11. Stock Based Compensation

Equity Incentive Plan

In January 2013, our Board of Directors adopted our 2013 Equity Incentive Plan, or the 2013 Plan, which became effective upon the closing of our IPO in May 2013. As of December 31, 2016, we are authorized to issue 12,205,425 shares of common stock under the 2013 Plan. The 2013 Plan had 2,391,556 shares of common stock available for future issuance as of December 31, 2016, subject to automatic annual increases each January 1st and will continue through January 1, 2023. The automatic annual share increase is equal to 5 % of the total number of outstanding shares of our common stock on December 31st of the preceding fiscal year, unless the Board of Directors elects to forego or reduce such increase. Further, all remaining shares available under the 2003 Equity Incentive Plan, or the 2003 Plan, were transferred to the 2013 Plan upon adoption. The 2013 Plan provides for the granting of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance stock awards, performance cash awards and other stock awards 2016 to employees, officers, directors and consultants.

Stock Options

Incentive stock options may be granted with exercise prices of not less than 100% of the estimated fair value of our common stock and nonstatutory stock options may be granted with an exercise price of not less than 85% of the estimated fair value of the common stock on the date of grant. Stock options granted to a stockholder owning more than 10% of our voting stock must have an exercise price of not less than 110% of the estimated fair value of the common stock on the date of grant. Stock options are generally granted with terms of up to ten years and vest over a period of four years.

The following table summarizes stock option activity, under our 2013 Plan and related information:

	Shares
	Subject to			Weighted-
	Outstanding			Average Exercise
	Stock Options			Price Per Share
Balance at December 31, 2015		4,731,483		$	24.19
Options granted		1,649,836			29.03
Options exercised		(54,045	)		7.42
Options canceled		(510,158	)		29.45
Balance at December 31, 2016		5,817,116		$	25.26

Additional information related to the status of stock options at December 31, 2016, is as follows (aggregate intrinsic value in thousands):

			Weighted-
			Average		Remaining
			Exercise Price		Contractual		Aggregate
	Shares		Per Share		Life		Intrinsic Value
Outstanding		5,817,116	$	25.26		6.9	$	22,295
Vested and expected to vest		5,680,016	$	25.11		6.9	$	22,267
Vested		3,310,206	$	20.29		5.7	$	21,966

The aggregate intrinsic values of stock options outstanding and exercisable, vested and expected to vest were calculated as the difference between the exercise price of the stock options and the fair value of our common stock as of December 31, 2016. The aggregate intrinsic value of stock options exercised was $964,000, $35.9 million and $12.5 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The weighted-average grant date fair value of employee stock options granted during the years ended December 31, 2016, 2015 and 2014 was $17.15, $22.84 and $15.73 per share, respectively. The total estimated grant date fair value of stock options vested during the years ended December 31, 2016, 2015 and 2014 was $20.8 million, $12.0 million and $9.0 million, respectively.

We recognized stock-based compensation expenses of $21.2 million, $15.8 and $8.3 million in 2016, 2015 and 2014 respectively relating to the employee stock options. As of December 31, 2016, total unamortized employee and nonemployee stock-based compensation was $41.8 million, which is expected to be recognized over the remaining estimated vesting period of 2.6 years.

Performance Stock Options (“PSOs”)

In May 2016, the Compensation Committee of our Board of Directors approved the commencement of granting performance stock option awards to our executive and senior officers. PSOs represent a contingent right to purchase our Common Stock upon achievement of specified conditions. The PSOs granted in May 2016 will vest upon the achievement of certain regulatory and manufacturing goals related to our lead programs.

We recognized stock-based compensation expense of $463,000 in 2016 relating to these PSOs. As of December 31, 2016 there was $2.12 million of unrecognized compensation costs related to these PSOs, which could be recognized over an estimated weighted-average period of 1.7 years.

The following table summarizes PSO activity under our 2013 Plan and related information:

	Shares
	Subject to			Weighted-
	Outstanding			Average Exercise
	Stock Options			Price Per Share
Balance at December 31, 2015		–		$	–
Options granted		271,122			23.76
Options exercised		–			–
Options canceled		(90,370	)		23.76
Balance at December 31, 2016		180,752		$	23.76

The remaining contractual life of these PSOs is 9.3 years. The aggregate intrinsic value of the outstanding PSOs as of December 31, 2016 is zero.

Restricted stock units (“RSUs”)

In January 2015, the Compensation Committee of our Board of Directors approved the commencement of granting restricted stock units to our employees. RSUs are share awards that entitle the holder to receive freely tradable shares of our Common Stock upon vesting. The RSUs cannot be transferred, and until they vest, the awards are subject to forfeiture if employment terminates prior to the release of the vesting restrictions. The RSUs, generally vest in equal amounts on each of the first three year anniversaries of the grant date, provided the employee remains continuously employed with us. The fair value of the RSUs is equal to the closing price of our Common Stock on the grant date.

The following table summarizes RSU activity, under our 2013 Plan and related information:

	Shares
	Subject to			Weighted-
	Outstanding			Average grant date
	RSU's			fair value per share
Balance at December 31, 2015		167,750		$	30.86
RSUs granted		495,806			28.01
RSUs released		(55,195	)		30.88
RSUs canceled		(61,854	)		29.94
Balance at December 31, 2016		546,507		$	28.38

The total grant date fair value and the total vest date fair value of RSUs vested in 2016 was $1.7 million. The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2016 and 2015 was $28.01 and $30.74 per share respectively.

