11. STOCK-BASED COMPENSATION

In June 2011, the Company’s stockholders approved the 2011 Equity Incentive Plan (“2011 Plan”). The 2011 Plan, which authorized 13.0 million shares of common stock to be issued, allows for the grant of stock options, SARs, RSAs, RSUs, performance shares and performance units. In June 2015, shareholders authorized the issuance of additional 1.7 million shares of common stock under the 2011 Plan. As of December 31, 2015, 1.8 million shares of common stock remain available for future grant under the 2011 Plan.

In June 2013, the Company’s stockholders approved the 2013 ESPP with approximately 0.3 million shares of common stock available to be issued. As of December 31, 2015, 0.1 million shares of common stock remain available for future grant under the 2013 ESPP.

In September 2014, the Company initiated the 2014 Employment Commencement Incentive Plan (“2014 Plan”) with approximately 0.6 million shares of common stock available to be issued. In October 2015, the 2014 Plan was increased by 1.0 million shares of common stock available to be issued. As of December 31, 2015, 1.0 million shares of common stock remain available for future grant under the 2014 Plan.

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,
	2015	2014	2013
Risk-free interest rate (1)	1.1 – 1.7%	1.4 – 1.7 %	0.7 – 1.7 %
Expected dividend yield (2)	—	—	—
Expected lives (3)	4.7 – 5.0 years	4.7 – 4.9 years	4.8 – 5.0 years
Expected volatility (4)	94.3 – 111.1 %	93.0 – 103.0 %	80.0 – 90.7 %

(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,
	2015					2014					2013
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Shares			Price		Shares			Price		Shares			Price
Grants outstanding at beginning of the period		5,216,203		$	24.45		4,190,367		$	23.46		2,522,522		$	11.76
Granted		2,830,078			20.28		1,694,560			25.67		2,283,719			34.18
Exercised		(816,696	)		12.26		(86,007	)		11.40		(241,056	)		11.31
Canceled or expired		(713,609	)		26.78		(582,717	)		22.79		(371,818	)		16.83
Grants outstanding at end of the period		6,515,976		$	23.91		5,216,203		$	24.45		4,190,367		$	23.46

Grants exercisable at end of the period		2,617,167		$	23.85		2,019,514		$	18.69		1,051,329		$	11.91
Grants vested and expected to vest at end of the period		5,908,213		$	23.94		4,462,100		$	23.27		3,467,069		$	21.50

The weighted-average fair value per share of stock options granted during the years ended December 31, 2015, 2014 and 2013 was $14.98, $18.59 and $22.86, respectively.

			Weighted
	Aggregate		Average
	Intrinsic		Remaining
	Value		Contractual
	(in thousands)		Life (Years)
Options outstanding at December 31, 2015	$	96,102	7.16
Options exercisable at December 31, 2015	$	38,916		5.60
Options vested and expected to vest at December 31, 2015	$	87,029	7.16

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

	For the Year Ended December 31,
	2015		2014		2013
	(in thousands)
Aggregate grant date fair value of stock options vested	$	27,858	$	17,672	$	4,872
Aggregate intrinsic value of stock options exercised	$	18,138	$	1,497	$	5,444

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 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. No other milestones were achieved during 2015. For the years ended December 31, 2015 and 2014, the Company has recognized approximately $0.5 million and $1.2 million in stock-based compensation expense related to the options with performance-based criteria, respectively.

As of December 31, 2015, the total stock-based compensation expense related to non-vested awards with only service-vesting conditions not yet recognized is approximately $45.5 million and those with service- and performance-based conditions approximates $4.0 million.

Restricted Stock Awards

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

	For the Year Ended December 31,
	2015					2014				2013
				Weighted				Weighted					Weighted
				Average				Average					Average
				Exercise				Exercise					Exercise
	Shares			Price		Shares		Price		Shares			Price
Grants outstanding at beginning of the period		6,000		$	34.92		6,000	$	34.92		4,998		$	10.08
Granted		181,783			20.80		—		—		6,000			34.92
Exercised		(24,463	)		20.21		—		—		(4,998	)		10.08
Canceled or expired		(2,000	)		13.90		—		—		—			—
Grants outstanding at end of the period		161,320		$	21.50		6,000	$	34.92		6,000		$	34.92

In September 2015, the Company granted certain employees 65,000 RSAs with performance conditions. However, based on the current conditions, the Company does not expect these awards to vest.

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 former 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,
	2015				2014				2013
			Weighted				Weighted				Weighted
			Average				Average				Average
			Exercise				Exercise				Exercise
	Shares		Price		Shares		Price		Shares		Price
Grants outstanding at beginning of the period		170,000	$	18.18		170,000	$	18.18		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		141,249	$	17.59		92,916	$	17.80		50,416	$	17.48
Grants vested and expected to vest at end of the period		167,813	$	18.29		170,000	$	18.18		170,000	$	18.18

			Weighted
	Aggregate		Average
	Intrinsic		Remaining
	Value		Contractual
	(in thousands)		Life (Years)
SARs outstanding at December 31, 2015	$	3,468	4.41
SARs exercisable at December 31, 2015	$	2,964	4.16
SARs vested and expected to vest at December 31, 2015	$	3,406	4.45

2013 Employee Stock Purchase Plan

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, 2017. The following table summarizes the Company’s ESPP activity and expense for each of the periods indicated:

	For the Year Ended December 31,
	2015		2014
Number of shares purchased		75,539		46,290
Proceeds received (in millions)		0.9		1.0

Stock-based Compensation Expense

For the years ended December 31, 2015, 2014 and 2013, total stock-based compensation expense was $32.1 million, $20.3 million and $11.1 million, respectively. Included in the amount for the year ended December 31, 2015 is $8.6 million of stock-based compensation expense incurred in connection with the resignation of the Company’s former CEO. 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,
	2015		2014		2013
	(in thousands)
Research and development	$	10,403	$	8,269	$	3,888
General and administrative		21,714		12,076		7,239
Total stock-based compensation	$	32,117	$	20,345	$	11,127

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,
	2015		2014		2013
	(in thousands)
Stock options	$	29,014	$	18,388	$	9,632
Restricted stock awards		446		204		149
Restricted stock units		—		1		269
Stock appreciation rights		492		587		593
Employee stock purchase plan		2,165		1,165		484
Total stock-based compensation	$	32,117	$	20,345	$	11,127