6. Stock-Based Compensation

Equity Incentive Plan

The 2012 Equity Incentive Plan (the “2012 Plan”) provides for the granting of incentive stock options, nonstatutory stock options, RSAs, restricted stock units (“RSUs”) and stock appreciation rights to employees, non-employee directors and consultants. As of June 30, 2015, the total shares remaining available for issuance under the 2012 Plan were 3,140,356.

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 June 30, 2015, total shares remaining available for issuance under the ESPP were 278,971.

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 modification acknowledged the Spin-Off and permitted recognition of achievement of certain of the original performance conditions that were met prior to the Spin-Off, triggering service-based vesting for a portion of the equity awards, for which $3.8 million was recognized by us during the twelve-month period that commenced in June 2014. 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 June 30, 2015, 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.

Stock-Based Compensation Expense

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

	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2015		2014		2015		2014
Research and development	$	232	$	514	$	467	$	1,232
General and administrative	1,590		3,081		3,288		8,420

Stock-based compensation from continuing operations	1,822		3,595		3,755		9,652
Stock-based compensation from discontinued operations	—		4,152		—		11,629

Total stock-based compensation expense	$	1,822	$	7,747	$	3,755	$	21,281

As of June 30, 2015, unrecognized compensation expense, net of expected forfeitures for awards expected to vest, was as follows: $1.9 million related to unvested stock options; $2.6 million related to unvested RSUs; and $8.2 million related to unvested RSAs (including performance-contingent RSAs for which the performance milestones were determined to be probable of achievement).

At the time of the Spin-Off, all outstanding stock options, RSUs and RSAs held by former employees and directors, who transferred to Theravance Biopharma, were retained by them. As the vesting of these options and awards is based on continuing employment or service with Theravance Biopharma, all stock-based compensation expense associated with these options and awards is recognized by Theravance Biopharma.

Valuation Assumptions

No options were granted for the three and six months ended June 30, 2015.

The range of assumptions used to estimate fair value of employee stock options granted during the three and six months ended June 30, 2014 was as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2014		2014
Risk-free interest rate	1.6%-2.1%		1.6%-2.1%
Expected term (in years)	5-6		5-6
Volatility	52%-60%		52%-60%
Dividend yield	0%-0.4%		0%-0.4%
Weighted-average estimated fair value of stock options granted	$	15.72	$	17.43