Share-Based Compensation Plans. In May 2011, the Company adopted the Neurocrine Biosciences, Inc. 2011 Equity Incentive Plan (the 2011 Plan) pursuant to which 19 million shares of Company’s common stock are authorized for issuance. The 2011 Plan provides for the grant of stock options that qualify as incentive stock options under Section 422 of the Internal Revenue Code of 1986, as amended (the Code), nonstatutory stock options, restricted stock awards, restricted stock unit awards (RSUs), stock appreciation rights, performance stock awards, performance-based restricted stock units (PRSUs) and other forms of equity compensation. In May 2018, the Company adopted the Neurocrine Biosciences, Inc. ESPP pursuant to which 300,000 shares of the Company’s common stock are authorized for issuance. No purchases have occurred under the ESPP during the year ended December 31, 2018.

The Company also issues stock options and RSUs under the Neurocrine Biosciences, Inc. Inducement Plan (Inducement Plan) to certain employees. The Company granted 70,000 stock options and 20,000 RSUs pursuant to the Inducement Plan in 2018 and granted 410,000 stock options and 12,500 RSUs pursuant to the Inducement Plan in 2017. The Company did not grant any stock options or RSUs pursuant to the Inducement Plan during 2016. These stock option grants have a 4-year vesting period and the RSUs generally have vesting periods of 3 to 4 years. The Company currently has 245,162 in stock options and RSUs outstanding under this Inducement Plan.

As of December 31, 2018, approximately 6.8 million shares of common stock remained available for the future grant of awards under the 2011 Plan. Only share awards made under the 2011 Plan that are subsequently cancelled due to forfeiture or expiration are returned to the share pool available for future grants.

The Company issues new shares upon the exercise of stock options, the issuance of stock bonus awards, and the vesting of RSUs and PRSUs, and has 7.2 million shares of common stock reserved for such issuances as of December 31, 2018.

Vesting Provisions of Share-Based Compensation. Stock options generally have terms from 7 to 10 years from the date of grant, and generally vest over a 3 to 4-year period. The maximum contractual term for all options granted from the 2011 Plan is 10 years. RSUs granted under the 2011 Plan generally have vesting periods of 4 years. PRSUs granted under the 2011 Plan vest based on the achievement of certain pre-defined Company-specific performance criteria and expire 4 to 5 years from the grant date.

Share-Based Compensation. The compensation cost that has been included in the statement of comprehensive income (loss) for all share-based compensation arrangements is as follows:

	Year Ended December 31,
(in thousands)	2018		2017		2016
Sales, general and administrative expense	$	31,847	$	27,951	$	16,770
Research and development expense		26,221		14,571		11,694
Share-based compensation expense	$	58,068	$	42,522	$	28,464

Stock Options. The exercise price of all stock options granted during the years ended December 31, 2018, 2017 and 2016 was equal to the closing price of the Company’s common stock on the date of grant. The estimated fair value of each stock option award granted was determined on the date of grant using the Black-Scholes option-pricing valuation model with the following weighted-average assumptions for option grants during the three years ended December 31, 2018:

	Year Ended December 31,
(in thousands)	2018			2017			2016
Risk-free interest rate		2.5	%		2.0	%		1.4	%
Expected volatility of common stock		59.5	%		58.0	%		60.0	%
Dividend yield		0.0	%		0.0	%		0.0	%
Expected option term	4.7 years			5.7 years			5.6 years

The Company estimates the fair value of stock options using a Black-Scholes option-pricing model on the date of grant. The fair values of equity instruments are recognized and amortized on a straight-line basis over the requisite service period. The Black-Scholes option-pricing model incorporates various and highly sensitive assumptions including expected volatility, term, and interest rates. The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected term of the Company’s stock options. The expected option term is estimated based on historical experience as well as the status of the employee. For example, directors and officers have a longer expected option term than all other employees. The risk-free rate for periods within the contractual life of the option is based upon observed interest rates appropriate for the expected term of the Company’s employee stock options. The Company has never declared or paid dividends and has no plans to do so in the foreseeable future.

The Company’s determination of fair value is affected by its stock price as well as a number of assumptions that require judgment. The weighted-average fair values of stock options granted during the years ended December 31, 2018, 2017 and 2016, estimated as of the grant date using the Black-Scholes option-pricing model, were $43.42, $25.11 and $21.49, respectively.

A summary of the status of the Company’s stock options as of December 31, 2018, 2017 and 2016 and of changes in options outstanding under the plans during the three years ended December 31, 2018 is as follows:

	2018					2017					2016
(in thousands, except weighted average data)	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at January 1		6,356		$	28.83		6,112		$	20.01		5,507		$	15.63
Granted		1,040			84.97		1,807			46.55		1,077			40.19
Exercised		(1,592	)		18.95		(1,353	)		10.41		(341	)		7.60
Canceled		(58	)		64.67		(210	)		43.05		(131	)		34.35
Outstanding at December 31		5,746		$	41.38		6,356		$	28.83		6,112		$	20.01

Stock options outstanding at December 31, 2018 had a weighted average remaining contractual term of 6.7 years.

