STOCK‑BASED COMPENSATION

The Company uses the Black‑Scholes option valuation model to determine the fair value of stock options and employee stock purchase plan (ESPP) shares. The determination of the fair value of stock‑based payment awards on the date of grant using an option valuation model is affected by the Company’s stock price as well as assumptions, which include the Company’s expected term of the award, the expected stock price volatility, risk‑free interest rate and expected dividends over the expected term of the award. The fair value of restricted stock units equals the market value of the underlying stock on the date of grant.

The Company uses historical option exercise data to estimate the expected term of the options. The Company estimates the volatility of its common stock price by using the historical volatility over the expected term of the options. The Company bases the risk‑free interest rate on U.S. Treasury zero‑coupon issues with terms similar to the expected term of the options as of the date of grant. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model.

The Company used the following assumptions to calculate the fair value of option grants for the years ended December 31, 2018, 2017 and 2016.



	2018	2017	2016
Employee and Director Stock Options
Risk-free interest rate	2.17%	1.65 - 1.93%	0.90 - 1.78%
Expected option term (in years)	4.34	4.24 - 4.30	4.23 - 4.31
Expected stock price volatility	61.94%	51.67 - 59.59%	48.39 - 50.96%

The Company used the following assumptions to calculate the fair value of stock purchase rights granted under the ESPP for the years ended December 31, 2018, 2017 and 2016:



	2018	2017	2016
Employee Stock Purchase Plan
Risk-free interest rate	2.05-2.50%	1.07 - 1.45%	0.49 - 0.60%
Expected option term (in years)	0.5	0.5	0.5
Expected stock price volatility	56.1-58.6%	52.2 - 82.0%	48.1 - 67.5%

The following table presents stock‑based compensation expense recognized for stock options, restricted stock units and the ESPP in the Company’s Statements of Operations (in thousands):



	2018		2017		2016
Cost of sales	$	30	$	98	$	43
Research and development expense	446		710		496
Selling, general and administrative expense	9,963		12,157		16,633
Restructuring charges	2,146		51		—
Total	$	12,585	$	13,016	$	17,172

The weighted‑average grant date fair value of options granted during the years ended December 31, 2018, 2017 and 2016 was $4.32, $5.55 and $6.81, respectively. The weighted‑average grant date fair value of stock purchase rights granted under the ESPP during the years ended December 31, 2018, 2017 and 2016 was $1.73, $2.97 and $6.09, respectively. The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $0.6 million, $5.0 million and $6.6 million, respectively. The total grant date fair value of options that vested during the years ended December 31, 2018, 2017 and 2016 was $2.3 million, $4.7 million and $9.3 million, respectively. At December 31, 2018, the Company had $14.0 million of total unrecognized compensation expense, related to stock option grants and restricted stock units that will be recognized over an average vesting period of 2 years. Cash received from stock option exercises was $1.5 million, $7.0 million and $6.7 million for the years ended December 31, 2018, 2017 and 2016, respectively. There is no stock‑based compensation recorded within inventory in any of the years presented. The recognized tax benefits on total stock-based compensation expense during the years ended December 31, 2018, 2017 and 2016 was $0.7 million, $0.4 million and $0.6 million, respectively.

2004 Equity Incentive Plan

The Company’s 2004 Equity Incentive Plan (2004 Plan) was adopted by the Board of Directors and approved by the shareholders in May 2004. The 2004 Plan provides for the grant to employees of the Company, including officers, of incentive stock options, and for the grant of non-statutory stock options to employees, directors and consultants of the Company. The number of shares authorized under the 2004 Plan was 14,450,000 shares and there were no more shares available for future issuance at December 31, 2018.

Generally, the exercise price of all incentive stock options and non-statutory stock options granted under the 2004 Plan must be at least 100% and 85%, respectively, of the fair value of the common stock of the Company on the grant date. The term of incentive and non-statutory stock options may not exceed 10 years from the date of grant. An option shall be exercisable on or after each vesting date in accordance with the terms set forth in the option agreement. The right to exercise an option generally vests over four years at the rate of at least 25% by the end of the first year and then ratably in monthly installments over the remaining vesting period of the option.

The following tables summarize the activity for the year ended December 31, 2018 under the 2004 Plan:



	Shares		Weighted- Average Exercise Price
Options outstanding at December 31, 2017	1,786,041		$	7.62
Options granted	—		—
Options exercised	(277,443	)	5.37
Options forfeited	(6,965	)	12.69
Options expired	(332,221	)	9.56
Options outstanding at December 31, 2018	1,169,412		$	7.57
Options vested and expected to vest at December 31, 2018	1,169,412		$	7.57
Options exercisable at December 31, 2018	1,169,412		$	7.57



	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2018	1.78	$	29
Options vested and expected to vest at December 31, 2018	1.78	$	29
Options exercisable at December 31, 2018	1.78	$	29

There have been no restricted stock units granted under the 2004 Equity Incentive Plan.

