(12) Stock Incentive Plans and Stock Based Compensation

On April 29, 2011 the Board, upon the recommendation of the Remuneration Committee, adopted the 2011 Stock Incentive Plan (“2011 Plan”), which was approved by the Company’s shareholders on July 12, 2011. The 2011 Plan replaced the Company’s 2002 Stock Option Plan (“2002 Plan”), which expired on January 1, 2012. The maximum number of the Company’s Ordinary Shares of £0.50 each or any ADS’s, as to be issued under the 2011 Plan shall not exceed the sum of (i) 31.5 million newly authorized Shares available for award and (ii) the number of Shares that remained available for grants under the Company’s 2002 Plan and (iii) the number of Shares underlying then outstanding awards under the 2002 Plan that could be subsequently forfeited, cancelled, expire or are otherwise terminated. The award of stock options (both incentive and non-qualified options) and restricted stock units, and awards of unrestricted Shares to Directors are permitted. The 2011 Plan is administered by the Remuneration Committee of the Company’s Board of Directors and expires on July 12, 2021.

In addition to the grants under the 2011 Plan, the Company grants non-qualified stock options to employees to purchase the Company’s ordinary shares. These grants are made pursuant to employment agreements on terms consistent with the 2011 Plan.

Under the terms of the 2011 Plan, and grants made pursuant to employment agreements, options typically vest over a four year period, expire after a ten-year term and are granted at an exercise price equal to the closing price of the Company’s American Depository Shares on the grant date. The following table summarizes all stock option activity for the year ended December 31, 2015 (in thousands, except for per share amounts):


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding January 1, 2015		10,670		$	4.95
Granted		7,976			2.16
Cancelled/Expired		(810	)		3.75
Exercised		(18	)		1.76

Outstanding, December 31, 2015		17,818			3.76		8.0 years	$	1,949

Exercisable, December 31, 2015		9,406			5.02		6.9 years	$	833

Vested and Expected to Vest, December 31, 2015		2,756			4.04		8.1 years	$	520

Available for future grant as of December 31, 2015		8,960

The weighted average fair value of the stock options granted during the years ended December 31, 2015, 2014 and 2013 was $2.16, $1.58 and $6.18, respectively.

During the years ended December 31, 2015 and 2014, the Company received cash of $31 thousand and $0.3 million from the exercise of options. The intrinsic value of options exercised during 2015 was $6 thousand and $0.2 million during 2014. As of December 31, 2015 and 2014, there was $14.1 million and $9.4 million of unrecognized stock-based compensation expense related to unvested stock option share-based compensation arrangements granted under the Company’s stock award plans. This expense is expected to be recognized over a weighted-average period of approximately 3.0 years. There was a benefit of $0.7 million and a provision of $2.3 million for the years ended December 31, 2015 and 2014, respectively, reflected within the consolidated statement of cash flows related to excess tax provision on the U.S. federal level that have been realized as an increase in taxes payable. The Company recognizes compensation expense for the fair values of those awards which have graded vesting on a straight line basis.

The fair value of options on the date of grant was estimated using the Black-Scholes option pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected stock price volatility was calculated based on the historical volatility of the Company’s common stock over the expected life of the option. The expected life was determined based on the short-cut method based on the term and vesting period. The risk-free interest rate is based on zero-coupon U.S. Treasury securities with a maturity term approximating the expected life of the option at the date of grant. No dividend yield has been assumed as the Company does not currently pay dividends on its common stock and does not anticipate doing so in the foreseeable future. Estimated forfeitures are based on the Company’s historical forfeiture activity.

Employee stock options granted prior to June 30, 2009 generally vested over a three-year service period. Employee stock options granted after June 30, 2009 generally vest over a four-year service period and all stock options are settled by the issuance of new shares. Compensation expense recognized for all option grants is net of estimated forfeitures and is recognized over the awards’ respective requisite service periods. The vesting of certain stock options is contingent upon the attainment of performance criteria. The probability that such criteria will be achieved is assessed by management and compensation expense for such awards is only recorded to the extent that the attainment of the performance criteria is deemed to be probable. The Company recorded compensation expense in relation to stock options of $7.9 million, $7.7 million and $14.3 million for the years ended December 31, 2015, 2014 and 2013, respectively.

For 2015, 2014 and 2013, the Company used the following assumptions to estimate the fair value of share-based payment awards:


	2015	2014	2013
Risk free interest rate	1.37% - 1.68%	1.37% - 1.68%	0.91% - 2.07%
Expected dividend yield	0.00%	0.00%	0.00%
Expected option life (years)	6.25	6.25	6.25
Expected volatility	86% - 97%	97% - 109%	91% - 110%

Restricted Stock Units

The 2011 Plan also allows for granting of restricted stock unit awards under the terms of the Plan. The restricted stock units vest based upon a time-based service condition, a performance condition, or both. The probability that any performance criteria will be achieved is assessed by management and compensation expense for such awards is only recorded to the extent that the attainment of the performance criteria is deemed to be probable. Restricted stock units are recorded as compensation expense based on fair value, representing the market value of the Company’s common stock on the date of grant. The fair value of restricted stock units is amortized on a straight-line basis through the statement of operations over the service period until the shares have vested. The following table presents the restricted stock unit activity for the years ended December 31, 2015 and 2014 (in thousands, except for weighted average amounts):


	Shares			Weighted Average Grant Date Fair Value
Outstanding—as of January 1, 2014		196		$	6.96
Granted		2,255			2.03
Vested		—			—
Forfeited		(195	)		3.17

Outstanding—as of December 31, 2014		2,256			2.03
Granted		9,888			2.12
Vested		(821	)		2.14
Forfeited		(436	)		1.45

Outstanding—as of December 31, 2015		10,887			2.12

The Company recorded compensation expense in relation to restricted stock units of $6.0 million, $1.4 million and $0.4 million for the years ended December 31, 2015, 2014 and 2013 respectively.

The following table presents the stock-based compensation expense related to stock based awards for the years ended December 31, 2015, 2014 and 2013 (in thousands):


	2015		2014		2013
Research and development	$	3,280	$	2,701	$	2,837
Selling, general and administrative		10,609		6,321		11,848

Stock-based compensation expense	$	13,889	$	9,022	$	14,685