For the year ended December 31, 2018, 2017 and 2016 share-based compensation expense related to stock options was $35.4 million, $28.2 million, and $18.4 million, respectively. As of December 31, 2018, there was approximately $55.4 million of unamortized compensation cost related to stock options, which is expected to be recognized over a weighted average remaining vesting period of approximately 2.3 years. As of December 31, 2018, there were approximately 3.9 million stock options exercisable with a weighted average exercise price of $31.07 and a weighted-average remaining contractual term of 5.9 years. The total intrinsic value, which is the amount by which the exercise price was exceeded by the sale price of the Company’s common stock on the date of sale, of stock option exercises during the years ended December 31, 2018, 2017, and 2016 was $117.0 million, $61.4 million, and $13.2 million, respectively. As of December 31, 2018, the total intrinsic value of stock options outstanding and exercisable was $186.3 million and $158.2 million, respectively. Cash received from stock option exercises for the years ended December 31, 2018, 2017, and 2016 was $29.5 million, $13.9 million, and $2.4 million, respectively.

Restricted Stock Units. The fair value of RSUs is based on the closing sale price of the Company’s common stock on the date of issuance. For the year ended December 31, 2018, 2017, and 2016, share-based compensation expense related to RSUs was $21.9 million, $13.9 million, and $8.3 million, respectively. As of December 31, 2018, there was approximately $51.6 million of unamortized compensation cost related to RSUs, which is expected to be recognized over a weighted average remaining vesting period of approximately 2.3 years.

The total intrinsic value of RSUs converted into common shares during the years ended December 31, 2018, 2017, and 2016 was $35.5 million, $14.9 million, and $12.2 million, respectively. The RSUs, at the election of eligible employees, may be subject to deferred delivery arrangement. The total intrinsic value of RSUs outstanding at December 31, 2018 was $80.9 million based on the Company’s closing stock price on that date.

A summary of the status of the Company’s RSUs as of December 31, 2018, 2017, and 2016 and of changes in RSUs outstanding under the plans for the three years ended December 31, 2018 is as follows:

	2018					2017					2016
(in thousands, except weighted average data)	Number of Units			Weighted Average Grant Date Fair Value per Unit		Number of Units			Weighted Average Grant Date Fair Value per Unit		Number of Units			Weighted Average Grant Date Fair Value per Unit
Outstanding at January 1		1,080		$	40.30		883		$	29.33		910		$	24.23
Granted		540			85.29		588			47.21		326			36.73
Cancelled		(58	)		36.21		(41	)		40.62		(69	)		32.50
Converted into common shares		(429	)		59.23		(350	)		24.19		(284	)		20.71
Outstanding at December 31		1,133		$	62.31		1,080		$	40.30		883		$	29.33

Performance-Based Restricted Stock Units. During each of the years ended December 31, 2018 and 2016, the Company granted approximately 0.2 million PRSUs that vest based on the achievement of certain pre-defined Company-specific performance criteria and expire approximately 4 to 5 years from the grant date. No PRSUs were granted during the year ended December 31, 2017. Additionally, 0.2 million PRSUs were earned during the year ended December 31, 2017. The fair value of PRSUs is estimated based on the closing sale price of the Company’s common stock on the date of grant. Expense recognition for PRSUs commences when attainment of the performance-based criteria is determined to be probable. During 2018, the Company recognized no expense related to PRSUs. During 2017 and 2016, the Company recognized approximately $0.4 million and $1.8 million, respectively, in expense related to PRSUs. At December 31, 2018, the total unrecognized estimated compensation expense related to PRSUs was $19.7 million and the total intrinsic value of PRSUs outstanding was $23.6 million based on the Company’s closing stock price on that date. The total intrinsic value of PRSUs converted into common shares was $8.8 million during the year ended December 31, 2017. No PRSUs were earned during the years ended December 31, 2018 or 2016.

Employee Stock Purchase Plan. Under the ESPP, eligible employees may purchase shares of the Company’s common stock at a discount semi-annually based on a percentage of their annual compensation. The ESPP provides for the granting of up to 300,000 shares of the Company’s common stock to eligible employees. The discounted purchase price is equal to the lower of 85% of (i) the market value per share of the common stock on the first day of the offering period or (ii) the market value per share of common stock on the purchase date. Share-based compensation expense recognized under the ESPP was $0.8 million for the year ended December 31, 2018.