Stock-Based Compensation

2015 Stock Incentive Plan

The Company has one active stockholder-approved stock-based compensation plan, the 2015 Stock Incentive Plan (the "2015 Plan"), which replaced the Company's former stockholder-approved plans. Incentive stock options, non-qualified options, restricted stock awards, restricted stock units, and stock appreciation rights may be granted under the 2015 Plan.

The maximum number of shares of the Company's common stock available for issuance under the 2015 Plan is 9.8 million shares. As of December 31, 2017, 0.9 million shares were available for grant. It is the Company's policy that before stock is issued through the exercise of stock options, the Company must first receive all required cash payment for such shares. The stock issuable under the Plan shall be shares of authorized new unissued shares.

Stock-based awards are governed by agreements between the Company and the recipients. Incentive stock options and nonqualified stock options may be granted under the 2015 Plan at an exercise price of not less than 100% of the closing fair market value of the Company's common stock on the respective date of grant. The grant date is generally the first day of employment for new hire grants and the date of approval for all others. Awards are approved by either a delegated member of the Company's Executive Management or by the Compensation Committee of the Board of Directors for awards that exceed the Company's Executive Management's authority.

The Company's standard stock-based award vests 25% on the first anniversary of the date of grant, or for new hires, the first anniversary of their initial date of employment with the Company. Awards vest monthly thereafter on a straight-line basis over three years. Stock options must be exercised, if at all, no later than 10 years from the date of grant. Upon termination of employment with the Company, vested stock options may be exercised within 90 days from the last date of employment. In the event of an optionee's death, disability, or retirement, the exercise period is 365 days from the last date of employment.

2017 Inducement Stock Incentive Plan

On October 27, 2017, the Board of Directors (the “Board”) of the Company adopted the 2017 Inducement Stock Incentive Plan (the “2017 Inducement Plan”). The 2017 Inducement Plan provides for the grant of equity-based awards in the form of non-qualified stock options, restricted stock, restricted stock units, stock appreciation rights, performance shares and performance units. In accordance with Nasdaq Listing Rules, awards under the 2017 Inducement Plan may only be made to an employee who has not previously been an employee of the Company or a member of the Board, or an employee or member of the board of directors of any subsidiary of the Company, or following a bona fide period of non-employment with the Company or any subsidiary of the Company, if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary of the Company and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.

The Board has reserved 2,000,000 shares of the Company’s common stock for issuance pursuant to awards granted under the 2017 Inducement Plan, and the 2017 Inducement Plan will be administered by the Compensation Committee of the Board. As of December 31, 2017, 1.7 million shares were available for grant.

Employee Stock Purchase Plan

Under the terms of the Company's Amended and Restated 2006 Employee Stock Purchase Plan, as amended (the "ESPP"), eligible employees can purchase common stock through payroll deductions. As of December 31, 2017, 1.0 million shares were available for grant. The purchase price is equal to the closing price of the Company's common stock on the first or last day of the offering period (whichever is less), minus a 15% discount. The Company uses the Black-Scholes option-pricing model, in combination with the discounted employee price, in determining the value of ESPP expense to be recognized during each offering period.

The table below summarizes the stock-based compensation recognized, common stock shares purchased by Company employees, and the average purchase price per share as part of the ESPP program during the years ended December 31, 2017, 2016, and 2015.



	Year Ended December 31,
	2017		2016		2015
Stock-based compensation expense	$	850	$	1,205	$	921
Common stock shares purchased by Company employees	446,490		394,120		355,557
Average purchase price per share	$	5.64	$	8.17	$	8.33

Stock Options and Restricted Stock

The Company values stock-based awards, including stock options and restricted stock, as of the date of grant (and is marked-to-market at each reporting period for unvested grants issued to non-employees).

The Company recognizes stock-based compensation expense (net of estimated forfeitures) using the straight-line method over the requisite or implicit service period, as applicable. Forfeitures of employee awards are estimated at the time of grant and the forfeiture assumption is periodically adjusted for actual employee vesting behavior. For purposes of this estimate, the Company has applied an estimated forfeiture rate of 11%, 11%, and 14% for the years ended December 31, 2017, 2016, and 2015, respectively.

Stock-Based Compensation Expense Summary

The Company classifies related compensation expense in the accompanying Consolidated Statements of Operations and Comprehensive Loss, based on the Company department to which the recipient belongs. Stock-based compensation expense included in cost of goods sold and operating expenses for years ended December 31, 2017, 2016, and 2015 was as follows:



	Year Ended December 31,
	2017		2016		2015
Cost of goods sold	$	828	$	944	$	1,000
Operating expenses:
Research and development	1,259		1,528		1,005
Clinical and regulatory affairs	770		672		858
Marketing and sales	3,796		4,335		3,237
General and administrative	4,991		4,807		3,155
Total operating expenses	$	10,816	$	11,342	$	8,255

Total	$	11,644	$	12,286	$	9,255

In addition, the Company had $0.4 million, $0.5 million, and $0.6 million of stock-based compensation capitalized in inventory as of December 31, 2017, 2016, and 2015, respectively.

Valuation Assumptions

The grant-date fair value per share for restricted stock awards was based upon the closing market price of the Company’s common stock on the award grant-date.

