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Share-Based Compensation
3 Months Ended
Mar. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Share-Based Compensation
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 (share) 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 1,093,100 and 854,800 share options during the three months ended March 31, 2018 and 2017, 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 March 31, 2018, 1,276,912 ordinary shares remained available for grant, and options to purchase 5,227,086 ordinary shares under the LTIP were outstanding with a weighted-average exercise price of approximately $37.77 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 Company uses its historical volatility for the Company's stock to estimate expected volatility starting January 1, 2018. Through December 31, 2017, 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 due to insufficient historical employee share option exercise data. 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 2021 related to unvested share-based payment awards at March 31, 2018 is $77.8 million. The weighted-average period over which the unearned share-based compensation is expected to be recognized is 2.99 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 three months ended March 31, 2018 and 2017 was based on awards granted under the LTIP. The following table summarizes share-based compensation expense for the periods presented (in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
Research and development
$
2,258

 
$
2,308

General and administrative
4,644

 
3,294

Total share-based compensation expense
$
6,902

 
$
5,602

For the three months ended March 31, 2018 and 2017, the Company recognized tax benefits from share-based awards of $1.1 million and $0.9 million, respectively.
The fair value of the options granted to employees and non-employee directors during the three months ended March 31, 2018 and 2017 was estimated as of the grant date using the Black-Scholes option-pricing model assuming the weighted-average assumptions listed in the following table:
 
Three Months Ended March 31,
 
2018
 
2017
Expected volatility
67.2%
 
73.1%
Risk-free interest rate
2.8%
 
2.1%
Expected dividend yield
—%
 
—%
Expected life (in years)
6.0
 
6.0
Weighted average grant date fair value
$20.67
 
$35.30

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 three months ended March 31, 2018:
 
Options
 
Weighted
Average
Exercise
Price
 
Weighted
Average
Remaining
Contractual
Term (years)
 
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 2017
4,406,752

 
$
38.93

 
7.60
 
$
30,455

Granted
1,093,100

 
33.20

 
 
 
 
Exercised
(164,499
)
 
26.74

 
 
 
 
Canceled
(108,267
)
 
55.87

 
 
 
 
Outstanding at March 31, 2018
5,227,086

 
$
37.77

 
8.07
 
$
30,991

Vested and expected to vest at March 31, 2018
5,093,258

 
$
37.64

 
8.03
 
$
30,725

Vested at March 31, 2018
2,215,513

 
$
29.37

 
6.68
 
$
25,353


The total intrinsic value of options exercised was $2.1 million and $17.0 million during the three months ended March 31, 2018 and 2017, respectively, determined as of the date of exercise.