Stock-Based Compensation

3 Months Ended

Mar. 31, 2014

Stock-Based Compensation

Stock-Based Compensation

8. Stock-Based Compensation

Equity Incentive Plan

The 2012 Equity Incentive Plan (2012 Plan) provides for the grant of stock options, time-based and performance-contingent RSUs, time-based and performance-contingent RSAs, and stock appreciation rights to employees, non-employee directors and consultants. As of March 31, 2014, total shares remaining available for issuance under the 2012 Plan were 2,925,115.

Performance-Contingent RSAs

Over the past three years, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) has 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. When the performance goals are probable of achievement for these types of awards, time-based vesting and, as a result, recognition of stock-based compensation expense commence.

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. The maximum potential expense associated with this program, net of forfeitures, is $28.2 million related to stock-based compensation expense, which would be recognized in increments based on achievement of the performance conditions.

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, as a result, $6.8 million of the total stock-based compensation expense of $7.0 million related to this grant was recognized in the first quarter of 2014.

In May 2014, the Compensation Committee approved the modification of certain performance conditions for the second tranche of awards related to this grant. The modification permitted recognition of partial achievement of the original performance conditions that were met prior to the business separation. Therefore, we determined that the achievement of the modified performance conditions for this tranche was probable. As a result an additional $4.3 million of stock-based compensation expense will be recognized over a one year vesting period commencing in May 2014. In addition, the remaining unvested equity award was restructured to reflect the change in our Company and to address potential retention concerns following the business separation.

Stock-Based Compensation Expense

The allocation of stock-based compensation expense included in the condensed consolidated statements of operations was as follows:

	Three Months Ended March 31,
(In thousands)	2014		2013
Research and development	$	5,439	$	3,797
Selling, general and administrative	8,096		2,298
Total stock-based compensation expense	$	13,535	$	6,095

Total stock-based compensation expense capitalized to inventory was not material for the first quarter of 2014 and was $0.1 million for first quarter of 2013.

As of March 31, 2014, unrecognized compensation expense, net of expected forfeitures, was as follows: $19.8 million related to unvested stock options; $12.7 million related to unvested RSUs; and $21.9 million related to unvested RSAs (excludes performance-contingent RSAs).

Valuation Assumptions

The range of weighted-average assumptions used to estimate the fair value of stock options granted was as follows:

	Three Months Ended March 31,
	2014			2013
Employee stock options
Risk-free interest rate	1.78-1.95		%	1.01%-1.14		%
Expected term (in years)	6			6
Volatility	60		%	58		%
Dividend yield	—		%	—		%
Weighted-average estimated fair value of stock options granted	$	21.29		$	12.32

Stockholders’ Equity

For the three months ended March 31, 2014, approximately 433,000 shares were exercised at a weighted-average exercise price of $15.34 per share, for total cash proceeds of approximately $6,636,000.