8. Share-Based Compensation

As of March 31, 2019, we have two shareholder-approved equity incentive plans: the United Therapeutics Corporation Amended and Restated Equity Incentive Plan (the 1999 Plan) and the United Therapeutics Corporation Amended and Restated 2015 Stock Incentive Plan (the 2015 Plan). The 2015 Plan and an amendment and restatement of the 2015 Plan were approved by our shareholders in June 2015 and June 2018, respectively. The 2015 Plan, as amended, provides for the issuance of up to 9,050,000 shares of our common stock pursuant to awards granted under the 2015 Plan. As a result of the approval of the 2015 Plan, no further awards have been or will be granted under the 1999 Plan. We also have one equity incentive plan, the United Therapeutics Corporation 2019 Inducement Stock Incentive Plan (the 2019 Inducement Plan), that has not been approved by our shareholders, in accordance with Nasdaq Stock Market rules. The 2019 Inducement Plan was approved by our Board of Directors in February 2019 and provides for the issuance of up to 99,000 shares of our common stock under awards granted to newly-hired employees. Currently, we grant equity-based awards to employees and members of our Board of Directors in the form of stock options and restricted stock units under the 2015 Plan, and we grant restricted stock units to newly-hired employees under the 2019 Inducement Plan. Refer to the sections entitled Stock Options and Restricted Stock Units below.

We previously issued awards under the United Therapeutics Corporation Share Tracking Awards Plan (2008 STAP) and the United Therapeutics Corporation 2011 Share Tracking Awards Plan (2011 STAP). We refer to the 2008 STAP and the 2011 STAP collectively as the “STAP” and awards outstanding under either of these plans as “STAP awards.” Refer to the section entitled Share Tracking Awards Plans below. We discontinued the issuance of STAP awards in June 2015.

In 2012, our shareholders approved the United Therapeutics Corporation Employee Stock Purchase Plan (ESPP), which is structured to comply with Section 423 of the Internal Revenue Code. Refer to the section entitled Employee Stock Purchase Plan below.

The following table reflects the components of share-based compensation expense (benefit) recognized in our consolidated statements of operations (in millions):


	Three Months Ended March 31,
	2019		2018
Stock options	$	15.7	$	12.7
Restricted stock units		2.2		0.9
STAP awards		11.0		(115.0)
Employee stock purchase plan		0.3		0.3
Total share-based compensation expense (benefit) before tax	$	29.2	$	(101.1)

Stock Options

We estimate the fair value of stock options using the Black-Scholes-Merton valuation model, which requires us to make certain assumptions that can materially impact the estimation of fair value and related compensation expense. The assumptions used to estimate fair value include the price of our common stock, the expected volatility of our common stock, the risk-free interest rate, the expected term of stock option awards and the expected dividend yield.

The table below includes the weighted-average assumptions used to measure the fair value of all stock options granted during the three-month periods ended March 31, 2019 and March 31, 2018:


	March 31,		March 31,
	2019		2018
Expected volatility	33.9	%	36.1	%
Risk-free interest rate	2.4	%	2.7	%
Expected term of awards (in years)	5.8		6.3
Expected dividend yield	0.0	%	0.0	%

A summary of the activity and status of stock options under our equity incentive plans during the three-month period ended March 31, 2019 is presented below:


				Weighted
		Weighted-		Average	Aggregate
		Average		Remaining	Intrinsic
	Number of	Exercise		Contractual	Value
	Options	Price		Term (Years)	(in millions)
Outstanding at January 1, 2019	6,299,803	$	120.78
Granted	2,011,667		126.54
Exercised	(166,508)		53.10
Forfeited/canceled	(77,200)		130.73
Outstanding at March 31, 2019	8,067,762	$	123.52	7.0	$	38.6
Exercisable at March 31, 2019	3,885,475	$	119.05	5.8	$	32.8
Unvested at March 31, 2019	4,182,287	$	127.67	8.1	$	5.8

The weighted average fair value of a stock option granted during each of the three-month periods ended March 31, 2019 and March 31, 2018, was $40.03 and $45.00, respectively. These stock options have an aggregate grant date fair value of $80.5 million and $42.5 million, respectively. The total fair value of stock options that vested during the three-month periods ended March 31, 2019 and March 31, 2018 was $33.7 million and $31.1 million, respectively.

Total share-based compensation expense relating to stock options is recorded as follows (in millions):


	Three Months Ended
	March 31,
	2019		2018
Cost of product sales	$	0.2	$	0.3
Research and development		0.9		0.9
Selling, general and administrative		14.6		11.5
Share-based compensation expense before taxes		15.7		12.7
Related income tax benefit		(3.5)		(2.9)
Share-based compensation expense, net of taxes	$	12.2	$	9.8

As of March 31, 2019, unrecognized compensation cost relating to stock options was $143.4 million. Unvested outstanding stock options as of March 31, 2019 had a weighted average remaining vesting period of 2.8 years.

