5. Stock-Based Compensation

Market-Based RSAs and RSUs

2016 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 Total Shareholder Return (“TSR”) and a service condition that requires continued employment, collectively the “Performance Measures I”. 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 would 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 I. The grant date fair value of these awards was 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, but with the exception of such person's continued employment with the Company.

In February 2018, the Compensation Committee certified the maximum achievement of the TSR as of the first measurement date, January 12, 2018. 69,440 RSAs and 30,862 RSUs representing two-thirds of the amounts were released on February 20, 2018, and the remaining 34,720 RSAs and 15,432 RSUs will vest on February 20, 2019 subject to each eligible person’s continued employment with the Company. Additionally, in connection with certain members of senior management’s separation from the Company in early February 2018, the Board agreed to accelerate the vesting and distribution of an aggregate of 118,821 RSAs to these members of senior management. The remaining 59,411 RSAs for these members of senior management were forfeited. As a net result of the vesting acceleration of the RSAs and the forfeiture of those unvested RSAs, an additional $0.7 million compensation expense was recognized during the three months ended March 31, 2018.

2017 Market-Based RSAs and RSUs

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 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 is 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, but with the exception of such person's continued employment with the Company.

In connection with certain members of senior management's separation from the Company mentioned above, an aggregate of 233,448 RSAs for these members of senior management were forfeited, and $0.8 million of previously recognized compensation expense was reversed during the three months ended March 31, 2018.

2018 Market-Based RSAs and RSUs

On March 2, 2018, the Compensation Committee approved and granted 111,668 RSAs and 49,630 RSUs to senior management. These awards include a market condition based on the TSR of Innoviva’s common stock over a three-year performance period from the date of grant for the RSAs and from the date of grant until September 30, 2020 for RSUs, and a service condition that requires continued employment, collectively the “Performance Measures III”. The actual payout of shares may range from a minimum of zero shares to a maximum of 161,298 shares granted upon the actual performance against the Performance Measures III. The grant date fair value of these awards was determined using a Monte Carlo valuation model. The aggregate value of $1.7 million is recognized as compensation expense over the implied service period and will not be reversed if the market condition is not met, but with the exception of such person's continued employment with the Company.

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)	2018		2017		2018		2017
Research and development	$	—	$	175	$	—	$	353
General and administrative		1,452		2,252		3,621		4,581
Total stock-based compensation expense	$	1,452	$	2,427	$	3,621	$	4,934

As of June 30, 2018, unrecognized stock-based compensation cost, including performance-contingent RSAs for which the performance milestones were determined to be probable of achievement, was as follows:


	Unrecognized
	Compensation
(In thousands)	Cost
Stock options	$	19
RSUs		2,096
RSAs		3,521
Market-based RSUs		627
Market-based RSAs		1,493
Total unrecognized compensation cost	$	7,756