Equity Instruments and Stock Based Compensation

Compensation expense included in the Company’s consolidated statements of income (loss) for all stock-based compensation arrangements was as follows for the periods ended December 31:



Stock-based Compensation Expense:	2016		2015		2014

Cost of products and services sold	$	—	$	—	$	38
Research and development	3,523		1,587		1,027
Selling, general and administrative	11,156		6,154		1,829
Total stock-based compensation expense	$	14,679	$	7,741	$	2,894

As of December 31, 2016, the Company expects $12,874 of unrecognized expense related to granted, but non-vested stock-based compensation arrangements to be incurred in future periods. This expense is expected to be recognized over a weighted average period of 3.2 years.

The excess tax benefit related to stock-based compensation recorded by the Company was $65 and $1,767, for the years ended December 31, 2016 and 2015. There was no similar amount for the year ended December 31, 2014.

Upon exercise of stock options or warrants, or upon the issuance of free share awards, the Company issues new shares.

Capital Stock

We have 500,000 shares of authorized ordinary shares with a nominal value of $0.01 per common share. As of December 31, 2016, we had 41,371 shares of ordinary shares issued and outstanding. The Board of Directors is authorized to issue preferred stock in series, and with respect to each series, to fix its designation, relative rights (including voting, dividend, conversion, sinking fund, and redemption rights), preferences (including dividends and liquidation) and limitations. We have 50,000 shares of authorized preferred stock, $0.01 nominal value, none of which is currently outstanding.

Determining the Fair Value of Stock Options and Warrants

The Company measures the total fair value of stock options and warrants on the grant date using the Black-Scholes option-pricing model and recognizes each grant's fair value as compensation expense over the period that the option or warrant vests. Options are granted to employees of the Company and generally become exercisable within four years following the grant date and expire ten years after the grant date. Warrants are typically issued to the Company’s Board of Directors as compensation for services rendered and generally become exercisable within one year following the grant date, and expire four years after the grant date.

The weighted-average assumptions under the Black-Scholes option-pricing model for stock option and warrant grants as of December 31, 2016, 2015 and 2014, are as follows:



Stock Option and Warrant Assumptions:	2016		2015		2014

Stock option grants:
Expected term (years)	6.25		6.25		6.25
Expected volatility	58.39	%	58.59	%	59.00	%
Risk-free interest rate	2.04	%	1.89	%	1.79	%
Expected dividend yield	—		—		—

Warrant grants:
Expected term (years)	2.50		2.50		2.50
Expected volatility	60.57	%	55.00	%	58.00	%
Risk-free interest rate	0.82	%	0.89	%	0.75	%
Expected dividend yield	—		—		—

Expected term: The expected term of the options or warrants represents the period of time between the grant date and the time the options or warrants are either exercised or forfeited, including an estimate of future forfeitures for outstanding options or warrants. Given the limited historical data and the grant of stock options and warrants to a limited population, the simplified method has been used to calculate the expected life.

Expected volatility: The expected volatility is calculated based on an average of the historical volatility of the Company's stock price for a period approximating the expected term.

Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant and a maturity that approximates the expected term.

Expected dividend yield: The expected dividend yield is based on the Company's authorized periodic dividend and the Company's expectation for dividend yields over the expected term. The Company has not distributed any dividends since its inception, and has no plan to distribute dividends in the foreseeable future.

Stock Options

A summary of the combined stock option activity and other data for the Company's stock option plans for the year ended December 31, 2016 is as follows:



Stock Option Activity and Other Data:	Number of Stock Options		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value

Stock options outstanding, January 1, 2016	2,326		$	13.84
Granted	1,505		10.68
Exercised	(15	)	6.50
Forfeited	(6	)	14.35
Expired	(78	)	31.70
Stock options outstanding, December 31, 2016	3,732		$	12.07	8.48 years	$	3,681
Stock options exercisable, December 31, 2016	1,161		$	10.49	6.76 years	$	3,035

The aggregate intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $58, $10,063, and $3,789, respectively.

The weighted average grant date fair value of options granted during the years ended December 31, 2016, 2015 and 2014 was $6.14, $9.38 and $9.19 per share, respectively.

At December 31, 2016, there were 94 shares authorized for stock option grants in subsequent periods.

Warrants

A summary of the combined warrant activity and other data for the year ended December 31, 2016 is as follows:



Warrant Activity and Other Data:	Number of Warrants	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value

Warrants outstanding, January 1, 2016	668	$	16.97
Granted	291	13.59
Exercised	—	—
Forfeited	—	—
Expired	—	—
Warrants outstanding, December 31, 2016	959	$	16.05	2.47 years	$	276
Warrants exercisable, December 31, 2016	668	$	17.12	1.97 years	$	276

Each of the above warrants is convertible into one ordinary share. The aggregate intrinsic value of warrants exercised during the years ended December 31, 2016, 2015 and 2014 was $0, $2,698 and $3,107, respectively.

The weighted average grant date fair value of warrants granted during the years ended December 31, 2016, 2015 and 2014 was $2.99, $5.92 and $3.90 per share, respectively.

At December 31, 2016, an additional 3,300 warrants were outstanding and exercisable relative to consideration paid for the Company’s acquisition of Éclat Pharmaceuticals, LLC on March 13, 2012. These warrants are not considered stock-based compensation and are therefore excluded from the above tables, and instead are addressed within Note 10: Long-Term Related Party Payable.

At December 31, 2016, there were 59 shares authorized for warrant grants in subsequent periods.

Free Share Awards

Free share awards represent Company shares issued free of charge to employees of the Company as compensation for services rendered. The Company measures the total fair value of free share awards on the grant date using the Company's stock price at the time of the grant. Free share awards granted prior to 2016 generally cliff vest at the end of a four-year vesting period, and are expensed over a two or four-year service period. Free share awards granted during 2016 were fully expensed at the date of grant as they contain no service requirement. Employees, however, are not free to trade these awards until the end of a two-year holding period.

A summary of the Company's free share awards as of December 31, 2016, and changes during the year then ended, is reflected in the table below.



Free Share Activity and Other Data:	Number of Free Share Awards		Weighted Average Grant Date Fair Value

Non-vested free share awards outstanding, January 1, 2016	226		$	13.95
Granted	463		12.11
Vested	(115	)	13.44
Forfeited	(1	)	16.27
Non-vested free shares awards outstanding, December 31, 2016	573		$	12.57

The weighted average grant date fair value of free share awards granted during the years ended December 31, 2016 and 2014 was $12.11 and $16.30, respectively. There were no free share awards granted in 2015.

At December 31, 2016, there were 290 shares authorized for free share award grants in subsequent periods.