Equity Match Program

On December 6, 2017, the Company Board of Directors approved a one-time incentive program (the Equity Match Program) for the Company’s Chief Executive Officer (the CEO). The Equity Match Program is intended to provide an incentive for the CEO to purchase shares of the Company’s common stock, no par value (the Common Stock), through open-market purchases between December 5, 2017 and February 3, 2018 (the Purchase Period). Under the terms of the Equity Match Program, for each $100,000 of Common Stock purchased by the CEO during the Purchase Period (up to $600,000 in total), the Company will grant the CEO an award of restricted stock units (the Matching Units) under the Company’s 2014 Omnibus Incentive Plan having a grant-date value equal to the purchase price of the Common Stock purchased by the CEO (rounded down to the nearest $100,000). The Matching Units will be granted on the first business day following the earlier of: (i) the CEO’s purchase of a total of $600,000 of Common Stock, or (ii) the end of the Purchase Period. The Matching Units will vest in full on the third anniversary of the first day during the Purchase Period that the CEO purchased Common Stock in the open market, subject to the CEO’s continued employment through such date. Notwithstanding the foregoing, the Matching Units may vest in full upon a termination without cause or resignation for good reason (including following a change of control of the Company), or upon the CEO’s death or total and permanent disability. As of December 31, 2018, 75,000 shares of the Company Common Stock had been purchased by the CEO at an average price per share of $8.16 and Matching Units of 73,529 shares were awarded, with a fair value of $8.16 at the grant date.

2014 Omnibus Incentive Plan

The Company’s 2014 Omnibus Incentive Plan (2014 Plan) was adopted by the Board of Directors and approved by the shareholders in May 2014. The 2014 Plan provides for the grant of stock options, stock appreciation rights, stock awards, cash awards and performance award to the employees, non-employee directors and consultants of the Company. The number of shares authorized under the 2014 Plan is 12,130,000 shares, of which 5,751,303 were available for future issuance at December 31, 2018.

Generally, the exercise price of all incentive stock options and non-statutory stock options granted under the 2014 Plan must be the fair value of the common stock of the Company on the grant date. The term of incentive and non-statutory stock options may not exceed 10 years from the date of grant. An option shall be exercisable on or after each vesting date in accordance with the terms set forth in the option agreement. The right to exercise an option generally vests over four years at the rate of at least 25% by the end of the first year and then ratably in monthly installments over the remaining vesting period of the option.

The following table summarize the activity for the year ended December 31, 2018 under the 2014 Plan:



	Shares		Weighted Average Exercise Price
Options outstanding at December 31, 2017	3,455,769		$	14.24
Options granted	75,304		8.55
Options exercised	—		—
Options forfeited	(1,270,762	)	13.20
Options expired	(798,842	)	17.83
Options outstanding at December 31, 2018	1,461,469		$	12.90
Options vested and expected to vest at December 31, 2018	1,461,469		$	12.90
Options exercisable at December 31, 2018	808,141		$	14.30



	Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2018	6.75	$	—
Options vested and expected to vest at December 31, 2018	6.75	$	—
Options exercisable at December 31, 2018	6.04	$	—

Restricted stock units generally vest over three or four years, with 33% or 25% of each award vesting annually, respectively.



	Number of Shares		Weighted Average Grant Date Fair Value Per Share		Weighted Average Remaining Contractual Term (in years)
Non-vested restricted stock units at December 31, 2017	1,166,046		$	10.69
Granted	1,897,661		6.84
Vested	(539,898	)	9.77
Forfeited	(585,021	)	9.05
Non-vested restricted stock units at December 31, 2018	1,938,788		$	6.94	1.24

The total fair value of restricted stock vested during 2018 was $3.1 million.

Performance-based Restricted Stock Units

During the twelve months ended December 31, 2018, the Company granted Performance Stock Units (PSUs) with an aggregate target award of 523,187 units and a weighted-average grant-date fair value of $10.58 per unit. The PSUs vest in annual cliffs over a three year period based on the Relative Total Shareholder Return (TSR) of the Company’s common stock against the Russell 3000 Pharmaceuticals Total Return Index over the period. The ultimate award, which is determined at the end of the three-year cycle, can range from zero to 200% of the target. The recipients of the PSU awards will have voting rights and the right to receive a dividend once the underlying shares have been issued. The grant-date fair value is based upon the Monte Carlo simulation method.

The following table summarizes the PSU activity for the year ended December 31, 2018 under the 2014 Plan (in thousands, except per share data):



			Weighted		Weighted
			Average		Average
			Grant Date		Remaining
			Fair		Contractual	Aggregate
	Number of		Value		Term	Intrinsic Value
	Shares		Per Share		(in years)	(in 000s)
Non-vested performance-based restricted stock units at December 31, 2017	—		$	—
Granted	523,187		10.58
Vested	—		—
Forfeited	(148,363	)	11.68
Non-vested performance-based restricted stock units at December 31, 2018	374,824		$	10.14	2.09	1,353

As of December 31, 2018, total unrecognized compensation cost related to PSUs was $2.8 million which is expected to be recognized over the remaining weighted-average vesting period of 2.08 years.