Stock-Based Compensation

9 Months Ended

Sep. 27, 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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Research and development	$	4,301	$	3,169	$	13,745	$	9,102
Selling, general and administrative	8,838		6,573		27,002		19,228
Total stock-based compensation	$	13,139	$	9,742	$	40,747	$	28,330

We have several equity incentive plans under which we have granted stock options and restricted stock units (RSUs) to employees and directors. At September 30, 2019, 6,024,995 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 September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Stock options	$	7.71	$	8.67	$	8.57	$	9.13
ESPP	$	5.39	$	6.19	$	4.93	$	6.96

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



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Stock options:
Risk-free interest rate	1.57	%	2.91	%	1.82	%	2.83	%
Dividend yield	—	%	—	%	—	%	—	%
Volatility	48	%	55	%	48	%	55	%
Expected life	4.0 years		4.4 years		4.4 years		4.4 years
ESPP:
Risk-free interest rate	2.09	%	2.11	%	2.34	%	1.74	%
Dividend yield	—	%	—	%	—	%	—	%
Volatility	43	%	51	%	52	%	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 nine months ended September 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	1,042,286		$	20.81
Exercised	(3,042,201	)	$	4.94
Forfeited	(160,241	)	$	16.76
Expired	(35,045	)	$	23.41
Options outstanding at September 30, 2019	20,478,861		$	9.80	3.4 years	$	186,407
Exercisable at September 30, 2019	15,860,131		$	7.02	2.8 years	$	181,542

As of September 30, 2019, there was $38.0 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 2.3 years.

Activity for RSUs during the nine months ended September 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	5,635,362		$	19.54
Vested and released	(484,731	)	$	12.33
Forfeited	(258,142	)	$	18.47
RSUs outstanding at September 30, 2019	9,749,823		$	19.37	2.2 years	$	175,448

As of September 30, 2019, there was $166.0 million of unrecognized compensation expense related to our unvested RSUs, including those RSUs granted in September 2018 and September 2019 that will vest upon the achievement of specific performance targets (PSUs) described below. The compensation expense for the unvested RSUs will be recognized over a weighted-average period of 2.8 years.

During 2019, in connection with our long-term incentive compensation program, we awarded 1,926,605 RSUs (the target amount) that will vest upon the achievement of a performance target related to a product approval by the FDA (the 2019 PSUs); employees may earn 150% of the target amount, or an additional 963,136 shares relative to the target amount, if the performance target is achieved before December 31, 2020 and may earn the full 200% of the target amount, or up to an additional 1,926,605 shares relative to the target amount, if we receive a second product approval. During 2018 we awarded 693,131 RSUs that will vest upon the achievement of certain product revenue, late-stage clinical development and pipeline expansion performance targets (the 2018 PSUs). The 2018 PSUs and 2019 PSUs were designed to drive the performance of our management team and employees 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 achieved one of the two product revenue related performance targets for 114,843 of the 2018 PSUs and determined that it was probable that we would achieve the second product revenue related performance target for 172,272 additional 2018 PSUs. During the quarter ended September 30, 2019, the second product revenue related performance target of the 2018 PSUs was achieved. Those 2018 PSUs will vest over various dates through February 2021. We recognized $0.9 million and $3.5 million in compensation expense related to those 2018 PSUs during the three and nine months ended September 30, 2019, respectively; the remaining unrecognized compensation expense for those 2018 PSUs was $1.7 million as of September 30, 2019. The total unrecognized compensation expense for both the 2019 PSUs and the remaining 2018 PSUs for which we have not yet determined that attainment of the performance target is probable was $82.4 million as of September 30, 2019.