10. STOCK-BASED COMPENSATION

The Company’s equity incentive plans allow for the granting of a variety of stock awards. To date, the Company has granted stock options, restricted stock awards, restricted stock units and stock appreciation rights. The fair value of stock awards, with consideration given to estimated forfeitures, is recognized as compensation expense on a straight-line basis over the vesting period of the grants.

Stock Options

The Company has granted stock options with both service- and performance-based criteria. In general, stock options granted vest over four years and have a ten-year term. As of March 31, 2014, the achievement of the performance criteria is not probable and, accordingly, the Company has not recognized any expense related to the options with performance-based criteria.

The following table summarizes the Company’s stock option activity for each of the periods indicated:


	For the Three Months Ended March 31,
	2014					2013
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Grants outstanding at beginning of the period		4,190,367		$	23.46		2,522,522		$	11.76
Granted		1,185,265			26.83		242,320			28.76
Exercised		(48,579	)		10.39		(64,390	)		8.97
Canceled or expired		(53,715	)		30.26		(5,774	)		14.83

Grants outstanding at end of the period		5,273,338		$	24.27		2,694,678		$	13.35

Grants exercisable at end of the period		1,180,245		$	12.85		656,805		$	12.36

The fair values of stock options granted during the periods presented were measured on the date of grant using the Black-Scholes-Merton option-pricing model, with the following assumptions:


	For the Three Months Ended March 31,
	2014			2013
Risk-free interest rate (1)		1.7	%		0.7	%
Expected dividend yield (2)		0	%		0	%
Expected lives (3)		4.9 years			4.9 years
Expected volatility (4)		95.4	%		80.0	%

(1)	The risk-free interest rate is estimated using an average of Treasury bill interest rates over a historical period commensurate with the expected term of the option that correlates to the prevailing interest rates at the time of grant.

(2)	The expected dividend yield is zero as the Company has not paid any dividends to date and does not expect to pay dividends in the future.

(3)	The expected lives are estimated using expected and historical exercise behavior.

(4)	The expected volatility is estimated using a blend of calculated volatility of the Company’s common stock over a historical period and implied volatility in exchange-traded options of the Company’s common stock.

The amounts estimated according to the Black-Scholes-Merton option-pricing model may not be indicative of the actual values realized upon the exercise of these options by the holders.

Restricted Stock Awards (“RSA”)

The Company grants RSAs to members of its board of directors. The weighted-average grant date fair value of RSAs is based on the market price of the Company’s common stock on the date of grant. The fair value is amortized to stock-based compensation expense on a straight-line basis over the vesting period of the grants. The following table summarizes the Company’s RSA activity for each of the periods indicated:


	For the Three Months Ended March 31,
	2014				2013
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Grants outstanding at beginning of the period		6,000	$	34.92		4,998	$	10.08
Granted		6,000		29.03		—		—

Grants outstanding at end of the period		12,000	$	31.98		4,998	$	10.08

Restricted Stock Units (“RSU”)

The Company granted RSUs to employees in 2012. The weighted-average grant date fair value of RSUs is based on the market price of the Company’s common stock on the date of grant. The fair value is amortized to stock-based compensation expense on a straight-line basis over the vesting period of the grants. The following table summarizes the Company’s RSU activity for each of the periods indicated:


	For the Three Months Ended March 31,
	2014				2013
	Shares		Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Grants outstanding at beginning of the period		6,507	$	5.40		38,260		$	6.32
Canceled or expired		—		—		(262	)		5.40

Grants outstanding at end of the period		6,507	$	5.40		37,998		$	6.33

Stock Appreciation Rights (“SAR”)

The Company issues SARs to employees on the same terms as the stock options granted to employees. The grant date fair value of the SARs is determined using the same valuation assumptions as for the stock options described above. Stock-based compensation expense is recognized on a straight-line basis over the vesting period of the SARs. The following table summarizes the Company’s SAR activity for each of the periods indicated:


	For the Three Months Ended March 31,
	2014				2013
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Grants outstanding at beginning of the period		170,000	$	18.18		170,000	$	18.18

Grants outstanding at end of the period		170,000	$	18.18		170,000	$	18.18

Grants exercisable at end of the period		61,041	$	17.60		—	$	—

Employee Stock Purchase Plan (“ESPP”)

Under the Company’s ESPP, participating employees purchase common stock through payroll deductions. The purchase price is equal to 85% of the lower of the closing price of the Company’s common stock on the first business day and the last business day of the relevant plan period. The 24-month award period will end on February 29, 2016. For the purchasing period ended February 28, 2014, 21,774 shares of the Company’s common stock were purchased for total proceeds of $0.5 million.

The fair values of stock purchase rights were estimated using the Black-Scholes-Merton option-pricing model. The following table summarizes the assumptions used in the calculation during the period indicated:


		For the Three Months Ended March 31, 2014
Fair value of stock purchase rights		$12.22 - 25.35
Weighted-average stock price volatility		101% - 109%
Expected lives		0.5 - 2 years
Risk-free rate		0.1% - 0.3%

Stock-based Compensation Expense

For the three months ended March 31, 2014 and 2013, total stock-based compensation expense was $4.3 million and $1.7 million, respectively. The following table summarizes share-based compensation expense by function included within the unaudited condensed consolidated statements of operations and comprehensive loss:


	For the Three Months Ended March 31,
	2014		2013
Research and development	$	1,873	$	530
General and administrative		2,469		1,141

Total	$	4,342	$	1,671

The following table summarizes share-based compensation expense by grant type included within the unaudited condensed consolidated statements of operations and comprehensive loss:


	For the Three Months Ended March 31,
	2014			2013
Stock options	$	3,911		$	1,401
Restricted stock awards		64			12
Restricted stock units		(4	)		117
Stock appreciation rights		147			141
Employee stock purchase plan		224			—

Total	$	4,342		$	1,671