The Company has three equity compensation plans — its 2013 Equity Incentive Plan (the “2013 EIP”), its 2013 Employee Share Purchase Plan (the “2013 ESPP”) and its 2014 New Employee Equity Incentive Plan (the “2014 NEEIP”). At inception, the Company was authorized to issue 5,428,571 ordinary shares under the 2013 EIP, 857,142 ordinary shares under the 2013 ESPP, and 750,000 ordinary shares under the 2014 NEEIP.

The 2013 EIP provides for the issuance of share-based awards, including restricted shares, restricted share units, options, share appreciation rights (“SARs”) and other equity-based awards, to Company employees, officers, directors and consultants. As of January 1 of each year, commencing on January 1, 2015 and ending on (and including) January 1, 2023, the aggregate number of ordinary shares that may be issued under the 2013 EIP shall automatically increase by a number equal to the least of 5% of the total number of ordinary shares outstanding on December 31 of the prior year, 3,428,571 ordinary shares, or a number of ordinary shares determined by the Company’s board of directors. Options may be granted with an exercise price not less than the fair market value of the ordinary shares on the grant date. Under the terms of the Company’s 2013 EIP, options granted to employees generally have a maximum term of 10 years and vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. The Company may grant options with different vesting terms from time to time. Unless an employee’s termination of service is due to disability or death, upon termination of service, any unexercised vested options will generally be forfeited at the end of three months or the expiration of the option, whichever is earlier.

Under the 2013 ESPP, the Company’s officers and employees may purchase ordinary shares through payroll deductions at a price equal to 85% of the lower of the fair market value of the ordinary share at the beginning of the offering period or at the end of each applicable purchase period. As of January 1 of each year, commencing on January 1, 2015 and ending on (and including) January 1, 2033, the aggregate number of ordinary shares that may be issued under the 2013 ESPP shall automatically increase by a number equal to the least of 1% of the total number of ordinary shares outstanding on December 31 of the prior year, 571,428 ordinary shares or a number of ordinary shares determined by the Company’s board of directors. The ESPP generally provides for consecutive and overlapping offering periods of 24 months in duration, with each offering period generally composed of four consecutive six-month purchase periods. The purchase periods end on either May 15 or November 15. ESPP contributions are limited to a maximum of 15% of an employee’s eligible compensation. The 2013 ESPP also includes a feature that provides for the existing offering period to terminate and for participants in that offering period to automatically be enrolled in a new offering period when the fair market value of an ordinary share at the beginning of a subsequent offering period falls below the fair market value of an ordinary share on the first day of such offering period.

The 2014 NEEIP provides for the issuance of share-based awards, including restricted shares, restricted share units, non-qualified options and SARs, to the Company’s employees. Options may be granted with an exercise price not less than the fair market value of the ordinary shares on the grant date. Under the terms of the 2014 NEEIP, options granted to employees generally have a maximum term of 10 years and vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. The Company may grant options with different vesting terms from time to time. Unless an employee’s termination of service is due to disability or death, upon termination of service, any unexercised vested options will generally be forfeited at the end of three months or the expiration of the option, whichever is earlier.

Prior to the spin-off from its former parent company, Innoviva, in 2014 (“Spin-Off”), the Company’s employees may have received Innoviva stock-based compensation awards, and, therefore, the following disclosures include information regarding stock-based compensation expense allocated to Theravance Biopharma that relates to Innoviva stock-based equity awards.

At the time of the Spin-Off, Innoviva had one active stock-based incentive plan under which it granted stock-based awards to employees, officers and consultants, the 2012 Equity Incentive Plan. All outstanding stock options and restricted stock units (“RSUs”) held by (i) Innoviva employees who became the Company’s employees; and (ii) members of the board of directors of Innoviva who became members of the Company’s board of directors, in

connection with the Spin-Off were adjusted for the Spin-Off. Such awards, along with outstanding restricted stock awards (“RSAs”) held by Innoviva employees who became the Company’s employees in connection with the Spin-Off, will continue to vest and remain outstanding based on continuing employment or service with the Company.

