6. Share-Based Payments

Incentive Award Plans

The 2013 Incentive Award Plan, or the 2013 Plan, as amended and restated, initially became effective on June 11, 2013, the date the Company received stockholder approval for the plan. Also on June 11, 2013, the 2004 Stock Incentive Plan terminated except with respect to awards previously granted under that plan. No further awards will be granted under the 2004 Stock Incentive Plan.

The 2013 Plan allows for the granting of stock options (both incentive stock options and nonstatutory stock options), restricted stock, stock appreciation rights, performance awards, dividend equivalents, stock payments and restricted stock units to employees, consultants and members of the Company’s board of directors.

Incentive stock options are granted only to employees of the Company. Incentive stock options granted to employees who own more than 10% of the total combined voting power of all classes of stock are granted with exercise prices no less than 110% of the fair market value of the Company’s common stock on the date of grant. Incentive stock options generally vest ratably over four years. Non-statutory stock options and restricted stock awards may be granted to employees, consultants and members of the Company’s board of directors. Restricted stock awards generally vest ratably over four years. Non-statutory stock options granted have varying vesting schedules. Incentive and non-statutory stock options generally expire ten years after the date of grant. Restricted stock awards are granted only to employees of the Company.

The total number of shares reserved for issuance under the 2013 Plan before giving effect to the amendment and restatement described below equals the sum of: (a) 5,100,000, (b) one share for each share subject to a stock option that was granted through December 31, 2012 under the 2004 Stock Incentive Plan and the Amended and Restated 2002 Stock Incentive Plan (together, the “Prior Plans”) that subsequently expires, is forfeited or is settled in cash prior to June 9, 2015 (up to a maximum of 4,337,882 shares) and (c) 1.35 shares for each share subject to an award other than a stock option that was granted through December 31, 2012 under the Prior Plans and that subsequently expires, is forfeited, is settled in cash or repurchased prior to June 9, 2015 (up to a maximum of 950,954 shares).

On March 11, 2015, the board of directors approved the amendment and restatement of the 2013 Plan (the “Amended and Restated 2013 Plan”), subject to and effective upon stockholder approval. At the Company’s 2015 Annual Meeting of Stockholders, held on June 9, 2015 (the “Annual Meeting”), stockholders approved the Amended and Restated 2013 Plan. The Amended and Restated 2013 Plan (1) increases the number of shares of common stock available for issuance under the Amended and Restated 2013 Plan by 2,550,000 shares; (2) approves the material terms of performance goals that may apply to awards granted under the Amended and Restated 2013 Plan; (3) increases the fungible ratio under the Amended and Restated 2013 Plan such that any shares subject to awards granted on or after June 9, 2015 or that, in the future, become available for grant under the Amended and Restated 2013 Plan upon forfeiture, expiration or cash settlement of such awards or awards granted under its prior equity plans, other than awards that are options or stock appreciation rights, be counted against or, as applicable, added to the aggregate number of shares available for issuance under the Amended and Restated 2013 Plan as 1.67 shares for every one share granted; and (4) provides that future awards granted under the Amended and Restated 2013 Plan be subject to a minimum one-year vesting requirement, subject to certain limitations. At September 30, 2015, 4,722,746 shares were available for issuance under the Amended and Restated 2013 Plan.

Share-Based Compensation

The Company recognizes the fair value of share-based compensation in its consolidated statements of comprehensive (loss) income. The Company records compensation cost for all share-based payment arrangements, including employee, director and consultant stock options, restricted stock and the employee stock purchase plan. For stock options, the Company recognizes share-based compensation expense equal to the fair value of the stock options on a straight-line basis over the requisite service period. For time-based restricted stock awards, the Company records share-based compensation expense equal to the market value on the date of the grant on a straight-line basis over each award’s explicit service period. For performance-based restricted stock, each reporting period the Company assesses the probability that the performance condition(s) will be achieved. The Company then expenses the awards over the implicit service period based on the probability of achieving the performance conditions. The Company estimates an award’s implicit service period based on its best estimate of the period over which an award’s vesting condition(s) will be achieved. The Company reviews and evaluates these estimates on a quarterly basis and will recognize any remaining unrecognized compensation as of the date of an estimate revision over the revised remaining implicit service period. The Company issues new shares upon stock option exercises, upon the grant of restricted stock awards and under its ESPP.

The following table summarizes share-based compensation expense (income) recorded in the three and nine months ended September 30, 2015 and 2014 (in thousands):

Share-based compensation expense (income)	For the Three Months Ended September 30, 2015		For the Three Months Ended September 30, 2014		For the Nine Months Ended September 30, 2015			For the Nine Months Ended September 30, 2014
Outstanding employee and non-employee stock option grants	$	2,769	$	2,505	$	7,785		$	7,257
Outstanding restricted stock awards	1,691		780		(1,282		)	2,935
Employee stock purchase plan	97		114		284			323

Total compensation cost	$	4,557	$	3,399	$	6,787		$	10,515

During the nine months ended September 30, 2015, the Company granted 1,415,046 stock options, of which 1,165,146 were granted in connection with annual merit awards, 124,250 were granted to board members and 125,650 were granted primarily to new hires. The average grant date fair value of options granted was calculated using the Black-Scholes-Merton option-pricing model and the weighted average assumptions are noted in the table below. The weighted average grant date fair value of option awards granted during the three months ended September 30, 2015 and 2014 was $11.14 per option and $6.90 per option, respectively. The weighted average grant date fair value of option awards granted during the nine months ended September 30, 2015 and 2014 was $8.00 per option and $10.62 per option, respectively.

