STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Compensation expense included in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for all stock-based compensation arrangements was as follows:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Cost of sales	$	4,093	$	3,974	$	12,629	$	10,360
Research and development	14,261		14,257		43,037		43,099
Selling, general and administrative	20,819		18,815		66,097		58,802
Total stock-based compensation expense	$	39,173	$	37,046	$	121,763	$	112,261

Stock-based compensation of $5.1 million and $13.2 million was capitalized into inventory for the three and nine months ended September 30, 2019, respectively, compared to $5.3 million and $14.3 million for the three and nine months ended September 30, 2018, respectively. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.

Equity Awards with Service-Based Vesting Conditions

During the nine months ended September 30, 2019, the Company granted 1,844,308 RSUs with service-based vesting conditions with a weighted-average fair value of $91.23 per share.

The Company did not grant any options to purchase shares of common stock during the three months ended September 30, 2019. During the nine months ended September 30, 2019, the Company granted 610,250 options to purchase shares of common stock with a weighted-average fair value of $36.84 per share.

The assumptions used to estimate the per share fair value of stock options granted during the periods presented were as follows:



	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Expected volatility	N/A	36.8%	37.1 – 37.4%	36.8 – 38.4%
Dividend yield	N/A	0.0%	0.0%	0.0%
Expected life (in years)	N/A	5.7	4.6 – 5.8	4.6 – 5.7
Risk-free interest rate	N/A	2.8%	2.2 – 3.0%	2.3 – 2.8%

The Company did not issue any new stock purchase rights under the Employee Stock Purchase Plan during the three months ended September 30, 2019. The Company issued 107,473 new stock purchase rights under the Employee Stock Purchase Plan during the nine months ended September 30, 2019.

Restricted Stock Unit Awards with Performance Conditions

In August 2019, the Compensation Committee of the Board of Directors (Board) approved the grant of 44,260 RSUs with performance-based vesting conditions and a grant date fair value of $81.00 per RSU. This award is contingent upon obtaining regulatory approval for valoctocogene roxaparvovec by January 2022 and the awarded RSUs, if any, vest ratably from the time regulatory approval is obtained through January 2022. The Company evaluated the current timeline and plans for submitting the regulatory applications and determined that for accounting purposes attainment of the performance measure is not probable as of September 30, 2019 as the regulatory approval is outside of the Company's control. Therefore, the Company did not record any expense associated with these awards.

In March 2019, the Compensation Committee and Board approved the grant of 99,010 RSUs with performance-based vesting conditions (base RSUs) and a grant date fair value of $94.53 per RSU. This award is contingent upon the achievement of a 2019 revenue target and the awarded RSUs, if any, vest ratably over a three-year service period. The Company evaluated the 2019 revenue target in the context of its current 2019 revenue forecast, and related confidence level in the forecast, and determined that attainment of the revenue target was probable for accounting purposes commencing in the first quarter of 2019. The number of shares that may be earned range between 0% and 200% of the base RSUs, depending on the percentage of 2019 “managed revenues” (defined as the Company’s net product revenues, excluding net revenues attributable to Aldurazyme, and determined using fixed foreign currency exchange rates) achieved against the target managed revenues, with a threshold achievement level of 75% of target and a ceiling achievement level of 125% of target.

Restricted Stock Unit Awards with Market Conditions

In March 2019, the Compensation Committee and Board approved the grant of 99,010 RSUs with market-based vesting conditions (base TSR-RSUs) to certain executives. These base TSR-RSUs, vest, if at all, in full following a three-year service period only if certain total shareholder return (TSR) results relative to the Nasdaq Biotechnology Index comparative companies are achieved. The number of shares that may be earned range between 0% and 200% of the base TSR-RSUs with a ceiling achievement level of 100% of the base TSR-RSUs in the event the Company’s absolute TSR multiplier is above the 50th percentile but the Company’s TSR multiplier is negative on an absolute basis. The Company utilized a Monte Carlo simulation model to determine the grant date fair value of $143.92 per base TSR-RSU. Compensation expense for awards with market conditions is recognized over the service period using the straight-line method and is not reversed if the market condition is not met.