6. Stock-Based Compensation

Equity Incentive Plans

In May 2012, we adopted the 2012 Equity Incentive Plan (the "2012 Plan"). The 2012 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, stock unit awards and SARs to employees, non-employee directors and consultants. As of December 31, 2015, total shares remaining available for issuance under the 2012 Plan were 3,466,041.

Employee Stock Purchase Plan

Under the 2004 Employee Stock Purchase Plan (the "ESPP"), our employees may purchase common stock through payroll deductions at a price equal to 85% of the lower of the fair market value of the stock at the beginning of the offering period or at the end of each applicable purchase period. The ESPP provides for consecutive and overlapping offering periods of 24 months in duration, with each offering period composed of four consecutive six-month purchase periods. The purchase periods end on either May 15 or November 15. ESPP contributions are limited to a maximum of 15% of an employee's eligible compensation. The maximum number of shares that an employee may purchase in any purchase period is 2,500. An employee may not purchase shares with a value greater than $25,000 in any calendar year.

As of December 31, 2015, total shares remaining available for issuance under the ESPP were 265,711.

Performance-Contingent RSAs

Since 2011, the Compensation Committee of our Board of Directors (the "Compensation Committee") have approved grants of performance-contingent RSAs to senior management and a non-executive officer. Generally, these awards have dual triggers of vesting based upon the achievement of certain performance goals by a pre-specified date, as well as a requirement for continued employment. Recognition of stock-based compensation expense begins when the performance goals are deemed probable of achievement.

Included in these performance-contingent RSAs is the grant of 1,290,000 special long-term retention and incentive performance-contingent RSAs to senior management in 2011. The awards have dual triggers of vesting based upon the achievement of certain performance conditions over a six-year timeframe from 2011 through December 31, 2016 and require continued employment. As of March 31, 2014, we determined that the achievement of the requisite performance conditions for vesting of the first tranche of these awards was probable and the total stock-based compensation expense of $7.0 million for the first tranche was fully recognized through May 2014. In connection with the Spin-Off, our Compensation Committee approved the modification of the remaining tranches related to these awards as the performance conditions associated with the remaining portions of these awards were unlikely to be consistent with the new strategies of each company following the Spin-Off. The remaining 63,000 RSAs for which service-based vesting was not triggered at the time of the Spin-Off remain subject to new performance conditions (as well as the original service conditions). In addition, the RSAs for which both the performance and service-based conditions were not achieved prior to the Spin-Off were entitled to the pro rata dividend distribution made by Theravance on June 2, 2014 of one ordinary share of Theravance Biopharma for every 3.5 shares of Theravance common stock subject to their awards, which will also be subject to the same new performance and service conditions as the original RSAs to which they relate. As of December 31, 2015 and 2014, we determined that the achievement of the requisite performance conditions was not probable and, as a result, no compensation cost was recognized for the remaining equity awards.

Performance-Contingent RSUs

Prior to 2015, the Compensation Committee had approved grants of performance-contingent RSUs to employees. These awards have dual triggers of vesting based upon the successful achievement of certain corporate operating milestones in specified timelines, as well as a requirement for continued employment. When the performance goals are deemed to be probable of achievement for these types of awards, time-based vesting and, as a result, recognition of stock-based compensation expense commences. There were no outstanding shares as of December 31, 2015.

Director Compensation Program

Our non-employee directors receive compensation for services provided as a director. Each member of our Board of Directors who is not an employee receives an annual cash retainer for services as a director, member of a committee of the Board of Directors, lead independent director and chairman, as applicable. In addition, prior to the Spin-Off, each non-employee director was entitled to a cash fee for each board and committee meeting attended.

Each of our independent directors receives periodic automatic grants of equity awards under a program implemented under the 2012 Plan. These grants are non-discretionary. Only our independent directors or affiliates of such directors are eligible to receive automatic grants under the 2012 Plan. Under the program, as amended following the Spin-Off, each individual who first becomes a non-employee director will, on the date such individual joins the Board of Directors, automatically be granted a one-time grant of RSUs covering a number of shares of our common stock calculated as $250,000 divided by our common stock closing share price on the date of grant as reported on The NASDAQ Global Market, rounded down to the nearest whole share (the "Initial RSUs"), plus a one-time grant of RSUs covering a number of shares of our common stock calculated as $250,000 divided by our common stock closing share price on the date of grant as reported on The NASDAQ Global Market, which would be pro-rated for the number of whole months remaining until the anniversary of the prior year's stockholders' meeting, rounded down to the nearest whole share (the "Pro Rata RSUs"). The Initial RSUs vest in two equal annual installments, while Pro-Rata RSUs vest in a single installment at the sooner of the next annual stockholder meeting or the one-year grant anniversary, in each case subject to the non-employee director's continuous service through the applicable vesting date.

Annually, upon his or her re-election to the Board at the Annual Meeting of Stockholders, each non-employee director is automatically granted an RSU covering a number of shares of our common stock calculated as $250,000 divided by our common stock closing share price on the date of grant as reported on The NASDAQ Global Market, rounded down to the nearest whole share. Annual RSUs will vest at the sooner of the next annual stockholder meeting or the one-year anniversary of grant, subject to the non-employee director's continuous service through the applicable vesting date.

These RSUs will vest in full upon the director's death or the occurrence of a Change in Control before the director's service terminates. All director RSUs will be settled in shares of our common stock on the vesting date. Director RSUs will carry dividend equivalent rights to be credited with an amount equal to all cash dividends paid on the underlying shares of common stock while unvested. Dividend equivalents will be subject to the same terms and conditions, including vesting, as the RSUs to which they attach and will be paid in cash upon vesting.

