Annual report pursuant to Section 13 and 15(d)

Stock Plans and Stock-Based Compensation

Stock Plans and Stock-Based Compensation
12 Months Ended
Dec. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Plans and Stock-Based Compensation

10. Stock Plans and Stock-Based Compensation

Stock Plans

In September 2013, the Company’s stockholders approved the 2013 Equity Incentive Plan (“2013 Plan”), under which shares of common stock are reserved for the granting of options, stock bonuses, and restricted stock awards by the Company. These awards may be granted to employees, members of the Board of Directors, and consultants to the Company. The 2013 Plan has a term of ten years and replaced the 2003 Equity Incentive Plan, which had similar terms. The 2013 Plan permits the Company to (i) grant incentive stock options to directors and employees at not less than 100% of the fair value of common stock on the date of grant; (ii) grant nonqualified options to employees, directors, and consultants at not less than 85% of fair value; (iii) award stock bonuses; and (iv) grant rights to acquire restricted stock at not less than 85% of fair value. Options generally vest over a four- or five-year period and have a term of ten years. Options granted to 10% stockholders have a maximum term of five years and require an exercise price equal to at least 110% of the fair value on the date of grant. The exercise price of all options granted to date has been at least equal to the fair value of common stock on the date of grant. The share reserve under the 2013 Plan will automatically increase on January 1st of each year, for a period of not more than ten years, in an amount equal to 5% of the total number of shares of capital stock outstanding on December 31st of the preceding calendar year, unless the Board determines otherwise prior to December 31st of such calendar year. In June 2014, the Company’s stockholders approved a proposal to increase the share reserve by an additional 500,000 shares.

Stock Plan Activity

As of December 31, 2015, there were 235,367 shares available for issuance under the 2013 Plan. In accordance with the provisions of the 2013 Plan, the number of shares available for issuance under the plan automatically increased by 1,172,350 shares on January 1, 2016.

The following table summarizes stock option activity:


Subject to
Price of
Value (in

Outstanding as of December 31, 2014

     991,010       $ 6.09         

Options granted

     845,703         9.00         

Options exercised

     —           0         

Options forfeited

     (15,631      4.75         

Options expired

     (16,999      12.31         




Outstanding as of December 31, 2015

     1,804,083       $ 7.41         8.24       $ —     




Vested and expected to vest as of December 31, 2015

     1,757,991       $ 7.38         8.22       $ —     




Exercisable as of December 31, 2015

     783,856       $ 6.28         7.81       $ —     





The following table summarizes information about stock options outstanding as of December 31, 2015:


     Options Outstanding      Options Exercisable  

Exercise Price

     Number of Shares  

$1.98 – $4.77

     108,483         8.95         65,800   


     858,442         7.57         617,070   


     10,000         8.65         3,333   


     18,000         9.29         18,000   


     12,000         8.73         4,500   


     77,000         8.28         32,083   


     6,500         8.36         2,594   

$10.00 – $10.49

     710,203         8.93         37,021   


     3,455         0.73         3,455   









     1,804,083         8.24         783,856   










Grant Date Fair Value

The following table presents the weighted-average assumptions the Company used in the Black-Scholes valuation model to derive the grant date fair value-based measurements of employee and director stock options and the resulting estimated weighted-average grant date fair-value-based measurements per share:


     Year Ended December 31,  
         2015             2014      

Weighted-average assumptions:


Expected term

     6.1 yrs        6.0 yrs   

Expected volatility

     78     90

Risk-free interest rate

     1.65     2.02

Expected dividend yield

     0     0

Weighted-average grant date fair value per share

   $ 6.13      $ 4.06   

Expected Term

The Company does not believe it can currently place reliance on its historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term. Therefore, for stock option grants made during the years ended December 31, 2015 and 2014, the Company has opted to use the simplified method for estimating the expected term which is an average of the contractual term of the options and its ordinary vesting period. The expected term represents the period of time that options are expected to be outstanding.

Expected Volatility

As the Company has limited trading history for its common stock, the expected stock price volatility for the Company’s common stock was estimated by considering the volatility rates of similar publicly traded peer entities within the life sciences industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Risk-Free Interest Rate

The risk-free interest rate assumption was based on U.S. Treasury instruments with constant maturities whose term was consistent with the expected term of stock options granted by the Company.


