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STOCK-BASED COMPENSATION
12 Months Ended
Dec. 31, 2016
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
STOCK-BASED COMPENSATION

(17) STOCK-BASED COMPENSATION

The following table summarizes activity under the Company’s stock option plans, including the 2012 and 2014 Inducement Plans and those suspended upon the adoption of the 2006 Share Incentive Plan, for the year ended December 31, 2016. All option grants presented in the table had exercise prices not less than the fair value of the underlying common stock on the grant date:

 

 

 

Shares

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Years

 

Aggregate

Intrinsic

Value (1)

 

Options outstanding as of

   December 31, 2015

 

 

10,322,903

 

 

$

44.50

 

 

5.6

 

$

630,949

 

Granted

 

 

847,450

 

 

$

84.31

 

 

 

 

 

 

 

Exercised

 

 

(2,129,090

)

 

$

29.23

 

 

 

 

 

 

 

Expired and forfeited

 

 

(185,055

)

 

$

84.78

 

 

 

 

 

 

 

Options outstanding as of

   December 31, 2016

 

 

8,856,208

 

 

$

51.13

 

 

5.4

 

$

304,356

 

Options expected to vest at

   December 31, 2016

 

 

1,753,013

 

 

$

84.38

 

 

8.3

 

$

10,707

 

Exercisable at December 31, 2016

 

 

7,103,016

 

 

$

42.92

 

 

4.6

 

$

293,646

 

 

(1)

The aggregate intrinsic value for outstanding options is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock as of the last trading day for the respective year. The aggregate intrinsic value of options outstanding and exercisable includes options with an exercise price below $82.84, the closing price of the Company’s common stock on December 31, 2016.

The weighted-average fair value per option granted in the years ended December 31, 2016, 2015 and 2014 were $40.70, $56.76 and $30.93, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $127.4 million, $146.6 million and $130.1 million, respectively. The aggregate intrinsic value of options exercised was determined as of the date of option exercise. Upon the exercise of the options, the Company issues new common stock from its authorized shares. There were 7.4 million options that were in-the-money at December 31, 2016.

Determining the Fair Value of Stock Options and Stock Purchase Rights

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model and the assumptions noted in the tables below. The expected life of options is based on observed historical exercise patterns. Groups of employees that have similar historical exercise patterns were considered separately for valuation purposes. The Company has identified two groups with distinctly different exercise patterns. The two groups identified are executive and non-executive employees. The executive employee group has a history of holding options for longer periods than non-executive employees. The expected volatility of stock options is based upon the weighted average of the historical volatility of the Company’s common stock and the implied volatility of traded options on the Company’s common stock for fiscal periods in which there is sufficient trading volume in options on the Company’s common stock. The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the option. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not intend to pay any cash dividends in the foreseeable future. Effective January 1, 2016, forfeitures were accounted for as they occurred.

The assumptions used to estimate the per share fair value of stock options granted during the periods presented were as follows:

 

 

 

Years Ended December 31,

 

 

 

2016

 

 

2015

 

 

2014

 

Expected volatility

 

36 – 44%

 

 

36 – 45%

 

 

44 – 45%

 

Dividend yield

 

 

0.00%

 

 

 

0.00%

 

 

 

0.00%

 

Expected life

 

5.0 - 8.1 years

 

 

6.4 - 8.0 years

 

 

6.9 years

 

Risk-free interest rate

 

1.1 – 2.3%

 

 

1.5 – 2.2%

 

 

1.8 – 2.3%

 

 

The Company recorded $45.5 million, $41.5 million and $41.1 million of compensation costs related to current period vesting of stock options for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, the total unrecognized compensation cost related to unvested stock options was $63.4 million. These costs are expected to be recognized over a weighted average period of 2.4 years.

The assumptions used to estimate the per share fair value of stock purchase rights granted under the ESPP were as follows:

 

 

 

Years Ended December 31,

 

 

 

2016

 

 

2015

 

 

2014

 

Expected volatility

 

42 - 50%

 

 

36 - 38%

 

 

38 - 39%

 

Dividend yield

 

 

0.00%

 

 

 

0.00%

 

 

 

0.00%

 

Expected life

 

6-24 months

 

 

6-24 months

 

 

6-24 months

 

Risk-free interest rate

 

0.4 - 0.8%

 

 

0.1- 0.8%

 

 

0.1- 0.5%

 

The Company recorded $10.1 million, $7.1 million and $4.8 million of compensation costs related to shares granted under the ESPP for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, there was $13.8 million of total unrecognized compensation cost related to unvested stock options issuable under the ESPP. These costs are expected to be recognized over a weighted average period of 1.8 years.

