Stock-Based Compensation

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

The Company uses the Black-Scholes option-pricing model for determining the estimated fair value of stock-based compensation for stock-based awards to employees and the board of directors. The assumptions used in the Black-Scholes option-pricing model for the three months ended March 31, 2014 and 2013 are as follows:

	Three Months Ended March 31,
	2014		2013
Risk free interest rate	2.0%		0.8% to 1.1%
Expected term	6.0 to 6.1 years		5.0 to 6.1 years
Expected volatility	84.9%		86.8% to 87.9%
Expected dividend yield	—	%	—	%

The risk-free interest rate assumption was based on the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The weighted average expected term of options was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation. This decision was based on the lack of relevant historical data due to the Company’s limited historical experience. In addition, due to the Company’s limited historical data, the estimated volatility was calculated based upon the Company's historical volatility, supplemented with historical volatility of comparable companies whose share prices are publicly available for a sufficient period of time.

The Company recognized stock-based compensation expense as follows (in thousands):

	Three Months Ended March 31,
	2014		2013
Cost of sales	$	127	$	45
Research and development	357		216
Selling, general and administrative	2,023		1,325
Total	$	2,507	$	1,586

As of March 31, 2014, there was approximately $20,285,000 of total unrecognized compensation costs related to outstanding employee and board of director stock options and restricted stock units, which is expected to be recognized over a weighted average period of 2.9 years.

As of March 31, 2014, there were 164,000 unvested stock options and 25,000 restricted stock units outstanding to consultants, with approximately $404,000 of related unrecognized compensation expense based on a March 31, 2014 measurement date. These unvested stock options outstanding to consultants are expected to vest over a weighted average period of 2.5 years, and the restricted stock units outstanding to consultants are expected to vest over approximately 0.2 years. In accordance with accounting guidance for stock-based compensation, the Company re-measures the fair value of stock option grants to non-employees at each reporting date and recognizes the related income or expense during their vesting period. The gain recognized from the valuation of stock options and restricted stock units to consultants was $174,000 for the three months ended March 31, 2014 and was immaterial for the three months ended March 31, 2013. Stock option expense for awards issued to consultants is included in the consolidated statement of operations and comprehensive loss within selling, general and administrative expense.