Stock-Based Compensation

6 Months Ended

Jun. 30, 2015

Note 8 – Stock-Based Compensation

Stock Options

The Amended and Restated 2005 Stock Incentive Plan (“2005 Plan”) expired in February 2015 and no new awards may be made under such plan, although outstanding awards will continue in accordance with their terms. The Board adopted the 2015 Stock Incentive Plan (“2015 Plan”) in March 2015 and, consistent with historical practice, granted annual and new equity awards prior to the Company’s annual meeting of stockholders in June 2015 under the 2015 Plan; however, these awards were contingent upon stockholder approval of both the 2015 Plan and the Company’s Charter Amendment (See Note 7), both of which were approved at the Company’s annual meeting of stockholders in June 2015. Under the 2015 Plan, equity awards may be granted to officers, directors, employees and consultants of and advisors to the Company and any present or future subsidiary. The 2015 Plan authorizes the issuance of up to 25,000,000 shares of common stock under equity awards granted under the plan. All such shares authorized for issuance under the 2015 Plan have been reserved. The 2015 Plan will expire on March 4, 2025.

The 2015 Plan permits and the 2005 Plan permitted the grant of stock options (including incentive stock options), restricted stock, stock appreciation rights, and restricted stock units. In addition, under the 2015 Plan, unrestricted stock, stock units and performance awards may be granted. Stock options and stock appreciation rights generally have a maximum term of 10 years and may be or were granted with an exercise price that is no less than 100% of the fair market value of the Company’s common stock at the time of grant. Grants of stock options are generally subject to vesting over periods ranging from six months to four years.

Stock Options Awards

The following is a summary of option activity under the 2015 Plan, 2005 Plan and the 1995 Stock Option Plan (“1995 Plan”) for the six months ended June 30, 2015:

	2015 Plan				2005 Plan				1995 Plan
			Weighted-				Weighted-				Weighted-
			Average				Average				Average
	Stock		Exercise		Stock		Exercise		Stock		Exercise
	Options		Price		Options		Price		Options		Price
Outstanding at January 1, 2015		—	$	—		16,928,098	$	3.24		35,000	$	2.21
Granted		7,369,441	$	8.97		22,500	$	6.70		—	$	—
Exercised		—	$	—		(877,910)	$	2.24		(35,000)	$	2.21
Canceled		(55,500)	$	8.94		(153,375)	$	3.92		—	$	—
Outstanding at June 30, 2015		7,313,941	$	8.97		15,919,313	$	3.29		—	$	—
Shares exercisable at June 30, 2015		—	$	—		8,320,563	$	2.51		—	$	—
Shares available for grant at June 30, 2015		17,686,059

As discussed in the “Stock Options” section above, prior to the Company’s annual meeting of stockholders in June 2015, the Company granted 7,014,441 stock options with a weighted-average exercise price of $8.94 under the 2015 Plan. Since the 2015 Plan and the Charter Amendment were approved at the Company’s annual meeting of stockholders in June 2015, the Company began to record stock-based compensation expense for these awards at that time.

The fair value of stock options granted under the 2015 Plan and 2005 Plan was estimated at the date of grant or the date upon which the 2015 Plan was approved by the Company’s stockholders for stock options granted prior to that time using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2015	2014	2015	2014
Weighted-average Black- Scholes fair value of stock options granted	$4.42	$1.92	$4.42	$2.48
Risk-free interest rate	1.37%-2.13%	1.33%-1.39%	1.19%-2.13%	1.24%-2.22%
Dividend yield	0%	0%	0%	0%
Volatility	54.18%-68.39%	52.87%-53.81%	53.58%-68.39%	52.47%-67.93%
Expected term (in years)	3.98-7.34	4.10-4.26	3.98-7.34	4.04-6.96
Expected forfeiture rate	0%-16.33%	0%-23.15%	0%-16.33%	0%-23.15%

The total aggregate intrinsic value and weighted-average remaining contractual term of stock options outstanding under the 2015 Plan and 2005 Plan as of June 30, 2015 was approximately $140.8 million and 8.1 years, respectively. The total aggregate intrinsic value and weighted-average remaining contractual term of stock options exercisable under the 2015 Plan and 2005 Plan as of June 30, 2015 was approximately $71.8 million and 6.6 years, respectively. The aggregate intrinsic value represents the total intrinsic value (the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2015. This amount is subject to change based on changes to the closing price of the Company’s common stock. The aggregate intrinsic value of options exercised for the six months ended June 30, 2015 and 2014 was $6.0 million and $1.7 million, respectively.

Employee Stock Purchase Plan

In April 2013, the Company adopted an Employee Stock Purchase Plan (the “ESPP”), which authorized an aggregate of 2,000,000 shares of common stock to be purchased, which will increase 5% on each anniversary of its adoption up to a maximum of 3,000,000 shares. The ESPP allows employees to purchase shares of common stock of the Company at each purchase date through payroll deductions of up to a maximum of 15% of their compensation, at 85% of the lesser of the market price of the shares at the time of purchase or the market price on the beginning date of an option period (or, if later, the date during the option period when the employee was first eligible to participate). At June 30, 2015, there were 1,413,388 shares available for issuance under the ESPP.

The ESPP is considered compensatory for financial reporting purposes. As such, the fair value of ESPP shares was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2015	2014	2015	2014
Range of Black-Scholes fair value of ESPP shares granted	$1.20-$2.24	$0.97-$1.79	$1.06-$2.24	$0.97-$1.79
Risk-free interest rate	0.07%-0.35%	0.11%-0.14%	0.05%-0.35%	0.11%-0.14%
Dividend yield	0%	0%	0%	0%
Volatility	40.79%-64.24%	53.80%-67.57%	40.79%-64.24%	53.80%-67.57%
Expected term (in years)	0.5-2.0	0.5-1.0	0.5-2.0	0.5-1.0
Expected forfeiture rate	5%	5%	5%	5%

Restricted Stock Awards

The following is a summary of restricted stock awards activity for the six months ended June 30, 2015:

			Per Share
			Weighted-
			Average
	Number of		Grant-Date
	Shares		Fair Value
Outstanding and Unvested at January 1, 2015		15,000	$	4.48
Restricted stock granted		—	$	—
Restricted stock vested		—	$	—
Restricted stock forfeited		—	$	—
Outstanding and Unvested at June 30, 2015		15,000	$	4.48

The Company recorded all stock-based compensation expense in the consolidated statements of operations as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Research and development	$	1,090	$	651	$	2,122	$	1,175
General and administrative		1,490		1,201		2,392		1,717
Total stock-based compensation expense	$	2,580	$	1,852	$	4,514	$	2,892

As of June 30, 2015, there was approximately $35.2 million of total unrecognized compensation expense (net of estimated forfeitures) related to unvested stock options, ESPP and restricted stock awards. This unrecognized non-cash compensation expense is expected to be recognized over a weighted-average period of 1.6 years, and will be allocated between research and development and general and administrative expenses accordingly. This estimate does not include the impact of other possible stock-based awards that may be made during future periods.