The fair value of stock options granted was estimated at the date of grant using the Black-Scholes option-pricing model. The following assumptions were used to determine fair value for the stock awards granted in the applicable year:



	Year Ended December 31,
	2017	2016	2015
Average expected option life (in years) (a)	5.6	5.5	5.5
Volatility (b)	51.3%	44.2%	43.3%
Risk-free interest rate (c)	1.9%	1.2%	1.6%
Dividend yield (d)	—	—	—
Weighted-average grant-date fair value per stock option	$2.51	$3.45	$6.37

(a) Determined by the historical stock option exercise behavior of the Company's employees (maximum term is 10 years).

(b) Measured using daily price observations for a period equal to the stock options' expected terms.

(d) The Company has never paid cash dividends on its common stock and does not expect to declare any cash dividends.

Stock Option Activity

Stock option activity during the year ended December 31, 2017 is as follows:



	Number of Stock Options	Weighted Average Exercise Price	Weighted- Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding — January 1, 2017	8,673,215	9.22
Granted	5,370,408	5.44
Exercised	(129,478)	4.21		(a)	$	226
Forfeited	(1,405,534)	8.20
Expired	(684,279)	11.38
Outstanding — December 31, 2017	11,824,332	$7.56	7.1	(b)	$	4,570
Vested and Expected to Vest — December 31, 2017	10,629,743	7.67	6.9	(b)	$	4,173
Vested — December 31, 2017	5,041,775	8.48	4.9	(b)	$	2,530

(a) Represents the total difference between the Company's stock price at the time of exercise and the stock option exercise price, multiplied by the number of options exercised.

(b) Represents the total difference between the Company's closing stock price on the last trading day of period reported on and the stock option exercise price, multiplied by the number of in-the-money options as of the period reported on. The amount of intrinsic value will change based on the fair market value of the Company's stock.

For years ended December 31, 2017, 2016 and 2015 the total intrinsic value of options exercised was $0.2 million, $2.7 million and $3.2 million respectively. The Company recognized stock option expense of $7.7 million, $7.4 million and $5.3 million for the years ended December 31, 2017, 2016, and 2015, respectively.

As of December 31, 2017, there was $14.5 million of total unrecognized compensation expense related to granted, but unvested stock options, which is expected to be recognized over a weighted average period of 2.7 years.

The following table summarizes information regarding outstanding stock option grants as of December 31, 2017:



					Outstanding				Exercisable
Range of Exercise Prices					Granted Stock Options Outstanding	Weighted- Average Remaining Contractual Life (Years)	Weighted- Average Exercise Price		Granted Stock Options Exercisable	Weighted- Average Exercise Price
$	1.64	—	$	4.42	2,390,446	5.6	$	3.76	1,135,219	$	3.27
4.49		—	6.62		3,626,065	8.6	5.72		691,585	5.72
6.66		—	7.53		2,865,141	7.6	7.39		1,298,962	7.40
7.57		—	15.51		2,373,560	5.9	12.22		1,543,700	12.52
15.53		—	17.58		569,120	6.3	16.58		372,309	16.53
$	1.64	—	$	17.58	11,824,332	7.1	$	7.56	5,041,775	$	8.48

Non-Employee - Stock Options

As of December 31, 2017, 2016, and 2015, a total of 1,500, 11,500, and 31,500 non-employee stock options, respectively, were outstanding and fully vested.

Restricted Stock Award Activity

The following table summarizes activity and related information for the Company's restricted stock awards:



	Number of Restricted Stock Awards(2)		Weighted Average Fair Value per Share at Grant Date		Grant Date Fair Value		Vest Date Fair Value(1)
Unvested as of December 31, 2016	1,310,019		$	10.19
Granted	1,590,662		5.01		$	7,969
Forfeited	(470,626	)	9.74
Vested	(293,612	)	11.39				$	1,757
Unvested as of December 31, 2017	2,136,443		$	6.27

(1) Represents the Company's stock price on the vesting date multiplied by the number of vested shares.

(2) Shares granted in 2017 include 513,011 performance stock units that have certain performance conditions required to be achieved to vest.

For years ended December 31, 2017, 2016 and 2015, the weighted average grant date fair value of shares granted was $5.01, $8.29, and $16.03, respectively.

For years ended December 31, 2017, 2016 and 2015, the total fair value of shares vested was $1.8 million, $2.6 million, and $2.2 million, respectively.

The Company recognized restricted stock expense of $3.0 million, $3.7 million, and $2.8 million for the years ended December 31, 2017, 2016, and 2015, respectively. As of December 31, 2017, there was $5.2 million of unrecorded expense related to issued restricted stock that will be recognized over an estimated weighted average period of 1.9 years.

Non-Employee Restricted Stock

During the years ended December 31, 2017, 2016, and 2015, $79 thousand, $30 thousand, and $0.1 million, respectively, was recorded as compensation expense for the change in the fair value of unvested non-employee restricted stock. There were no restricted stock units granted to non-employees during the year ended December 31, 2016.

As of December 31, 2017, 2016, and 2015, a total of 41,000, 41,000, and 72,000 shares of unvested restricted stock, respectively, issued to non-employees were outstanding.

Award Modifications

During 2017, there was an award modification affecting one employee. The employee was provided with twelve months of accelerated vesting for all awards outstanding which included stock options, restricted stock units, and four performance stock units. The total incremental stock compensation expense recognized for the years ended 2017, 2016 and 2015 related to awards modifications was $286,000, $273,000 and $46,000, respectively.