Share-Based Compensation

Amended and Restated 2012 Long Term Incentive Plan (“LTIP”)

Employees and consultants of the Company, its subsidiaries and affiliates, as well as members of the Company's Board of Directors, are eligible to receive equity awards under the LTIP. The LTIP provides for the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights (“SARS”), restricted shares, restricted share units (“RSUs”), cash or stock-based performance awards and other share-based awards to eligible individuals. Options under the LTIP may be granted for periods up to ten years. All options issued to date have had a ten year life.

The Company granted 1,566,800, 1,508,725 and 1,155,300 share options during the years ended December 31, 2017, 2016 and 2015, respectively, under the LTIP. The Company's option awards generally vest over four years. In May 2017, the Company's shareholders approved an increase of 1,350,000 additional ordinary shares authorized for issuance under the LTIP. The aggregate number of ordinary shares authorized for issuance under the LTIP is 8,750,000 ordinary shares. As of December 31, 2017, 2,261,745 ordinary shares remained available for grant, and options to purchase 4,406,752 ordinary shares under the LTIP were outstanding with a weighted-average exercise price of approximately $38.93 per share.

Share-based Compensation Expense

The Company estimates the fair value of share-based compensation on the date of grant using an option-pricing model. The Company uses the Black-Scholes model to value share-based compensation, excluding RSUs, which the Company values using the fair market value of its ordinary shares on the date of grant. The Black-Scholes option-pricing model determines the fair value of share-based payment awards based on the share price on the date of grant and is affected by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the Company’s share price, volatility over the expected life of the awards and actual and projected employee stock option exercise behaviors. Since the Company does not have sufficient historical employee share option exercise data, the simplified method has been used to estimate the expected life of all options. The expected volatility was based on a combination of historical volatility for the Company's stock and the historical volatilities of several of the Company's publicly traded comparable companies. Although the fair value of share options granted by the Company is estimated by the Black-Scholes model, the estimated fair value may not be indicative of the fair value observed in a willing buyer and seller market transaction.

As share-based compensation expense recognized in the Consolidated Financial Statements is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates. Forfeitures were estimated based on estimated future turnover and historical experience.

Share-based compensation expense will continue to have an adverse impact on the Company’s results of operations, although it will have no impact on its overall financial position. The amount of unearned share-based compensation currently estimated to be expensed from now through the year 2020 related to unvested share-based payment awards at December 31, 2017 is $65.8 million. The weighted-average period over which the unearned share-based compensation is expected to be recognized is 2.72 years. If there are any modifications or cancellations of the underlying unvested securities, the Company may be required to accelerate and/or increase any remaining unearned share-based compensation expense. Future share-based compensation expense and unearned share-based compensation will increase to the extent that the Company grants additional equity awards.

Share-based compensation expense recorded in these Consolidated Financial Statements for the years ended December 31, 2017, 2016 and 2015 was based on awards granted under the LTIP. The following table summarizes share-based compensation expense for the periods presented (in thousands):



	Year Ended December 31,
	2017		2016		2015
Research and development⁽¹⁾	$	10,914	$	7,094	$	4,301
General and administrative ⁽²⁾	15,850		17,835		6,113
Total share-based compensation expense	$	26,764	$	24,929	$	10,414

_________________


⁽¹⁾	Includes $nil, $nil and $42,000 for the years ended December 31, 2017, 2016 and 2015, respectively, of share-based compensation expense related to options granted to a consultant.


⁽²⁾	Includes $nil, $6.5 million and $nil for the years ended December 31, 2017, 2016 and 2015, respectively, of share-based compensation expense related to the accelerated vesting of stock options to the Company's former CEO upon his death.

For the years ended December 31, 2017, 2016 and 2015, the Company recognized tax benefits from share-based awards of $4.2 million, $4.3 million and $1.7 million, respectively.

The fair value of the options granted to employees and non-employee directors during the years ended December 31, 2017, 2016 and 2015 was estimated as of the grant date using the Black-Scholes option-pricing model assuming the weighted-average assumptions listed in the following table:



	Year Ended December 31,
	2017	2016	2015
Expected volatility	72.4%	75.2%	76.3%
Risk-free interest rate	2.0%	1.5%	1.7%
Expected dividend yield	—%	—%	—%
Expected life (in years)	6.0	6.0	6.0
Weighted average grant date fair value	$35.71	$26.41	$23.12

The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period for each award. Each of the inputs discussed above is subjective and generally requires significant management judgment to determine.

The following table summarizes the Company’s stock option activity during the year ended December 31, 2017:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2016	4,064,207		$	27.19	6.79	$	92,640
Granted	1,566,800		55.16
Exercised	(1,030,648	)	17.31
Canceled	(193,607	)	38.97
Outstanding at December 31, 2017	4,406,752		$	38.93	7.60	$	30,455
Vested and expected to vest at December 31, 2017	4,318,583		$	38.67	7.57	$	30,396
Vested at December 31, 2017	2,044,977		$	26.12	6.15	$	27,753

The total intrinsic value of options exercised was $39.9 million, $12.8 million and $25.5 million during the years ended December 31, 2017, 2016 and 2015, respectively, determined as of the date of exercise.

The following table summarizes information about the Company's share options outstanding as of December 31, 2017:



				Options Outstanding				Options Exercisable
Range of Exercise Prices				Number of Options	Weighted - Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number of Options	Weighted Average Exercise Price
$	6.41	$	6.65	449,575	5.08	$	6.42	449,575	$	6.42
6.73		26.47		314,165	5.18	12.49		297,443	11.96
27.81		27.81		466,229	6.62	27.81		314,142	27.81
29.52		34.44		386,744	5.87	30.86		362,830	30.79
34.61		34.61		535,189	7.78	34.61		244,715	34.61
37.02		49.60		456,704	8.09	45.07		205,778	42.68
49.79		54.64		461,396	8.88	52.67		101,491	52.75
55.00		55.00		649,500	9.15	55.00		—	—
55.15		60.45		524,250	9.32	57.46		25,335	59.16
62.10		67.64		163,000	8.78	65.04		43,668	67.56
$	6.41	$	67.64	4,406,752	7.60	$	38.93	2,044,977	$	26.12