Stock-Based Compensation

6 Months Ended

Jun. 28, 2019

Share-based Payment Arrangement [Abstract]

We allocated the stock-based compensation expense for our equity incentive plans and our 2000 Employee Stock Purchase Plan (ESPP) as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Research and development	$	5,138	$	2,900	$	9,444	$	5,933
Selling, general and administrative	9,941		6,383		18,164		12,655
Total stock-based compensation	$	15,079	$	9,283	$	27,608	$	18,588

We have several equity incentive plans under which we have granted stock options and restricted stock units (RSUs) to employees and directors. At June 30, 2019, 14,044,367 shares were available for grant under our equity incentive plans.

We used a Monte Carlo simulation pricing model to value stock options that include market vesting conditions and a Black-Scholes Merton option pricing model to value other stock options and ESPP purchases. The weighted average grant-date fair value per share of stock options and ESPP purchases were as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Stock options	$	8.67	$	9.82	$	8.83	$	10.37
ESPP	$	5.00	$	6.84	$	4.80	$	7.17

The grant-date fair value of stock option grants and ESPP purchases was estimated using the following assumptions:



	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Stock options:
Risk-free interest rate	1.75	%	2.66	%	1.90	%	2.60	%
Dividend yield	—	%	—	%	—	%	—	%
Volatility	48	%	54	%	49	%	54	%
Expected life	4.8 years		4.5 years		4.5 years		4.4 years
ESPP:
Risk-free interest rate	2.30	%	1.80	%	2.41	%	1.63	%
Dividend yield	—	%	—	%	—	%	—	%
Volatility	51	%	52	%	55	%	52	%
Expected life	6 months		6 months		6 months		6 months

We considered our implied volatility and our historical volatility in developing our estimates of expected volatility. The assumptions for the expected life of stock options were based on historical exercise patterns and post-vesting termination behavior. The risk-free interest rate is based on U.S. Treasury rates with the same or similar term as the underlying award. Our dividend rate is based on historical experience and our investors’ current expectations.

The fair value of RSUs was based on the closing price of the underlying common stock on the date of grant.

Activity for stock options during the six months ended June 30, 2019 was as follows (dollars in thousands, except per share amounts):



	Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Options outstanding at December 31, 2018	22,674,062		$	8.71
Granted	801,166		$	21.10
Exercised	(2,147,426	)	$	4.93
Forfeited	(88,105	)	$	15.32
Expired	(29,278	)	$	22.89
Options outstanding at June 30, 2019	21,210,419		$	9.52	3.5 years	$	258,157
Exercisable at June 30, 2019	15,670,941		$	6.36	2.8 years	$	237,737

As of June 30, 2019, there was $42.6 million of unrecognized compensation expense related to our unvested stock options. The compensation expense for the unvested stock options will be recognized over a weighted-average period of 2.4 years.

Activity for RSUs during the six months ended June 30, 2019 was as follows (dollars in thousands, except per share amounts):



	Shares		Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
RSUs outstanding at December 31, 2018	4,857,334		$	18.42
Awarded	272,660		$	21.72
Vested and released	(366,489	)	$	10.68
Forfeited	(180,351	)	$	18.03
RSUs outstanding at June 30, 2019	4,583,154		$	19.26	1.7 years	$	97,942

During 2018, in connection with our long-term incentive compensation program, we awarded 693,131 RSUs that will vest upon the achievement of certain product revenue, late-stage clinical development and pipeline expansion performance targets (PSUs). The PSUs were designed to drive the performance of our management team toward the achievement of key corporate objectives and will be forfeited if the performance targets are not met by December 31, 2021. Expense recognition for PSUs commences when it is determined that attainment of the performance target is probable. During the quarter ended June 30, 2019, we had achieved one of the two product revenue related performance targets for 114,843 of the PSUs and determined that it was probable that we would achieve the second of the two product revenue related performance targets for 172,272 additional PSUs. We expect those PSUs to vest over various dates through May 2021 and have recognized $2.5 million in compensation expense related to those PSUs during the three months ended June 30, 2019; the remaining unrecognized compensation expense for those PSUs was $2.7 million as of June 30, 2019. The total unrecognized compensation expense for the remaining PSUs for which we have not yet determined that attainment of the performance target is probable was $7.5 million.

As of June 30, 2019, there was $70.3 million of unrecognized compensation expense related to our unvested RSUs, including the PSUs described above. The compensation expense for the unvested RSUs will be recognized over a weighted-average period of 2.6 years.