Share-Based Payments

Incentive Award Plans

The 2013 Incentive Award Plan, or the 2013 Plan, 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, restricted stock and restricted stock units may be granted to employees, consultants, and members of the Company's board of directors. Non-statutory stock options granted have varying vesting schedules. Time-based restricted stock awards and restricted stock units have been granted to employees and generally vest ratably over four years. Time-based restricted stock and restricted stock units have been granted to board members and generally vest on the one year anniversary of the grant date. Performance-based restricted stock awards are granted to employees and vest in connection with the attainment of certain company milestones as described in more detail below under “Restricted Stock and Restricted Stock Units”. Incentive and non-statutory stock options generally expire ten years after the date of grant. As of December 31, 2017, there were 8,271,767 shares available for issuance under the 2013 Plan.

Equity Award Retirement Policy

In December 2016, the Company's board of directors adopted the Momenta Pharmaceuticals, Inc. Equity Award Retirement Policy, or the Retirement Policy, to provide for the treatment of time-based options and restricted stock units upon a participant’s qualifying retirement from the Company, allowing employees until January 11, 2017 to opt-out of a modification to certain of their outstanding grants of incentive stock options. Under the Retirement Policy, following the qualifying retirement of any employee of the Company or non-employee member of the board of directors, the participant’s then-outstanding time-based options and restricted stock units will continue to vest during the one year period following the retirement date. In addition, the participant will have until the first anniversary of the retirement date (or 90 days following the date an option becomes first exercisable if such date is within the 90 days preceding the first anniversary of the retirement date) to exercise any vested options, except that no option may be exercised following the date upon which it would have expired under the applicable option award agreement if the participant had remained in service with the Company.

For those employees who did not opt out, the Retirement Policy amended the terms of existing grants of time-based options effective January 11, 2017; therefore, in the consolidated statement of operations for the year ended December 31, 2017, the Company recorded incremental compensation expense of $0.4 million related to the modification of those options, of which $0.3 million was included in the general administrative expense and $0.1 million was included in research and development expense.

Share-Based Compensation

The Company records compensation cost for all share-based payment arrangements, including employee, director and consultant stock options, restricted stock, and restricted stock units and the employee stock purchase plan.

The table below presents share-based compensation expense for research and development as well as general and administrative expense, both of which are included in operating expenses, in the years ended December 31, 2017, 2016 and 2015 (in thousands):



	2017		2016		2015
Research and development	$	5,699	$	7,558	$	5,145
General and administrative	10,428		10,764		6,295
Total share-based compensation expense	$	16,127	$	18,322	$	11,440

The following table summarizes share-based compensation expense recorded in each of the years ended December 31, 2017, 2016 and 2015 (in thousands):



	2017		2016		2015
Stock options	$	10,036	$	9,831	$	10,548
Restricted stock awards and restricted stock units	5,608		8,064		504
Employee stock purchase plan	483		427		388
Total share-based compensation expense	$	16,127	$	18,322	$	11,440

During the year ended December 31, 2017, the Company granted 1,530,805 stock options to its employees and board members. 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 following table summarizes 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
	2017		2016		2015		2017		2016		2015
Expected volatility	53	%	58	%	59	%	55	%	57	%	59	%
Expected dividends	—		—		—		—		—		—
Expected life (years)	5.9		6.1		6.1		0.5		0.5		0.5
Risk-free interest rate	2.1	%	1.6	%	1.9	%	0.7	%	0.4	%	0.1	%

The following table presents stock option activity of the 2013 Plan and Prior Plans for the year ended December 31, 2017:



	Number of Stock Options (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2016	7,009		$	13.68
Granted	1,531		17.88
Exercised	(803	)	11.46
Forfeited	(369	)	14.10
Expired	(251	)	16.55
Outstanding at December 31, 2017	7,117		$	14.71	5.84	$	6,751
Exercisable at December 31, 2017	4,575		$	14.23	4.55	$	4,593
Vested or expected to vest at December 31, 2017	6,854		$	14.65	5.74	$	6,594

The weighted average grant date fair value of option awards granted during 2017, 2016 and 2015 was $9.05, $6.04 and $8.11 per option, respectively. The total intrinsic value of options exercised during 2017, 2016 and 2015 was $4.6 million, $0.2 million and $11.4 million, respectively. At December 31, 2017, the total remaining unrecognized compensation cost related to nonvested stock option awards amounted to $15.9 million, which will be recognized over the weighted average remaining requisite service period of 2.5 years. The total fair value of options vested during 2017, 2016 and 2015 was $9.3 million, $9.9 million and $9.9 million, respectively.

Cash received from option exercises for 2017, 2016 and 2015 was $9.2 million, $1.4 million and $23.6 million, respectively.

Restricted Stock and Restricted Stock Units

The Company has also made awards of time-based restricted stock and restricted stock units and performance-based restricted stock to its employees and time-based restricted stock and restricted stock units to board members.

During the year ended December 31, 2017, the Company awarded 519,753 shares of time-based restricted stock units to its employees and board members. The time-based restricted stock units awarded to employees 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 while the restricted stock units awarded to board members vest as to 100% on the one year anniversary of the grant date. Time-based awards are generally forfeited if the employment or service relationship terminates with the Company prior to vesting, except as provided in the Retirement Policy.

