Stock Option and Incentive Plans

Under the Company’s current 2018 Stock Option and Incentive Plan (the “2018 Plan”), the number of shares of the Company’s common stock that are reserved and available for issuance is

2,778,000 plus the number of shares of common stock available for issuance under the Company’s previous plans. The shares of common stock underlying any awards under the 2018 Plan and previous plans (together, the “Plans”) that are forfeited, canceled or otherwise terminated (other than by exercise) shall be added back to the shares of stock available for issuance under the 2018 Plan. At March 31, 2021, 2,179,921 shares were available for future grant

under the 2018 Plan.

Stock-Based Compensation

For the three months ended March 31, 2021 and 2020, the Company recorded stock-based compensation expense of $6.5 million and $4.2 million, respectively, for share-based awards granted under the Plans. The following table presents stock-based compensation expense in the Company’s consolidated statements of comprehensive income:


	Three Months Ended March 31,
	2021		2020
	(Amounts in thousands)
Cost of product revenue	$	506	$	433
Research and development		716		372
Selling, general and administrative		5,319		3,360

Total stock-based compensation	$	6,541	$	4,165

The 2018 Plan allows for the granting of incentive and nonqualified options to purchase shares of common stock, restricted stock and other equity awards. Employee grants under the Plans generally vest over a three to five-year period, with

20%-33%

vesting on the first anniversary of the date of grant and the remainder vesting in equal yearly installments thereafter. Nonqualified options issued to

non-employee

directors under the Plans generally vest over one year. In the first quarter of 2018, to create a longer-term retention incentive, the Company’s Compensation Committee granted long-term incentive compensation awards to its Chief Executive Officer consisting of both stock options and restricted stock units (“RSUs”) that are subject to time-based vesting over nine years. Options granted under the Plans have a maximum term of ten years from the date of grant and generally, the exercise price of the stock options equals the fair market value of the Company’s common stock on the date of grant. At March 31, 2021, options to purchase 697,118 shares and 654,250 stock units were outstanding under the Plans.

The Company uses the B

ack-Scholes option pricing model to calculate the fair value of stock option awards on the grant date, and the Company uses the value of the common stock as of the grant date to value RSUs. The Company measures stock-based compensation costs at the grant date based on the estimated fair value of the award. The Company recognizes expense on awards with service-based vesting over the employee’s requisite service period on a straight-line basis. Prior to 2020, the Company issued performance stock units to certain employees which are tied to the achievement of certain Company financial goal metrics and the passage of time. During 2020, the Company implemented a formal program that issued performance stock units to certain employees set to vest upon the achievement of individual goals and the passage of time. The Company recognizes expense on performance-based awards over the vesting period based on the probability that the performance metrics will be achieved. The Company recognizes stock-based compensation expense for options that are ultimately expected to vest, and accordingly, such compensation expense has been adjusted for estimated forfeitures.

Information regarding option activity for the three months ended March 31, 2021 under the Plans is summarized below:


	Shares			Weighted average exercise price		Weighted- Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value (in Thousands)
Options outstanding at December 31, 2020		696,711		$	43.88		6.90	$	102,958
Granted		21,547		$	215.58
Exercised		(15,140	)	$	33.25
Forfeited/expired/cancelled		(6,000	)	$	48.05

Options outstanding at March 31, 2021		697,118		$	49.39		6.76	$	101,554

Options exercisable at March 31, 2021		384,757		$	34.20		6.00	$	61,641

Vested and expected to vest at March 31, 2021 (1)		669,196					6.72	$	98,009

(1)

Represents the number of vested options as of March 31, 2021 plus the number of unvested options expected to vest as of March 31, 2021 based on the unvested outstanding options at March 31, 2021 adjusted for estimated forfeiture rates of 8% for awards granted to

non-executive

level employees and 3% for awards granted to executive level employees.

The aggregate intrinsic value in the table above represents the total

pre-tax

intrinsic value (the difference between the closing price of the common stock on March 31, 2021, the last business day of the first quarter of 2021, of $194.41 per share and the exercise price of each

in-the-money

option) that would have been received by the option holders had all option holders exercised their options on March 31, 2021. The aggregate intrinsic value of stock options exercised during the three months ended March 31, 2021 and 2020 was $2.5 million and $4.7 million, respectively.

The weighted average grant date fair value of options granted during the three months ended March 31, 2021 and 2020 was $92.35 and $41.77, respectively. The total fair value of stock options that vested during the three months ended March 31, 2021 and 2020 was $1.9 million and $2.0 million, respectively.

The fair value of stock units is calculated using the closing price of the Company’s common stock on the date of grant. Information regarding stock unit activity, which includes activity for RSUs and performance stock units, for the three months ended March 31, 2021 under the Plans is summarized below:


	Shares			Weighted- Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value (in Thousands)
Unvested at December 31, 2020		665,540			3.32	$	127,904
Awarded		119,148
Vested		(122,765	)
Forfeited/expired/cancelled		(7,673	)

Unvested at March 31, 2021		654,250			3.09	$	127,193

Unvested and expected to vest at March 31, 2021 (1)		639,254			2.94	$	124,277

(1)

Represents the number of vested stock units as of March 31, 2021 plus the number of unvested stock units expected to vest as of March 31, 2021 based on the unvested outstanding stock units at March 31, 2021 adjusted for estimated forfeiture rates of 8% for awards granted to

non-executive

level employees and 3% for awards granted to executive level employees.

The aggregate intrinsic value in the table above represents the total

pre-tax

intrinsic value (equal to the closing price of the common stock on March 31, 2021, the last business day of the first quarter of 2021, of

$194.41 per share, as stock units do not have an exercise price) that would have been received by the stock unit holders had all holders exercised on March 31, 2021. The aggregate intrinsic value of stock units vested during the three months ended March 31, 2021 and 2020 was $27.1 million and $11.8 million, respectively.

The weighted average grant date fair value of stock units vested during the three months ended March 31, 2021 and 2020 was $209.13 and $86.75, respectively. The total fair value of stock units that vested during the three months ended March 31, 2021 and 2020 was $6.5 million and $5.3 million, respectively.

As of March 31, 2021, there was $65.4 million of total unrecognized compensation cost related to unvested share-based awards. This cost is expected to be recognized over a weighted average remaining requisite service period of 3.25 years. The Company expects 1,894,207 unvested options and stock units to vest over the next five years.