Share based Compensation

The Company’s Equity Incentive Plans consist of the Amended and Restated 2007 Equity Incentive Plan (the “Plan”) and the 2007 Director Option Plan (the “2007 Director Plan”). The Plan provides for the granting of restricted stock units and options to purchase common stock in the Company to employees, advisors and consultants at a price to be determined by the Company’s Board of Directors. The Plan is intended to encourage ownership of stock by employees and consultants of the Company and to provide additional incentives for them to promote the success of the Company’s business. The 2007 Director Plan is intended to promote the recruiting and retention of highly qualified eligible directors and strengthen the commonality of interest between directors and stockholders by encouraging ownership of common stock of the Company. The Board of Directors, or its committee, is responsible for determining the individuals to be granted options, the number of options each individual will receive, the option price per share, and the exercise period of each option.

Stock Option Grants

The fair value of the stock options granted is estimated on the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Expected stock price volatility	75.5		%	82.5		%	80.7		%	83.1		%
Risk free interest rate	2.7		%	1.8		%	2.4		%	2.0		%
Expected life of options (years)	5.62			5.89			5.62			6.21
Expected annual dividend per share	$	—		$	—		$	—		$	—

Beginning in the third quarter of 2017, the average expected life was determined using our actual historical data versus a “simplified” method used in prior quarters. The “simplified” method of estimating the expected exercise term uses the mid-point between the vesting date and the end of the contractual term. In earlier quarters, we did not have sufficient reliable exercise data to justify a change from the use of the “simplified” method of estimating the expected exercise term of employee stock option grants. The impact from this change was not material.

A summary of the Company’s stock options for the nine months ended September 30, 2018 were as follows:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(in thousands)					(in millions)
Options outstanding, December 31, 2017	15,181		$	7.48
Granted	2,077		$	15.36
Exercised	(1,282	)	$	6.62
Forfeited	(200	)	$	9.75
Expired	(7	)	10.45
Options outstanding, September 30, 2018	15,769		$	8.56	7.0 years	$	65.8
Vested and unvested expected to vest, September 30, 2018	15,003		$	8.43	6.9 years	$	63.9
Exercisable at September 30, 2018	9,406		$	7.26	6.0 years	$	47.4

As of September 30, 2018, the total unrecognized compensation cost related to non-vested stock options granted was $36.0 million and is expected to be recognized over a weighted average period of three years.

Restricted Stock Units (“RSUs”) and Performance-Based Restricted Stock Units

RSUs awarded under the Plan are generally subject to graded vesting and are contingent on an employee’s continued service. RSUs are generally subject to forfeiture if employment terminates prior to the release of vesting restrictions. The Company expenses the cost of the RSUs, which is determined to be the fair market value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse. A summary of non-vested RSU activity under the Plan for the nine months ended September 30, 2018 is as follows:



	Number of Shares		Weighted Average Grant Date Fair Value		Weighted Average Remaining Years	Aggregate Intrinsic Value
	(in thousands)					(in millions)
Non-vested units as of December 31, 2017	2,575		$	5.85
Granted	1,635		$	16.57
Vested	(517	)	$	5.91
Forfeited	(58	)	$	10.23
Non-vested units as of September 30, 2018	3,635		$	10.49	2.7 years	$	44.0

On December 30, 2016, the Compensation Committee approved a form of Performance-Based Restricted Stock Unit Award Agreement (the “Performance-Based RSU Agreement”), to be used for performance-based RSUs granted to participants under the Amended and Restated 2007 Equity Incentive Plan, including named executive officers. Certain awards under the Performance-Based RSU Agreement were granted in January 2017 and 2018. The 2018 grants include 187,222 market performance-based restricted stock units (“MPRSUs”) granted to executives. Vesting of these awards is contingent upon the Company meeting certain total shareholder return (“TSR”) levels as compared to a select peer group over the next three years. The MPRSUs cliff vest at the end of the three-year period and have a maximum potential to vest at 200% (374,444 shares) based on TSR performance. The related share-based compensation expense is determined based on the estimated fair value of the underlying shares on the date of grant and is recognized on a straight-line basis over the vesting term. The estimated fair value per share of the MPRSUs was $25.44 and was calculated using a Monte Carlo simulation model. The awards also include 187,211 performance based awards that will vest over the next three years based on the Company achieving certain clinical milestones. During the nine months ended September 30, 2018, none of the clinical milestones for the performance based RSUs awarded in 2017 or 2018 were reached.

For the nine months ended September 30, 2018, 516,940 RSUs have vested and all non-vested units are expected to vest over their normal term. As of September 30, 2018, there was $25.6 million of total unrecognized compensation cost related to unvested RSUs with service-based vesting conditions. These costs are expected to be recognized over a weighted average period of three years.

Compensation Expense Related to Equity Awards

The following table summarizes information related to compensation expense recognized in the statements of operations related to the equity awards:



	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2018		2017		2018		2017
Equity compensation expense recognized in:
Research and development expense	$	2,905	$	2,390	$	8,603	$	7,456
Selling, general and administrative expense	4,149		3,110		12,270		9,611
Total equity compensation expense	$	7,054	$	5,500	$	20,873	$	17,067