at December 31, 2016		2,577,111		$	22.01		8.79	$	66,466,245


(a)	The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the common stock for the options that were in-the-money at December 31, 2015 and 2016.

As of December 31, 2016, 1,704,840 shares of common stock, were available for future grants under the Plan. The total intrinsic value of options exercised during the year ended December 31, 2014, 2015 and 2016 was $0, $3,565,436 and $3,449,227, respectively.

As of December 31, 2016, there was $20,583,606 of unrecognized stock-based compensation expense related to employees' awards that is expected to be recognized over a weighted-average period of 1.4 years.

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards under the Plan in the consolidated statements of operations and comprehensive loss as follows:

	Year ended December 31, 2016		Year ended December 31, 2015		Year ended December 31, 2014
Research and development	$	5,988,231	$	1,293,841	$	179,641
General and administrative		9,668,141		3,956,376		236,983

	$	15,656,372	$	5,250,217	$	416,624

Stock Options Granted to Employees

The weighted-average grant date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $24.50, $16.44 and $1.47, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Year ended December 31, 2016			Year ended December 31, 2015			Year ended December 31, 2014
Expected volatility		91.84	%		90.00	%		86.94	%
Risk-free interest rate		1.45	%		1.57	%		1.16	%
Expected term (in years)		6.08			6.08			4.19
Expected dividend yield		0.00	%		0.00	%		0.00	%

Restricted Stock Units (RSUs)

The Company recognized stock-based compensation expense of $758,637 during the year ended December 31, 2016. At December 31, 2016, there was $1,248,113 of unrecognized compensation cost related to unvested restricted stock units that will be recognized as expense over a weighted-average period of 1.2 years. A summary of the status of the Company's restricted stock units at December 31, 2016, and of changes in restricted stock units outstanding under the 2016 Plan for the year ended December 31, 2016, is as follows:

	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 2015		—	$	—
Granted		57,500		34.90
Vested		—		—
Forfeited and cancelled		—		—

Outstanding at December 31, 2016		57,500	$	34.90

The Company grants restricted stock units with service-based vesting terms. The outstanding service-based restricted stock units vest over a period of three years. For awards that vest subject to the satisfaction of service requirements, compensation expense is measured based on the fair value of the RSUs on the date of grant and is recognized as expense on a straight-line basis, net of estimated forfeitures, over the requisite service period. All restricted stock units issued vest over time as stipulated in the individual restricted stock unit agreements. In the event of a change in control, the unvested restricted stock units will be accelerated and fully vested immediately prior to the change in control. There are no performance-based features or market conditions in the Company's outstanding restricted stock units.

Valuation of Common Stock

Prior to the IPO, the Company estimated the fair value of common stock underlying stock option awards at the grant date of the award. Valuation estimates were prepared by management in accordance with the framework of the American Institute of Certified Public Accountants Practice Guide, with the assistance of independent third party valuations, and approved by the Company's Board of Directors. The Company's valuations of its common stock were based on a number of objective and subjective factors, including external market conditions affecting the Company's industry sector, the prices at which the Company sold shares of its common and preferred stock, and the likelihood of achieving a liquidity event such as an initial public offering.

Restricted Stock Granted to Non-Employees

In January 2014, the Company issued 2,334,391 shares of restricted common stock to Dr. Brian Kaspar pursuant to a consulting agreement for scientific advisory services. Of these shares, 583,597 common shares were vested at the time of grant and the remaining restricted shares were scheduled to vest in the amount of 25% per year on the second, third and fourth anniversary of the grant date pursuant to a restricted stock purchase agreement, which became effective upon the effectiveness of the consulting agreement.

In January 2016, the Company entered into an employment agreement with Dr. Kaspar. Upon the effectiveness of the employment agreement, Dr. Kaspar's 1,750,794 unvested shares granted pursuant to the restricted stock purchase agreement vested in full. As a result of the vesting of the remainder of this award the Company recorded $10,370,762 of additional stock compensation expense for the year ended December 31, 2016, in research and development expenses, as compared to $19,322,275 and $5,749,791 of stock compensation expense recognized related to the grant for the years ended December 31, 2015 and 2014, respectively.

The following table summarizes restricted stock activity:

	Number of common shares
Nonvested shares at December 31, 2015		1,750,794
Shares granted		—
Shares vested		1,750,794

Nonvested shares at December 31, 2016		—

Warrants Granted to Non-Employees

On August 5, 2014, the Company issued to Pavilion a warrant to purchase 138,000 shares of common stock at an exercise price of $2.47 per share (the "First Warrant"). The First Warrant became exercisable as follows: 69,000 shares were exercisable immediately upon issuance; 34,500 shares became exercisable upon the purchase by PBM of the Class B Milestone Shares; and 34,500 shares became exercisable on January 26, 2015. The First Warrant was exercised in full in May 2015.

The First Warrant was revalued each period until the award vested. Compensation expense was recorded on a straight-line basis over the vesting period of each separated vesting tranche of the award. The First Warrant had a grant date fair value of $146,000. The Company recorded compensation expense of $0 and $358,637 in the years ended December 31, 2016 and 2015, respectively, related to the First Warrant, within research and development expense in the consolidated statements of operations.

During the years ended December 31, 2016 and 2015, the total number of stock warrants exercised was 20,771 and 138,000, respectively, resulting in total proceeds of $53,350 and $341,000, respectively. As of December 31, 2016 and 2015, there were 305,775 and 326,556 common stock warrants vested and outstanding issued to non-employees, respectively, with a weighted-average exercise price of $2.57.