Stock-Based Compensation Expense

In connection with the Spin-Off of Theravance Biopharma, all outstanding shares of Theravance Biopharma were distributed to our stockholders as a pro-rata dividend distribution on June 2, 2014 by issuing one ordinary share of Theravance Biopharma for every 3.5 shares held of Innoviva common stock to stockholders of record on May 15, 2014. Outstanding stock options and RSUs that were not eligible for the dividend distribution were adjusted for the Spin-Off of Theravance Biopharma. The number of shares and exercise price for all outstanding stock options were adjusted and the number of shares for all outstanding RSUs was adjusted. All other terms of these grants remain the same; provided, however, that the vesting and expiration of these grants are based on the holder's continuing employment or service with us or Theravance Biopharma, as applicable.

Although the anti-dilution adjustments were required pursuant to the terms of each stock plan, the anti-dilution adjustments were calculated using a volume-weighted average stock price, rather than the stock price as of the date of the dividend distribution, which resulted in incremental compensation expense. The accounting impact of the adjustment to the outstanding stock options and RSUs that occurred in connection with the Spin-Off of Theravance Biopharma was measured by comparing of the fair values of the modified stock options and RSUs to our employees and directors immediately before and after the adjustment. As a result, we recognized incremental stock- based compensation expense of $1.2 million in the second quarter of 2014, of which $0.9 million is included in discontinued operations. All remaining unrecognized stock-based compensation expense associated with this adjustment will be recognized by Theravance Biopharma as it pertains to stock options and RSUs held by individuals now employed by Theravance Biopharma or one if its affiliates.

Stock-based compensation expense is included in the consolidated statements of operations as follows:

	Year Ended December 31,
(In thousands)	2015		2014		2013
Research and development	$	1,036	$	2,781	$	573
General and administrative		5,837		12,980		7,325

Stock-based compensation from continuing operations		6,873		15,761		7,898
Stock-based compensation from discontinued operations		—		11,629		17,789

Total stock-based compensation expense	$	6,873	$	27,390	$	25,687

Stock-based compensation expense included in the consolidated statements of operations by award type is as follows:

	Year Ended December 31,
(In thousands)	2015		2014		2013
Stock options	$	789	$	4,658	$	4,132
RSUs		2,492		4,564		10,174
RSAs		2,850		7,575		9,723
Performance RSUs		—		3		61
Performance RSAs		613		10,580		1,061
ESPP		129		10		536

Total stock-based compensation expense	$	6,873	$	27,390	$	25,687

As of December 31, 2015, the unrecognized stock-based compensation cost, net of expected forfeitures for awards expected to vest, including performance- contingent RSAs for which the performance milestones were determined to be probable of achievement, and the estimated weighted-average amortization period, using the straight-line attribution method, was as follows:

(In thousands, except amortization period)	Unrecognized Compensation Cost		Weighted- Average Amortization Period (Years)
Stock options	$	1,531		2.4
RSUs		1,446		1.1
RSAs		8,275		3.1
Performance RSAs		6		2.1

Total stock-based compensation expense	$	11,258

Compensation Awards

The following table summarizes equity award activity under the 2012 Plan and Prior Plans and related information:

(In thousands)	Number of Shares Subject to Outstanding Options			Weighted- Average Exercise Price of Outstanding Options		Number of Shares Subject to Outstanding RSUs			Weighted- Average Fair Value per Share at Grant		Number of Shares Outstanding Subject to Vesting or Performance Conditions with Vesting			Weighted- Average Fair Value per Share at Grant
Balance as of December 31, 2014		5,422			22.46		775			18.53		1,772			25.78
Granted		—			—		141			15.50		437			13.76
Exercised		(111	)		13.75		—			—		—			—
Released RSUs/RSAs		—			—		(327	)		17.66		(883	)		25.22
Forfeited		(1,049	)		21.19		(130	)		18.07		(21	)		20.33

Balance as of December 31, 2015		4,262		$	23.00		459		$	18.34		1,305		$	18.00

As of December 31, 2015, the aggregate intrinsic value of the options outstanding was $0.1 million and the aggregate intrinsic value of the options exercisable was $0.1 million.

The total intrinsic value of the options exercised was $0.5 million in the year ended December 31, 2015, $17.5 million in the year ended December 31, 2014 and $41.4 million in the year ended December 31, 2013. The total estimated fair value of options vested was $10.0 million in the year ended December 31, 2015, $5.7 million in the year ended December 31, 2014 and $3.7 million in the year ended December 31, 2013.

Valuation Assumptions

We based the range of weighted-average estimated values of employee stock option grants and rights granted under the ESPP, as well as the weighted-average assumptions used in calculating these values, on estimates as of the date of grant, as follows:

	Year Ended December 31,
	2015(1)			2014	2013
Employee stock options
Risk-free interest rate		—	%	1.6% - 2.1%	0.8% - 2.0%
Expected term (in years)		—		5 - 6	5 - 6
Volatility		—	%	52% - 60%	58% - 60%
Dividend yield		—	%	3% - 4%	—
Weighted-average estimated fair value of stock options granted	$	—		$15.63	$19.96


(1)	There were no stock options granted for the year ended December 31, 2015.

	Year Ended December 31,
	2015	2014	2013
Employee stock purchase plan issuances
Risk-free interest rate	0.1% - 0.9%	0.1% - 0.5%	0.1% - 0.3%
Expected term (in years)	0.5 - 2	0.5 - 2	0.5 - 2
Volatility	44% - 69%	43% - 55%	56% - 61%
Dividend yield	0% - 6%	8%	—
Weighted-average estimated fair value of ESPP shares granted	$4.52	$4.49	$16.44