Stock option exercise data is summarized below (dollars in millions):


	Three Months Ended
	March 31,
	2019		2018
Number of options exercised		166,508		174,295
Cash received	$	8.8	$	9.2
Total intrinsic value of options exercised	$	10.3	$	10.4

Restricted Stock Units

Each restricted stock unit entitles the recipient to one share of our common stock upon vesting. We measure the fair value of restricted stock units using the stock price on the date of grant. Share-based compensation expense for the restricted stock units is recorded ratably over their vesting period. A summary of the activity with respect to, and status of, restricted stock units under the 2015 Plan during the three-month period ended March 31, 2019 is presented below:


				Weighted
		Weighted-		Average	Aggregate
	Number of	Average		Remaining	Intrinsic
	Restricted	Grant		Contractual	Value
	Stock Units	Price		Term (Years)		(in millions)
Unvested at January 1, 2019	186,255	$	112.48
Granted	196,489		117.75
Vested	(46,027)		111.04
Forfeited/canceled	(4,373)		119.39
Unvested at March 31, 2019	332,344	$	115.71	9.6	$	39.0

Total share-based compensation expense relating to restricted stock units is recorded as follows (in millions):


	Three Months Ended March 31,
	2019		2018
Cost of product sales	$	0.2	$	—
Research and development		0.7		0.1
Selling, general and administrative		1.3		0.8
Share-based compensation expense before taxes		2.2		0.9
Related income tax benefit		(0.5)		(0.2)
Share-based compensation expense, net of taxes	$	1.7	$	0.7

As of March 31, 2019, unrecognized compensation cost related to the grant of restricted stock units was $35.6 million. Unvested outstanding restricted stock units as of March 31, 2019 had a weighted average remaining vesting period of 2.6 years.

Share Tracking Awards Plans

STAP awards convey the right to receive in cash an amount equal to the appreciation of our common stock, which is measured as the increase in the closing price of our common stock between the dates of grant and exercise. STAP awards expire on the tenth anniversary of the grant date, and in most cases they vest in equal increments on each anniversary of the grant date over a four-year period. The STAP liability includes vested awards and awards that are expected to vest.

The aggregate STAP liability balance was $77.5 million and $72.2 million at March 31, 2019 and December 31, 2018, respectively, all of which was classified as a current liability on our consolidated balance sheets because all STAP awards are either vested or expected to vest within one year based on their vesting terms.

Estimating the fair value of STAP awards requires the use of certain inputs that can materially impact the determination of fair value and the amount of compensation expense (benefit) we recognize. Inputs used in estimating fair value include the price of our common stock, the expected volatility of the price of our common stock, the risk-free interest rate, the expected term of STAP awards, and the expected dividend yield. Prior to December 31, 2018, we used historical data to develop the expected term input for our STAP awards. As of December 31, 2018, we no longer believed historical exercise data was a reasonable approach to determine the expected exercise behavior of outstanding STAPs given the prolonged volatility of the price of our common stock. As such, we determined the expected term assumption as of March 31, 2019 using the weighted average midpoint of the remaining contractual term for outstanding awards and expect to continue to use this methodology until circumstances dictate otherwise.

The fair value of the STAP awards is measured at the end of each financial reporting period because the awards are settled in cash.

The table below includes the weighted-average assumptions used to measure the fair value of outstanding STAP awards:


	March 31,		March 31,
	2019		2018
Expected volatility	29.3	%	33.3	%
Risk-free interest rate	2.2	%	2.1	%
Expected term of awards (in years)	2.4		1.2
Expected dividend yield	—	%	—	%

The closing price of our common stock was $117.37 and $112.36 on March 31, 2019 and March 31, 2018, respectively. The closing price of our common stock was $108.90 on December 31, 2018.

A summary of the activity and status of STAP awards during the three-month period ended March 31, 2019 is presented below:


				Weighted
				Average
		Weighted		Remaining	Aggregate
		Average		Contractual	Intrinsic
	Number of	Exercise		Term	Value
	Awards	Price		(in Years)	(in millions)
Outstanding at January 1, 2019	2,867,979	$	107.85
Granted	—		—
Exercised	(109,667)		61.19
Forfeited	(65,067)		163.22
Outstanding at March 31, 2019	2,693,245	$	108.42	4.8	$	72.9
Exercisable at March 31, 2019	2,675,745	$	108.41	4.8	$	72.3
Unvested at March 31, 2019	17,500	$	109.29	4.8	$	0.6

Share-based compensation expense (benefit) recognized in connection with STAP awards is as follows (in millions):


	Three Months Ended
	March 31,
	2019		2018
Cost of product sales	$	0.7	$	(6.2)
Research and development		1.9		(23.6)
Selling, general and administrative		8.4		(85.2)
Share-based compensation expense (benefit) before taxes		11.0		(115.0)
Related income tax (benefit) expense		(2.5)		26.3
Share-based compensation expense (benefit), net of taxes	$	8.5	$	(88.7)

Cash paid to settle STAP exercises during the three-month periods ended March 31, 2019 and March 31, 2018 was $5.8 million and $43.6 million, respectively.

Employee Stock Purchase Plan

In June 2012, our shareholders approved the United Therapeutics Corporation Employee Stock Purchase Plan (ESPP), which is structured to comply with Section 423 of the Internal Revenue Code. The ESPP provides eligible employees with the right to purchase shares of our common stock at a discount through elective accumulated payroll deductions at the end of each offering period. Offering periods, which began in 2012, occur in consecutive six-month periods commencing on September 5th and March 5th of each year. Eligible employees may contribute up to 15 percent of their base salary, subject to certain annual limitations as defined in the ESPP. The purchase price of the shares is equal to the lower of 85 percent of the closing price of our common stock on either the first or last trading day of a given offering period. In addition, the ESPP provides that no eligible employee may purchase more than 4,000 shares during any offering period. The ESPP has a 20-year term and limits the aggregate number of shares that can be issued under the ESPP to 3.0 million.