Expected Dividend Yield

The Company has never declared or paid cash dividends and does not plan to pay cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of zero.


The Company estimates forfeitures at the time of grant and revises these estimates in subsequent periods if actual forfeitures differ from those estimates. Changes in forfeiture estimates impact compensation in the period in which the change occurs.

The total intrinsic value of options exercised was not significant for the years ended December 31, 2015 and 2014.

Vested and Unvested Awards

The total fair value of options vested for the years ended December 31, 2015 and 2014, was $2.2 million and $1.0 million, respectively.

As of December 31, 2015, and 2014 the total compensation expense related to unvested employee stock options to be recognized in future periods, excluding estimated forfeitures, was $4.8 million and $1.9 million, respectively. The weighted-average periods over which this compensation expense is expected to be recognized are 2.6 years and 3.0 years as of December 31, 2015 and 2014, respectively.

Incentive Awards

In December 2013, January 2014, and April 2014, as permitted by the 2013 Plan, the Company issued certain incentive awards to directors, employees and a consultant which are subject to 252,752 shares of the Company’s common stock and are exercisable at a weighted average price of $5.21 per share when vested. The Company may determine at its option whether to settle exercised awards in shares of common stock or in cash. Each recipient’s incentive award defines the number of common shares that may be acquired upon exercise provided the Company chooses to settle in shares. For awards settled in cash, the Company must pay the recipient the excess of the fair market value of the Company’s common stock on the date of exercise over the exercise price paid by the recipient multiplied by the number of shares the recipient would be entitled to receive had the award been settled in shares of the Company’s common stock.

Pursuant to their terms, the incentive awards have a term of 10 years and were initially scheduled to vest 100% on the second anniversary of their grant date. However, as a result of the approval by Company’s shareholders of a 500,000 share increase to the 2013 Plan’s share reserve in June 2014, the incentive awards were automatically modified to vest monthly over four years effective from their grant date.

The incentive award is a stock based compensation arrangement. From the grant date of each award through June 3, 2014, the Company did not have sufficient shares available for issuance to settle the incentive awards in stock. Since during this period settlement in cash was deemed more likely, the Company accounted for these cash settled awards as a liability to be remeasured at fair value at each reporting date until settled. Through June 3, 2014, compensation expense and the related incentive award liability were recognized over the initial two year vesting period of the incentive awards. On June 3, 2014, once sufficient shares became available to settle the incentive awards in stock, this settlement method was deemed more likely and accordingly, the Company began to account for the incentives awards using the equity accounting method. Specifically, on June 3, 2014, the Company revalued the incentive award liability at fair value, adjusted the expense recognition period to reflect the modified vesting term, and reclassified the resulting $121,000 incentive award liability balance to additional paid in capital. Subsequent to June 3, 2014, the Company recognized the fixed equity value of each incentive award over the remainder of its four year vest period.


The Company recorded $323,000 and $285,000 of stock based compensation expense in the years ended December 31, 2015 and 2014, respectively pertaining to its incentive awards.

Stock-Based Compensation Expense

Employee and Director Expense

Employee and director stock-based compensation expense recorded was as follows (in thousands):


     Year Ended
December 31,
     2015      2014  

Research and development

   $ 823       $ 332   

General and administrative

     1,643         952   








   $ 2,466       $ 1,284   







Non-Employee Expense

The Company has issued options to purchase shares of common stock to certain scientific advisors and consultants. The stock options have various exercise prices, a term of ten years, and vest over periods up to sixty months. The Company granted to these advisors and consultants options to purchase 10,000 and 10,000 shares of common stock, in 2015 and 2014, respectively. As of December 31, 2015, options to purchase 18,945 shares of common stock remained unvested, and compensation related to these stock options is subject to periodic adjustment as the shares vest. In 2013, the Company also issued an incentive award for 2,335 shares to a scientific advisor, of which 1,167 shares remained unvested as of December 31, 2015. The Company recorded $21,000 and $8,000 of expense in the years ended December 31, 2015 and 2014, respectively, related to these options and awards.