Restricted Stock Unit Awards with Service-Based Vesting Conditions

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 RSU activity under the plan for the year ended December 31, 2016 as follows:

 

 

 

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

 

Weighted

Average

Remaining

Years

 

 

Aggregate

Intrinsic

Value

 

Non-vested units as of December 31, 2015

 

 

2,147,209

 

 

$

93.89

 

 

 

2.8

 

 

$

224,942

 

Granted

 

 

1,321,224

 

 

$

84.18

 

 

 

 

 

 

 

 

 

Vested

 

 

(751,203

)

 

$

80.42

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(272,264

)

 

$

94.52

 

 

 

 

 

 

 

 

 

Non-vested units as of December 31, 2016

 

 

2,444,966

 

 

$

92.70

 

 

 

1.4

 

 

$

202,541

 

Non-vested units expected to vest at

   December 31, 2016

 

 

2,444,966

 

 

$

92.70

 

 

 

 

 

 

$

202,541

 

 

The weighted-average grant date fair value per share of RSUs granted during the years ended December 31, 2016, 2015 and 2014, was $84.18, $119.86 and $64.37, respectively. The total intrinsic value of restricted stock that vested and was released in the years ended December 31, 2016, 2015 and 2014 was $63.5 million, $59.5 million and $22.9 million, respectively.

The Company recorded $74.7 million, $47.9 million and $21.3 million of compensation costs related to RSUs with service-based vesting conditions for the years ended December 31, 2016, 2015 and 2014, respectively. As of December 31, 2016, there was $168.5 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 2.6 years.

Restricted Stock Unit Awards with Performance and Market-Based Vesting Conditions

During 2012 and 2011, pursuant to the approval of the Board, the Company granted 860,000 RSU awards with performance and market-based vesting conditions (the 2011/2012 Base RSUs) under the 2006 Share Incentive Plan and the 2012 Inducement Plan to certain executive officers. The 2011/2012 Base RSUs had a weighted-average grant date fair value of $34.66 and vested on February 29, 2016, based upon the achievement of the Vimizim approval and the 2015 revenue goal. The number of Base RSUs earned was 799,800 shares, which were issued on February 29, 2016. Stock-based compensation expense for this award was recognized over the remaining service period beginning in the period the Company determined the achievement of the strategic performance goal or goals were probable. For the years ended December 31, 2016, 2015 and 2014, the Company recorded $1.1 million, $5.8 million and $12.9 million, respectively, of compensation expense related to performance awards.

Restricted Stock Unit Awards with Performance Conditions

On March 15, 2016, pursuant to Board approval, the Company granted 130,310 RSU awards with performance-vesting conditions (the 2016 Base RSUs) under the 2006 Share Incentive Plan to certain executive officers. The vesting of the 2016 Base RSUs under this specific grant is contingent upon the achievement of a 2016 revenue target and a three-year service period. The number of RSUs awarded from the 2016 Base RSUs is determined based on the Company’s performance against the revenue target which could range between 80% and 120%. Based on the Company’s performance against the revenue target, the Company applied a multiplier of 103% will issue 134,219 shares on the first anniversary from the date of grant.

Stock-based compensation for these awards is recognized over the service period beginning in the period that the Company determined it is probable that the revenue target will be achieved. The cost of the 2016 Base RSUs was determined to be $83.43 per RSU, based on the fair value of the common stock underlying the 2016 Base RSUs on the grant date. The Company recognized approximately $3.0 million of compensation expense related to these awards during the year ended December 31, 2016.

On March 3, 2015, pursuant to Board approval, the Company granted 58,300 RSU awards with performance-vesting conditions (the 2015 Base RSUs) under the 2006 Share Incentive Plan to certain executive officers. The vesting of the 2015 Base RSUs under this specific grant is contingent upon the achievement of a 2015 revenue target and a three-year service period. The number of RSUs awarded from the 2015 Base RSUs is determined based on the Company’s performance against the revenue target which could range between 80% to 120%. Based on the Company’s performance against the revenue target, the Company applied a multiplier of 111% and issued 64,713 shares was issued on the first anniversary from the date of grant.

Stock-based compensation for these awards is recognized over the service period beginning in the period that the Company determined it is probable that the revenue target will be achieved. The cost of the 2015 Base RSUs was determined to be $108.36 per RSU, based on the fair value of the common stock underlying the 2015 Base RSUs on the grant date. The Company recognized approximately $2.3 million and $1.8 million of compensation expense related to these awards during the year ended December 31, 2016 and 2015, respectively.

As of December 31, 2016, total unrecognized compensation costs of $11.0 million related to RSU awards with performance-vesting conditions are expected to be recognized over a weighted average period of 2.0 years.

Compensation expense included in the Company’s Consolidated Statements of Operations for all stock-based compensation arrangements was as follows:

 

 

 

Years Ended December 31,

 

 

 

2016

 

 

2015

 

 

2014

 

Cost of sales

 

$

9,121

 

 

$

6,836

 

 

$

6,076

 

Research and development

 

 

58,279

 

 

 

49,399

 

 

 

33,835

 

Selling, general and administrative

 

 

67,241

 

 

 

55,290

 

 

 

46,499

 

Total stock-based compensation expense

 

$

134,641

 

 

$

111,525

 

 

$

86,410

 

 

Stock-based compensation of $11.4 million, $11.1 million and $8.2 million was capitalized into inventory, for the years ended December 31, 2016, 2015 and 2014, respectively. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.