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Stock award plans | 12 Months Ended
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Dec. 31, 2014
Stock award plans | 13. Stock award plans On May 23, 2013, the Company adopted the 2013 Equity Incentive Plan (the “2013 Plan”) as the successor to and continuation of the 2004 Equity Incentive Plan (the “2004 Plan”). The 2013 Plan consists of 21.5 million newly requested shares and the number of unallocated shares remaining available for grant for new awards under the 2004 Plan. The 2013 Plan provides for the granting of stock awards including stock options and restricted stock units, to employees, directors and consultants. The Plan also provides for the automatic, non-discretionary grant of options to the Company’s non-employee directors. No additional awards will be granted under the 2004 Plan or under the 2004 Non-Employee Directors’ Stock Option Plan (the “NED Plan”) as all future awards will be made out of the 2013 Plan. As of December 31, 2014, the Company has two active stock-based compensation plans — the 2013 Plan and the 2004 Employee Stock Purchase Plan (the “ESPP”). The following table summarizes information about the Company’s stock-based award plans as of December 31, 2014:
|  | Outstanding Options |  |  | Outstanding Restricted Stock Units |  |  | Shares Available for Future Issuance |
2004 Equity Incentive Plan |  |  | 13,629,994 |  |  |  | 1,219,915 |  |  |  | — |
2013 Equity Incentive Plan |  |  | 7,380,839 |  |  |  | 1,390,805 |  |  |  | 15,506,488 |
2004 Non-Employee Directors’ Stock Option Plan |  |  | 530,831 |  |  |  | — |  |  |  | — |
Total |  |  | 21,541,664 |  |  |  | 2,610,720 |  |  |  | 15,506,488 |
In March 2004, the Company’s board of directors approved the ESPP, which became effective upon the closing of the Company’s initial public offering. Initially, the aggregate number of shares that could be sold under the 2004 Plan was 2,000,000 shares of common stock. On January 1 of each year, for a period of ten years beginning January 1, 2005, the share reserve automatically increases by the lesser of: 700,000 shares, 1% of the total number of shares of common stock outstanding on that date, or an amount as may be determined by the board of directors. However, under no event can the annual increase cause the total number of shares reserved under the ESPP to exceed 10% of the total number of shares of capital stock outstanding on December 31 of the prior year. On January 1, 2012, 2013 and 2014 the ESPP share reserve was increased by 700,000, 700,000 and 700,000 shares, respectively. As of December 31, 2014, 3,073,931 shares were available for issuance under the ESPP. For the years ended December 31, 2012, 2013 and 2014 the Company sold 422,260, 463,290 and 305,076 shares, respectively, of its common stock to employees participating in the ESPP. The ESPP purchase for the period ending December 31, 2014 was initiated prior to year end but did not settle until January 5, 2015. As a result, the shares sold are reflected in the ESPP share reserves but is excluded from common stock outstanding as of December 31, 2014. The Company’s board of directors determines eligibility, vesting schedules and exercise prices for stock awards granted under the 2013 Plan. Options and other stock awards under the 2013 Plan expire not more than ten years from the date of the grant and are exercisable upon vesting. Stock options generally vest over four years. Current stock option grants vest and become exercisable at the rate of 25% after one year and ratably on a monthly basis over a period of 36 months thereafter. Restricted stock units generally vest at a rate of 25% per year over four years with consideration satisfied by service to the Company. Performance-based awards vest upon achieving pre-determined performance milestones, which are expected to occur over periods ranging from 11 months to 96 months from the date of grant. Only one milestone had not yet been achieved as of December 31, 2014, but is considered probable at such date. The 2013 Plan provides for full acceleration of vesting if an employee is terminated within three months of a change in control, as defined in the 2013 Plan. Subsequent to December 31, 2014, the company achieved the last performance-based milestone on February 3, 2015. In accordance with ASC 718, share-based payment transactions are recognized as compensation cost based on the fair value of the instrument on the date of grant. The Company accounts for non-employee stock-based compensation expense based on the estimated fair value of the options, which is determined using the Black-Scholes option valuation model and amortizes such expense on a straight-line basis over the service period for time-based awards and over the expected dates of achievement for performance-based awards. These awards are subject to re-measurement until service is complete. As of December 31, 2014, there were options to purchase 552,516 shares of common stock outstanding to consultants. During the years ended December 31, 2014, 2013 and 2012 the Company recorded stock-based compensation expense related to its stock award plans and the ESPP of $48.6 million, $45.2 million, and $13.3 million, respectively. On June 30, 2014, the Company modified certain performance grants to allow 124 employees to withhold in excess of the minimum statutory requirements for specific performance-based restricted stock units at the employee’s discretion through December 31, 2014. The modification resulted in the reclassification of these performance grants from equity awards to liability awards, which require re-measurement at the end of each reporting period through settlement. For the year ended December 31, 2014, the reclassification and re-measurement of these performance-based restricted stock units through settlement resulted in an increase in stock-based compensation expense of $23.0 million. Total stock-based compensation expense recognized in the accompanying statements of operations is as follows (in thousands):