We recognized stock-based compensation expenses of $5.3 million and $1.5 million in 2016 and 2015, respectively, relating to these RSUs. As of December 31, 2016, there was $9.9 million of unrecognized compensation costs related to these RSUs, which is expected to be recognized over an estimated weighted-average period of 1.9 years.

Performance stock units (“PSUs”)

In January 2015, the Compensation Committee of our Board of Directors approved the commencement of granting performance stock units to our employees. PSUs are share awards that entitle the holder to receive freely tradable shares of our Common Stock upon achievement of specified market or performance conditions. In January 2016, the Compensation Committee of our Board of Directors approved a program to award up to 102,906 PSUs to the management team based on the achievement of certain commercial and regulatory goals related to andexanet alfa and betrixaban, respectively.

The following table summarizes PSU activity, under our 2013 Plan and related information:

	Shares
	Subject to			Weighted-
	Outstanding			Average grant date
	PSU's			fair value per share
Balance at December 31, 2015		205,261		$	29.33
PSUs granted		102,906			33.49
PSU's released		(13,170	)		50.00
PSUs canceled		(9,131	)		49.36
Balance at December 31, 2016		285,866		$	29.24

The total grant date fair value and the total vest date fair value of PSUs vested in 2016 was $658,000 and $397,000 respectively. None of the PSUs vested in 2015 and 2014.The weighted-average grant date fair value of PSUs granted during the years ended December 31, 2016 and 2015 was $33.49 and $29.35 per share respectively.

We recognized stock-based compensation expenses of $2.5 million and $2.3 million in 2016 and 2015 respectively relating to these PSUs. As of December 31, 2016, there was $704,000 of unrecognized compensation costs related to these PSUs, which is expected to be recognized over an estimated weighted-average period of 2.0 years.

Employee Stock Purchase Plan (“ESPP”)

The Board of Directors adopted the 2013 ESPP, effective upon the completion of Portola’s initial public offering of its common stock. As of December 31, 2016, we reserved a total of 1,818,314 shares of common stock for issuance under the 2013 ESPP. The reserve for shares available under the ESPP automatically increases on January 1st each year, beginning in 2014, by an amount equal to 2% of the total number of outstanding shares of our common stock on December 31^st of the preceding fiscal year unless the Board of Directors elects to forego or reduce such increases. In 2015, the Board of Directors elected to completely forego the automatic 2016 increase of shares available under the ESPP. The ESPP had 1,696,977 shares of common stock available for future issuance as of December 31, 2016. Eligible employees may purchase common stock at 85% of the lesser of the fair market value of our Common Stock on the first or last day of the offering period.

Options Granted to Nonemployees

We have granted options to purchase shares of common stock to consultants in exchange for services performed. We granted options to purchase 52,000, 66,041 and 33,888 shares with average exercise prices of $24.85, $40.85 and $25.41 per share, respectively, during the years ended December 31, 2016, 2015 and 2014, respectively. These options vest upon grant or various terms up to four years. We recognized non-employees stock compensation expense of $77,000, $2.79 million and $769,000 during the years ended December 31, 2016, 2015 and 2014, respectively. The fair value of non-employees’ options was measured using the Black-Scholes option-pricing model reflecting the same assumptions as applied to employee options in each of the reported years, other than the expected life assumption, which is assumed to be the remaining contractual life of the option.

Stock-Based Compensation

Stock-based compensation expense, net of estimated forfeitures, is reflected in the consolidated statements of operations as follows (in thousands):

	Year Ended December 31,
	2016		2015		2014
Research and development	$	12,905	$	11,653	$	4,551
Selling, general and administrative		17,457		11,205		4,782
Total stock-based compensation	$	30,362	$	22,858	$	9,333

Valuation Assumptions

The Fair value of our stock options including performance stock options and purchase rights under our ESPP were determined using the Black-Scholes option valuation model. Option valuation models require the input of subjective assumptions and these assumptions can vary over time. The risk-free rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected terms of the awards. The expected term of employee options granted is determined using the simplified method (based on the midpoint between the vesting date and the end of the contractual term). As sufficient trading history does not yet exist for our common stock, our estimate of expected volatility is based on the weighted average volatility of other companies with similar products under development, market, size and other factors and our volatility. To date, we have not declared or paid any cash dividends and do not have any plans to do so in the future. Therefore, we used an expected dividend yield of zero.

The following table illustrates the weighted-average assumptions for the Black-Scholes option-pricing model used in determining the fair value of these awards:

	Year Ended December 31,
	2016	2015		2014
Risk-free interest rate
Stock options	1.01%-2.10%	1.54%-1.93%		1.81%-1.89%
Performance stock options	1.34%-1.50%	–		–
ESPP	0.26%-0.50%		0.14%		0.08%
Expected term
Stock options	5.0 -6.1 years	6.0 years		6.0 years
Performance stock options	5.4 -6.4 years	–		–
ESPP	0.5 years	0.5 years		0.5 years
Expected volatility
Stock options	62% - 66%	64% - 66%		69% - 80%
Performance stock options	65%-66%	–		–
ESPP	54%-99%		62%		73%
Dividend yield
Stock options	–	–		–
Performance stock options	–	–		–
ESPP	–	–		–