The following tables summarize the weighted average assumptions the Company used in its fair value calculations at the date of grant:

	Weighted Average Assumptions
	Stock Options				Employee Stock Purchase Plan
	For the Three Months Ended September 30, 2015		For the Three Months Ended September 30, 2014		For the Three Months Ended September 30, 2015		For the Three Months Ended September 30, 2014
Expected volatility	53	%	61	%	58	%	63	%
Expected dividends	—		—		—		—
Expected life (years)	6.2		6.3		0.5		0.5
Risk-free interest rate	1.9	%	2.2	%	0.1	%	0.1	%

	Weighted Average Assumptions
	Stock Options				Employee Stock Purchase Plan
	For the Nine Months Ended September 30, 2015		For the Nine Months Ended September 30, 2014		For the Nine Months Ended September 30, 2015		For the Nine Months Ended September 30, 2014
Expected volatility	60	%	66	%	59	%	63	%
Expected dividends	—		—		—		—
Expected life (years)	6.1		6.1		0.5		0.5
Risk-free interest rate	1.8	%	2.2	%	0.1	%	0.1	%

At September 30, 2015, the total remaining unrecognized compensation cost related to nonvested stock option awards amounted to $17.2 million, net of estimated forfeitures, which will be recognized over the weighted average remaining requisite service period of 2.4 years.

During the nine months ended September 30, 2015, holders of options issued under the Company’s stock plans exercised their right to acquire an aggregate of 1.6 million shares of common stock for $22.3 million in proceeds. Additionally, during the nine months ended September 30, 2015, the Company issued 109,506 shares of common stock to employees under the ESPP resulting in proceeds of approximately $1.0 million.

Restricted Stock Awards

The Company has also made awards of time-based and performance-based restricted common stock to employees and officers. During the nine months ended September 30, 2015, the Company awarded 255,087 shares of time-based restricted common stock primarily to its officers in connection with its annual merit grants. The time-based restricted common stock vest as to 25% on the one year anniversary of the grant date and as to 6.25% quarterly over three years that follow the grant date. The time-based awards are generally forfeited if the employment relationship terminates with the Company prior to vesting.

Between 2011 and early 2013, the Company awarded 949,620 shares of performance-based restricted common stock to employees and officers. The performance-based restricted common stock vests upon FDA approval of the Glatopa ANDA on or before the performance deadline date of March 28, 2015 according to the following vesting schedule: 50% of the shares vest upon FDA approval and 50% vest upon the one-year anniversary of FDA approval. The Company had historically determined that the performance condition was probable of being achieved by March 28, 2015 and, as a result, had recognized approximately $10.5 million of stock compensation costs related to the awards. On March 11, 2015, the Board of Directors approved an amendment to the awards extending the performance deadline date to September 1, 2015 and reducing the original number of shares subject to each award by 15% on the 29th of each month, beginning March 29, 2015. On March 29, 2015, 117,898 shares of performance-based restricted common stock were forfeited pursuant to the modified awards. The Company evaluated the modification and determined it was a Type III modification or “Improbable to Probable” pursuant to ASC 718 as the awards, on the date of modification, were no longer deemed to be probable of being earned by March 28, 2015. As a result, the Company reversed the cumulative compensation cost related to the original awards of $10.5 million in the first quarter of 2015. Also, in accordance with ASC 718, the Company re-measured the modified awards with a measurement date of March 11, 2015, and determined the aggregate compensation was $9.8 million. The FDA approved Glatopa on April 16, 2015. The Company recognizes the compensation cost attributed to the new awards as follows: the first 50% of the awards were expensed beginning on March 11, 2015 and ending on April 16, 2015, the date of FDA approval, and the remaining 50% of the awards expected to vest will be expensed beginning on March 11, 2015 and ending on April 16, 2016, the one year anniversary of FDA approval. Accordingly, approximately $7.1 million of stock compensation cost was recognized in the period beginning March 11, 2015 and ending September 30, 2015. As of September 30, 2015, the total remaining unrecognized compensation cost related to the nonvested portion of the new awards amounted to $2.2 million, which is expected to be recognized over the weighted average remaining requisite service period of 0.5 years.

As of September 30, 2015, the total remaining unrecognized compensation cost related to the nonvested portion of the time-based restricted stock awards amounted to $6.4 million, which is expected to be recognized over the weighted average remaining requisite service period of 2.7 years.

A summary of the status of nonvested shares of restricted stock as of September 30, 2015 and the changes during the nine months then ended are presented below (in thousands, except fair values):

	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2015	1,174		$	15.15
Granted	255		13.19
Vested	(484	)	15.11
Forfeited	(149	)	14.56


Nonvested at September 30, 2015	796		$	14.66

Nonvested shares of restricted stock that have time-based or both performance-based and time-based vesting conditions as of September 30, 2015 are summarized below (in thousands):

Vesting Schedule		Nonvested Shares
Time-based		483
Performance-based and time-based		313


Nonvested at September 30, 2015		796