|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |  |  | 2012 |
Employee-related |  | $ | 48,622 |  |  | $ | 45,181 |  |  | $ | 13,224 |
Consultant-related |  |  | — |  |  |  | 5 |  |  |  | 68 |
Total |  | $ | 48,622 |  |  | $ | 45,186 |  |  | $ | 13,292 |
Total stock-based compensation expense recognized in the accompanying statements of operations is included in the following categories (in thousands):
|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |  |  | 2012 |
Research and development |  | $ | 22,357 |  |  | $ | 20,409 |  |  | $ | 6,167 |
General and administrative |  |  | 26,265 |  |  |  | 24,777 |  |  |  | 7,125 |
Total |  | $ | 48,622 |  |  | $ | 45,186 |  |  | $ | 13,292 |
The Company uses the Black-Scholes option valuation model to estimate the grant date fair value of employee stock options. The expected term of an option granted is based on combining historical exercise data with expected weighted time outstanding. Expected weighted time outstanding is calculated by assuming the settlement of outstanding awards is at the midpoint between the remaining weighted average vesting date and the expiration date. Beginning in the third quarter of 2014, the Company began to assess both historical and implied volatility in order to determine its estimated volatility rate. Implied volatility is now considered due to the change in the Company’s business, which occurred with the approval for the sale of AFREEZA. The Company has selected risk-free interest rates based on U.S. Treasury securities with an equivalent expected term in effect on the date the options were granted. Additionally, the Company uses historical data and management judgment to estimate stock option exercise behavior and employee turnover rates to estimate the number of stock option awards that will eventually vest. The Company calculated the fair value of employee stock options granted during the years ended December 31, 2014, 2013 and 2012 using the following assumptions:
|  | Year Ended December 31, |
|  | 2014 |  |  | 2013 |  |  | 2012 |
Risk-free interest rate |  |  | 1.64% — 2.11% |  |  |  | 0.94% — 1.82% |  |  |  | 0.32% —1.16% |
Expected lives |  |  | 5.77 — 6.09 years |  |  |  | 2.64 — 5.77 years |  |  |  | 1.4 — 6.1 years |
Volatility |  |  | 73.98% — 84.85% |  |  |  | 75.83% — 86.26% |  |  |  | 70% — 84% |
Dividends |  |  | — |  |  |  | — |  |  |  | — |
The following table summarizes information about stock options outstanding:
|  | Number of Shares |  |  | Weighted Average Exercise Price per Share |  |  | Aggregate Intrinsic Value ($000) |
Outstanding at January 1, 2014 |  |  | 24,237,940 |  |  |  | 4.35 |  |  | $ | 40,972 |
Granted |  |  | 1,326,800 |  |  |  | 7.21 |  |  |  |  |
Exercised |  |  | (3,250,149 | ) |  |  | 3.37 |  |  |  |  |
Forfeit |  |  | (417,223 | ) |  |  | 4.54 |  |  |  |  |
Expired |  |  | (355,704 | ) |  |  | 12.48 |  |  |  |  |
Outstanding at December 31, 2014 |  |  | 21,541,664 |  |  |  | 4.53 |  |  | $ | 33,495 |
Vested and expected to vest at December 31, 2014 |  |  | 21,307,827 |  |  |  | 4.52 |  |  | $ | 33,253 |
Exercisable at December 31, 2014 |  |  | 18,439,472 |  |  |  | 4.42 |  |  | $ | 30,356 |
The weighted average grant date fair value of the stock options granted during the years ended December 31, 2014, 2013 and 2012 was $4.76, $3.26, and $0.99 per option, respectively. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013 and 2012 was $14.9 million, $3.1 million, and $1,000, respectively. Intrinsic value is measured using the fair market value at the date of exercise (for options exercised) or at December 31 (for outstanding options), less the applicable exercise price. Cash received from the exercise of options during the years ended December 31, 2014, 2013 and 2012 was approximately $11.0 million, $2.3 million, and $9,200, respectively. The weighted-average remaining contractual terms for options outstanding, vested and expected to vest, and exercisable at December 31, 2014 was 7.07 years, 7.06 years and 6.83 years, respectively. A summary of restricted stock unit activity for the year ended December 31, 2014 is presented below:
|  | Number of Shares |  |  | Weighted Average Grant Date Fair Value per Share |
Outstanding at January 1, 2014 |  |  | 9,115,821 |  |  | $ | 3.90 |
Granted |  |  | 954,127 |  |  | $ | 7.14 |
Vested |  |  | (6,982,707 | ) |  | $ | 3.83 |
Forfeited |  |  | (476,521 | ) |  | $ | 4.30 |
Outstanding at December 31, 2014 |  |  | 2,610,720 |  |  | $ | 5.20 |
The total restricted stock units expected to vest as of December 31, 2014 was 2,386,061 with a weighted average grant date fair value of $5.23. The total intrinsic value of restricted stock units expected to vest as of December 31, 2014 was $12.5 million. Intrinsic value of restricted stock units expected to vest is measured using the closing share price at December 31, 2014. Total intrinsic value of restricted stock units vested during the years ended December 31, 2014, 2013 and 2012 was $62.7 million, $13.9 million and $2.9 million, respectively. Intrinsic value of restricted stock units vested is measured using the closing share price on the day prior to the vest date. The total grant date fair value of restricted stock units vested during the years ended December 31, 2014, 2013 and 2012 was $36.4 million, $14.9 million and $3.0 million, respectively. As of December 31, 2014, there was $9.0 million and $10.6 million of unrecognized compensation expense related to options and restricted stock units, respectively, which is expected to be recognized over the weighted average vesting period of 2.9 years. The Company evaluates stock awards with performance conditions as to the probability that the performance conditions will be met and estimates the date at which the performance conditions will be met in order to properly recognize stock-based compensation expense over the requisite service period. As of December 31, 2014, all milestones are considered probable of achievement.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 + Details
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