Between 2011 and early 2013, the Company awarded 949,620 shares of performance-based restricted stock to its employees. The performance-based restricted stock was scheduled to vest upon FDA approval of the GLATOPA 20 mg/mL Abbreviated New Drug Application, or ANDA, on or before the performance deadline date of March 28, 2015 according to the following 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 that extended the performance deadline date to September 1, 2015 and provided for the forfeiture of 15% of the number of shares originally subject to each award on the 29th of each month, beginning March 29, 2015 until the shares vested or were forfeited in full. On March 29, 2015, 117,898 shares of performance-based restricted common stock were forfeited pursuant to the modified awards. As a result, in accordance with ASC 718, the Company reversed the cumulative compensation cost related to the original awards of $10.5 million in the first quarter of 2015 and recognized the compensation cost attributed to the modified awards of $9.8 million as follows: the first 50% of the awards was expensed over the period beginning on March 11, 2015 and ending on April 16, 2015, the date of FDA approval, and the remaining 50% of the awards was expensed over the period beginning on March 11, 2015 and ending on April 16, 2016, the one year anniversary of FDA approval.

Since April 2016, the Company awarded 1,785,600 shares of performance-based restricted stock to its employees. The vesting of the shares is subject to the Company achieving up to two of three possible performance milestones on or before April 13, 2019. Upon achieving each of the first and second milestones, 25% of the shares will vest on the later of the milestone achievement date and the first anniversary of the grant date, and an additional 25% of the shares will vest on the one year anniversary of such achievement date, subject to a requirement that recipients remain employees through each applicable vesting date. Each quarter, the Company evaluates the probability of achieving the milestones on or before April 13, 2019, and its estimate of the implicit service period over which the fair value of the awards will be recognized and expensed. Upon issuance of the shares of restricted stock the Company had determined that the milestones were probable of achievement and re-assessed the probability at each reporting period including December 31, 2017. At December 31, 2017, the Company concluded that one of the performance milestones was no longer probable of achievement by April 13, 2019. As such, the Company reversed $3.8 million in compensation cost representing previously recognized compensation cost for the portion of the awards not likely to vest by April 13, 2019 in the fourth quarter of 2017. For the year ended December 31, 2017, the Company recognized approximately $0.8 million of stock compensation costs related to these awards.

As of December 31, 2017, the total remaining unrecognized compensation cost related to all nonvested restricted stock and restricted stock unit awards amounted to $11.0 million, which is expected to be recognized over the weighted average remaining requisite service period of approximately 2.0 years.

A summary of the status of nonvested shares of restricted stock and restricted stock units as of December 31, 2017 and the changes during the year then ended are presented below (in thousands, except fair values):



	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested at January 1, 2017	1,992		$	10.64
Granted	659		18.12
Vested	(286	)	12.64
Forfeited	(370	)	11.85
Nonvested at December 31, 2017	1,995		$	12.60

Nonvested shares of restricted stock and restricted stock units that have time-based vesting schedules and restricted stock that have performance-based vesting schedules as of December 31, 2017 are summarized below (in thousands):



Vesting Schedule	Nonvested Shares
Time-based	692
Performance-based	1,303
Nonvested at December 31, 2017	1,995

The total fair value of shares of restricted stock and restricted stock units vested during 2017, 2016 and 2015 was $3.7 million, $7.6 million and $7.9 million, respectively.

Employee Stock Purchase Plan

In 2004, the Company's Board of Directors adopted the 2004 Employee Stock Purchase Plan, or ESPP. An aggregate of 2,424,652 shares of common stock have been reserved for issuance under the ESPP.

The ESPP is generally available to all employees who work more than 20 hours per week and five months per year. Under the ESPP, eligible participants purchase shares of the Company's common stock at a price equal to 85% of the lesser of the closing price of the Company's common stock on the first business day and the final business day of the applicable plan purchase period. Plan purchase periods begin on February 1 and August 1 of each year, with purchase dates occurring on the final business day of the given purchase period. To pay for the shares, each participant authorizes periodic payroll deductions of up to 15% of his or her eligible cash compensation. All payroll deductions collected from the participant during a purchase period are automatically applied to the purchase of common stock on that period's purchase date provided the participant remains an eligible employee and has not withdrawn from the ESPP prior to that date and subject to certain limitations imposed by the ESPP and the Internal Revenue Code. The Company issued 99,872 shares of common stock to employees under the ESPP during the year ended December 31, 2017. As of December 31, 2017, 842,238 shares of common stock have been issued to the Company's employees under the ESPP, and 1,582,414 shares remain available for future issuance. The fair value of each ESPP award is estimated on the first day of the offering period using the Black-Scholes-Merton option-pricing model. The weighted average assumptions the Company used in its fair value calculations and the expense recorded are noted in the table above under the heading Share-Based Compensation. The Company recognizes share-based compensation expense equal to the fair value of the ESPP awards on a straight-line basis over the offering period. At December 31, 2017, subscriptions were outstanding for an estimated 53,855 shares at a fair value of approximately $4.83 per share. The weighted average grant date fair value of the offerings during 2017, 2016 and 2015 was $4.62, $4.32 and $4.05 per share, respectively. Cash received from the ESPP for 2017, 2016 and 2015 was approximately $1.2 million, $1.1 million and $1.0 million, respectively.