13. STOCK-BASED COMPENSATION

In June 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan (“2011 Plan”). The 2011 Plan, which authorized 13 million shares of common stock to be issued, allows for the grant of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance shares and performance units. As of December 31, 2014, 1.8 million shares of common stock remain available for future grant.

In June 2013, the Company’s stockholders approved the 2013 Employee Stock Purchase Plan (“ESPP”) with 250,000 shares of common stock available to be issued. As of December 31, 2014, 203,710 shares of common stock remain available for future grant.

In September 2014, the Company’s stockholders approved the 2014 Employment Commencement Incentive Plan (the “2014 Plan”) with 640,000 shares of common stock available to be issued. As of December 31, 2014, 640,000 shares of common stock remain available for future grant.

Stock Options

In general, stock options have a ten year term and vest over a four year period, with one-fourth of the underlying shares vesting on the first anniversary of the grant and 1/48th of the underlying shares vesting monthly thereafter, such that the underlying shares will be fully vested on the fourth anniversary of the grant, subject to the terms of the applicable plan under which they were granted.

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 Year Ended December 31,

2014

2013

2012

Risk-free interest rate (1)

1.4 – 1.7

0.7 – 1.7

0.6 – 1.1

Expected dividend yield (2)

—

Expected lives (3)

4.7 – 4.9 years

4.8 – 5.0 years

4.8 – 5.3 years

Expected volatility (4)

93.0 – 103.0

80.0 – 90.7

79.7 – 108.6

(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 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.

Additionally, the Company is required to estimate potential forfeiture of stock grants and adjust stock-based compensation cost recorded accordingly. The estimate of forfeitures is adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures are recognized through a cumulative catch-up in the period of change and impact the amount of stock compensation expense to be recognized in future periods.

The following tables summarize the Company’s stock option activity for each of the periods indicated:


	For the Year Ended December 31,
	2014					2013					2012
	Shares			Weighted Average Exercise Price		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		2,417,659		$	11.18
Granted		1,694,560			25.67		2,283,719			34.18		1,269,470			12.92
Exercised		(86,007	)		11.40		(241,056	)		11.31		(371,353	)		10.18
Canceled or expired		(582,717	)		22.79		(371,818	)		16.83		(793,254	)		12.59

Grants outstanding at end of the period		5,216,203		$	24.45		4,190,367		$	23.46		2,522,522		$	11.76

Grants exercisable at end of the period		2,019,514		$	18.69		1,051,329		$	11.91		615,394		$	12.71
Grants vested and expected to vest at end of the period		4,462,100		$	23.27		3,467,069		$	21.50		2,343,086		$	11.73

The weighted-average fair value per share of stock options granted during the years ended December 31, 2014, 2013 and 2012 was $18.59, $22.86 and $9.54, respectively.


	Aggregate Intrinsic Value (in thousands)		Weighted Average Remaining Contractual Life (Years)
Options outstanding at December 31, 2014	$	7,794		8.04
Options exercisable at December 31, 2014	$	5,973		7.04
Options vested and expected to vest at December 31, 2014	$	7,671		7.94

The following table summarizes the Company’s stock options vested and exercised for each of the periods indicated:


	For the Year Ended December 31,
	2014		2013		2012
	(in thousands)
Aggregate grant date fair value of stock options vested	$	17,672	$	4,872	$	3,749
Aggregate intrinsic value of stock options exercised	$	1,497	$	5,444	$	4,964

Stock Options with Service- and Performance-based Conditions

In June 2013, the Company granted to executives approximately 0.4 million stock options with service- and performance-based conditions. Vesting is achieved based upon various regulatory filings including new drug application (“NDA”) for eteplirsen and investigational new drug (“IND”) submissions for other drug candidates and continuing service over a four-year period. Through the submission of two IND applications during 2014, 30% of performance awards were triggered to be eligible to vest subject to the remaining service conditions of the awards. For the year ended December 31, 2014, the Company has recognized approximately $1.2 million in stock-based compensation expense related to the options with performance-based criteria.

As of December 31, 2014, the total stock-based compensation expense related to non-vested awards with only service-vesting conditions not yet recognized is approximately $40.9 million and those with service- and performance-based conditions approximates $9.1 million.

Restricted Stock Awards

The Company grants RSAs to members of its board of directors. The following table summarizes the Company’s RSA activity for each of the periods indicated:


	For the Year Ended December 31,
	2014				2013					2012
	Shares		Weighted Average Grant Date Fair Value		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		5,000		$	8.46
Granted		—		—		6,000			34.92		4,998			10.08
Vested		—		—		(4,998	)		10.08		(5,000	)		8.46
Canceled or expired		—		—		—			—		—			—

Grants outstanding at end of the period		6,000	$	34.92		6,000		$	34.92		4,998		$	10.08

Restricted Stock Units

The Company granted RSUs to employees in 2012. The following table summarizes the Company’s RSU activity for each of the periods indicated:


	For the Year Ended December 31,
	2014					2013					2012
	Shares			Weighted Average Grant Date Fair Value		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		—		$	—
Granted		—			—		—			—		39,877			6.28
Vested		(6,507	)		5.40		(31,379	)		6.52		—			—
Canceled or expired		—			—		(374	)		5.40		(1,617	)		5.40

Grants outstanding at end of the period		—		$	—		6,507		$	5.40		38,260		$	6.32

Stock Appreciation Rights

The Company issues SARs to employees on the same terms as options granted to employees. The grant date fair value of the SARs is determined using the same valuation assumptions as for stock options described above. Stock-based compensation expense is recognized on a straight-line basis over the vesting period of the SARs.

In August 2012, 70,000 SARs were granted to the Company’s President and CEO and have an exercise price of $10.08 per share. In November 2012, 100,000 SARs were granted to the Company’s Senior Vice-President and CFO and have an exercise price of $23.85 per share. The SARs are classified as equity as the agreements require settlement in shares of stock.

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


	For the Year Ended December 31,
	2014				2013				2012
	Shares		Weighted Average Exercise Price		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		—	$	—
Granted		—		—		—		—		170,000		18.18

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

Grants exercisable at end of the period		92,916	$	17.80		50,416	$	17.48		—	$	—
Grants vested and expected to vest at end of the period		170,000	$	18.18		170,000	$	18.18		170,000	$	18.18


	Aggregate Intrinsic Value (in thousands)		Weighted Average Remaining Contractual Life (Years)
SARs outstanding at December 31, 2014	$	307		7.76
SARs exercisable at December 31, 2014	$	179		7.76
SARs vested and expected to vest at December 31, 2014	$	307		7.76

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 purchase period. The 24-month award period will end on August 31, 2016. For the year ended December 31, 2014, 46,290 shares of the Company’s common stock were purchased for total proceeds of approximately $1.0 million.

Stock-based Compensation Expense

For the years ended December 31, 2014, 2013 and 2012, total stock-based compensation expense was $20.3 million, $11.1 million and $3.1 million, respectively. The following table summarizes stock-based compensation expense by function included within the consolidated statements of operations and comprehensive loss:


	For the Year Ended December 31,
	2014		2013		2012
	(in thousands)
Research and development	$	8,269	$	3,888	$	1,173
General and administrative		12,076		7,239		1,905

Total	$	20,345	$	11,127	$	3,078

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


	For the Year Ended December 31,
	2014		2013		2012
	(in thousands)
Stock options	$	18,388	$	9,632	$	2,867
Restricted stock awards		204		149		38
Restricted stock units		1		269		63
Stock appreciation rights		587		593		110
Employee stock purchase plan		1,165		484		—

Total	$	20,345	$	11,127	$	3,078