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, RSAs, RSUs and SARs to employees, non-employee directors and consultants. As of December 31, 2017, total shares remaining available for issuance under the 2012 Plan were 3,411,107.

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, 2017, total shares remaining available for issuance under the ESPP were 205,979.

Performance-Contingent RSAs and RSUs

Since 2011, the Compensation Committee of our Board of Directors (the "Compensation Committee") has approved grants of performance-contingent RSAs and RSUs 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 remaining grant of 63,000 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 service to the Company. During the year ended December 31, 2016, we determined that the achievement of the requisite performance conditions was met. These awards were released in November 2017 upon vesting.

Market-Based RSAs and RSUs

On January 14, 2016, the Compensation Committee approved and granted 282,394 RSAs and 46,294 RSUs to senior management. These awards include a market condition based on Relative Total Shareholder Return ("TSR") and a service condition that requires continued employment, collectively the "Performance Measures". The vesting percentages of these awards are calculated based on the two-year TSR with a catch-up provision opportunity measured on January 13, 2019 for RSAs and on September 30, 2018 for RSUs. Two-thirds of amounts earned at the end of year two will vest and be distributed on February 20, 2018, while the final one-third earned after two years as well as the catch-up amount earned will vest and be distributed on February 20, 2019 for RSAs and November 20, 2018 for RSUs. The actual payout of shares may range from a minimum of zero shares to a maximum of 328,688 shares granted upon the actual performance against the Performance Measures. The grant date fair value of these awards is determined using a Monte Carlo valuation model. The aggregate value of $2.0 million is recognized as compensation expense over the implied service period and will not be reversed if the market condition is not met.

On January 17, 2017, the Compensation Committee approved and granted 353,508 RSAs and 53,360 RSUs to senior management. These awards include a market condition based on the TSR of Innoviva's common stock as compared to the TSR of the Nasdaq Biotechnology Index ("Index") and a service condition that requires continued employment, collectively the "Performance Measures II". The vesting percentages of these awards are calculated based on the two-year performance period with a catch-up provision opportunity measured on December 31, 2019 for RSAs and on September 30, 2019 for RSUs. Two-thirds of amounts earned at the end of year two will vest and be distributed on February 20, 2019, while the final one-third earned after two years as well as the catch-up amount earned will vest and be distributed on February 20, 2020 for RSAs and November 20, 2019 for RSUs. The actual payout of shares may range from a minimum of zero shares to a maximum of 406,868 shares granted upon the actual performance against the Performance Measures II. The grant date fair value of these awards was determined using a Monte Carlo valuation model. The aggregate value of $3.2 million is recognized as compensation expense over the implied service period and will not be reversed if the market condition is not met.

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 both cash and equity compensation for services as a director, member of a committee of the Board of Directors, lead independent director and chairman, as applicable. In October 2017, both the cash and equity components of the compensation program were amended, effective immediately (the "October 2017 Amendments").

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, each individual who first became 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 $125,000 ($250,000 prior to the October 2017 Amendments) divided by our common stock closing share price on the date of grant as reported on The Nasdaq Global Select 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 $225,000 ($250,000 prior to the October 2017 Amendments) divided by our common stock closing share price on the date of grant as reported on The Nasdaq Global Select 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 $225,000 ($250,000 prior to the October 2017 Amendments) divided by our common stock closing share price on the date of grant as reported on The Nasdaq Global Select 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. Following the amendment to our non-employee director compensation program, both the annual equity awards and initial equity awards described above remained unchanged with the exception that the number of shares of our Common Stock subject to each award has been reduced.

These RSUs will vest in full upon the director's death, the occurrence of a Change in Control or, with respect to awards made after the October 2017 Amendments, the director's disability before the director's service terminates. Director RSUs 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 are subject to the same terms and conditions, including vesting, as the RSUs to which they attach and are paid in cash upon vesting.

Stock-Based Compensation Expense

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

	Year Ended December 31,
(In thousands)	2017		2016		2015
Research and development	$	697	$	632	$	1,036
General and administrative		9,136		7,665		5,837

Total stock-based compensation expense	$	9,833	$	8,297	$	6,873

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

	Year Ended December 31,
(In thousands)	2017		2016		2015
Stock options	$	593	$	632	$	789
RSUs		2,282		1,920		2,492
RSAs		4,497		3,492		2,850
Performance-based RSAs		242		1,293		613
Market-based RSUs		291		112		—
Market-based RSAs		1,855		693		—
ESPP		73		155		129

Total stock-based compensation expense	$	9,833	$	8,297	$	6,873

As of December 31, 2017, the unrecognized stock-based compensation cost and the estimated weighted-average amortization period were as follows:

(In thousands)	Unrecognized Compensation Cost		Weighted-Average Amortization Period (Years)
Stock options	$	305		0.5
RSUs		1,487		0.9
RSAs		7,764		2.4
Market-based RSUs		285		0.9
Market-based RSAs		1,943		1.0

Total unrecognized compensation cost	$	11,784

Compensation Awards

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

(In thousands, except per share data)	Number of outstanding options			Weighted- Average Exercise Price of Outstanding Options		Number of outstanding RSUs and PSUs			Weighted- Average Fair Value per Share at Grant		Number of outstanding RSAs and PSAs			Weighted- Average Fair Value per Share at Grant
Balance as of December 31, 2016		2,900		$	23.72		413		$	15.29		1,125		$	13.67
Granted		—			—		255			11.38		774			9.53
Exercised		(16	)		11.81		—			—		—			—
Released RSUs/RSAs		—			—		(278	)		15.88		(412	)		14.87
Forfeited		(1,244	)		23.63		(20	)		12.62		(39	)		13.19

Balance as of December 31, 2017		1,640			23.90		370			11.57		1,448			9.95

As of December 31, 2017, the aggregate intrinsic value of the options outstanding was $0.4 million and the aggregate intrinsic value of the options exercisable was $0.4 million.

The total intrinsic value of the options exercised was not material in the years ended December 31, 2017 and 2016, and was $0.5 million in the year ended December 31, 2015. The total estimated fair value of options vested was $3.8 million in the year ended December 31, 2017, $4.7 million in the year ended December 31, 2016 and $10.0 million in the year ended December 31, 2015.

The total estimated fair value of RSUs and PSUs vested was $2.6 million in the year ended December 31, 2017, $3.9 million in the year ended December 31, 2016 and $5.6 million in the year ended December 31, 2015.

The total estimated fair value of RSAs and PSAs vested was $6.3 million in the year ended December 31, 2017, $14.7 million in the year ended December 31, 2016 and $22.3 million in the year ended December 31, 2015.

Valuation Assumptions

There were no stock options granted for the years ended December 31, 2017, 2016 or 2015.

We based the range of weighted-average estimated values of 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,
	2017	2016	2015
Employee stock purchase plan issuances
Risk-free interest rate	1.4% - 1.7%	0.4% - 1.0%	0.1% - 0.9%
Expected term (in years)	0.5 - 2	0.5 - 2	0.5 - 2
Volatility	35% - 44%	39% - 66%	44% - 69%
Dividend yield	0%	0%	0% - 6%
Weighted-average estimated fair value of ESPP shares granted	$3.90	$4.47	$4.52