Share-Based Compensation

9 Months Ended

Sep. 30, 2016

Share-Based Compensation.

Share-Based Compensation

6. Share-Based Compensation

Share-Based Compensation Expense Allocation

The allocation of share-based compensation expense included in the condensed consolidated statements of operations was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2016		2015		2016		2015
Research and development	$	4,933	$	6,035	$	15,052	$	20,334
Selling, general and administrative	4,962		6,216		16,077		22,205
Total share-based compensation expense	$	9,895	$	12,251	$	31,129	$	42,539

Total share-based compensation expense capitalized to inventory was not material for any of the periods presented.

Performance-Contingent Awards

In the first quarter of 2016, the Compensation Committee of the our Board of Directors (“Compensation Committee”) approved the grant of 1,575,000 performance-contingent restricted share awards (“RSAs”) and 135,000 performance contingent restricted share units (“RSUs”) to senior management.  These grants have dual triggers of vesting based upon the achievement of certain performance conditions over a five-year timeframe from 2016 to 2020 and continued employment, both of which must be satisfied in order for the awards to vest.

Expense associated with these awards would be recognized during the years 2016 to 2020 depending on the probability of meeting the performance conditions.  Compensation expense relating to awards subject to performance conditions is recognized if it is considered probable that the performance goals will be achieved. The probability of achievement will be reassessed at each reporting period.

In August 2016, the Compensation Committee determined not to award credit for a performance condition that occurred in the second quarter of 2016, which for accounting purposes is treated as a modification of the vesting conditions of all outstanding awards. As a result of the modification, the vesting of the first tranche of the awards changed from probable of achievement to improbable. The vesting of the second and third tranches of the awards is still considered improbable of achievement. As a result of the modification, there is a new measurement date for the second and third tranches of the awards as of the modification date. While the total number of shares under the award did not change, the remeasurement of the awards results in a higher potential compensation charge for the awards because our share price had increased since the original measurement date.  The revised maximum potential expense associated with the awards could be up to $38.9 million (allocated as $16.7 million for research and development expense and $22.2 million for selling, general and administrative expense) if all of the performance conditions are achieved.  For the three and nine months ended September 30, 2016, we recognized $0.6 million and $1.2 million, respectively, in share-based compensation expense related to our assessment of the probability that the performance conditions associated with the first tranche of these awards were considered to be probable of vesting. As of September 30, 2016, we determined that the remaining second and third tranches were improbable of vesting and, as a result, no compensation expense related to these tranches has been recognized for the quarter.