6.Stock-Based Compensation

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 may be issued pursuant to stock awards under the 2016 Plan is 4,339,451 shares, which is 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 following table summarizes stock option activity under the Plans for the nine months ended September 30, 2016:

				Weighted Average
	Number of Shares	Weighted Average Exercise Price		Remaining Contractual Life (Years)	Aggregate Intrinsic Value (a)
Outstanding at December 31, 2015	1,748,877	$	15.04	9.38	$	8,224,947
Granted	877,640	$	31.41
Exercised	33,625	$	6.50
Cancelled or forfeited	25,875	$	18.17

Outstanding at September 30, 2016	2,567,017	$	20.51	8.95	$	54,745,699

Exercisable at September 30, 2016	635,347	$	13.54

Exercisable and expected to vest at September 30, 2016	2,502,817	$	21.17	8.98	$	50,563,537

(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 September 30, 2016 and December 31, 2015.

For the nine months ended September 30, 2016 and 2015, the total number of stock options exercised was 33,625 and 138,000, respectively, resulting in total proceeds of $218,525 and $341,000, respectively.

As of September 30, 2016 and December 31, 2015, there was $21,706,937 and $12,942,684, respectively, of unrecognized stock-based compensation expense related to stock option awards that is expected to be recognized over a weighted-average period of 1.5 and 1.9 years, respectively.

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Research and development	$	2,006,547	$	359,881	$	14,757,305	$	411,257
General and administrative	2,616,534		1,488,743		7,253,252		2,308,445

	$	4,623,081	1,848,624		$	22,010,557	$	2,719,702

Stock Options Granted to Employees

The weighted-average grant date fair value of options granted during the three months ended September 30, 2016 and 2015 was $27.87 and $18.07, respectively, and for the nine months ended September 30, 2016 and 2015 was $23.98 and $16.29, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Expected volatility	97.82	%	80.80	%	92.46	%	80.80	%
Risk-free interest rate	1.10	%	1.89	%	1.42	%	1.89	%
Expected terms (in years)	6.08		6.08		6.08		6.08
Expected dividend yield	0.00	%	0.00	%	0.00	%	0.00	%

Restricted Stock Units

As of September 30, 2016 and December 31, 2015, there were 57,500 and 0, respectively, unvested restricted stock units granted to employees. During both the three and nine months ended September 30, 2016, no restricted stock units vested, and the Company recognized stock-based compensation expense of $703,232 during both the three and nine months ended September 30, 2016. At September 30, 2016, there was $1,361,018 of unrecognized compensation cost related to unvested restricted stock units that will be recognized as expense over a weighted-average period of 1.4 years. A summary of the status of the Company’s restricted stock units at September 30, 2016 and of changes in restricted stock units outstanding under the 2016 Plan for the nine months ended September 30, 2016 is as follows:

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

Outstanding at September 30, 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 AICPA Practice Guide, with the assistance of independent third party valuations, and approved by the Company’s Board of Directors.

Prior to the IPO, 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. Refer to the Annual Report on Form 10-K for details of each valuation.

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 in the nine months ended September 30, 2016, in research and development expenses. This compares to $8,690,824 of stock compensation expense recognized related to the grant in the nine months ended September 30, 2015.