The 2012 Equity Incentive Plan provided for the grant of incentive stock options, non-statutory stock options, restricted stock awards, stock unit awards and SARs to employees, non-employee directors and consultants. Stock options were granted with an exercise price not less than the fair market value of the common stock on the grant date. Stock options granted to employees generally have a maximum term of 10 years and vest over a four-year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three years. However, Innoviva granted options with different vesting terms from time to time. Unless an employee’s termination of service is due to disability or death, upon termination of service, any unexercised vested options will be forfeited at the end of three months or the expiration of the option, whichever is earlier.

In 2016, the Compensation Committee of the Company’s 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. The vesting of such awards is dependent on the Company meeting its critical operating goals and objectives during the five-year period from 2016 to December 31, 2020, as well as, continued employment. The goals that must be met in order for the performance-contingent RSAs and RSUs to vest are strategically important for the Company, and the Compensation Committee believes the goals should increase shareholder value. The awards have dual triggers of vesting based upon the achievement of these goals and continued employment.

Expense associated with these awards may be recognized during the years 2016 to 2020 depending on the probability of meeting certain 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 is reassessed at each quarter-end reporting period. Previously recognized expense is reversed in the period in which it becomes probable that the requisite service period will not be rendered. The awards are broken into three separate tranches and comprised of a share-based award component and a cash bonus award component. See “Note 13. Commitments and Contingencies” for information related to the cash bonus award component.

As of December 31, 2020, there were 414,000 of these performance-contingent RSAs and 54,000 of these performance-contingent RSUs outstanding, and as of December 31, 2019, there were 776,250 of these performance-contingent RSAs and 101,250 of these performance-contingent RSUs outstanding. The performance conditions associated with the first tranche of these awards were completed in the second quarter of 2018, and the Company recognized $1.7 million of share-based compensation expense for the year ended December 31, 2018 associated with the first tranche of these awards.

The performance conditions associated with the second tranche of these awards were completed in the first quarter of 2019, and the expense associated with this second tranche was fully recognized in the first quarter of 2020. For the year ended December 31, 2020, 2019 and 2018, the Company recognized $0.4 million, $1.9 million and $2.6 million, respectively, of share-based compensation expense related to the second tranche of these awards.

In the first quarter of 2020, the performance conditions associated with the remaining third tranche were completed and, as a result, the Company recognized $2.6 million in share-based compensation expense related to these awards for the year ended December 31, 2020. As of December 31, 2020, the maximum remaining expense associated with the third tranche was $0.4 million (allocated as $0.1 million for research and development expense and $0.3 million for selling, general and administrative expense) and will be amortized through the first quarter of 2021.

Separate from the performance-contingent awards described above, the Company periodically grants performance-contingent RSUs to individual employees. For the year ended December 31, 2020 and 2019, the Company recognized $1.0 million of share-based compensation expense related to such awards in each year. As of December 31, 2020, there were 70,000 shares of these performance-contingent RSUs outstanding that have a maximum remaining share-based compensation expense of $0.5 million with performance expiration dates through June 2022.

Share-based compensation expense included in the consolidated statements of operations was recognized as follows:

Share-based compensation expense included in the consolidated statements of operations by award type was as follows:

Total share-based compensation expense capitalized to inventory, in the period from January 1, 2018 to the disposition of the Company’s VIBATIV business in late 2018, was not material for the year ended December 31, 2018.

As of December 31, 2020, the unrecognized share-based compensation cost, net of actual forfeitures, and the estimated weighted-average amortization period, using the straight-line attribution method, was as follows:

(1)	Represents unrecognized share-based compensation cost associated with the Company’s performance-contingent awards described above that are probable of vesting.

Compensation Awards

The following table summarizes option activity under the 2013 EIP and 2014 NEEIP for the year ended December 31, 2020:


	Number of Shares	Weighted-Average
	Subject	Exercise Price
	to Outstanding Options	of Outstanding Options
Outstanding at December 31, 2019	2,950,472	$	24.75
Granted	600,300		22.58
Exercised	(68,171)		19.96
Forfeited	(183,422)		22.49
Outstanding at December 31, 2020	3,299,179	$	24.58

As of December 31, 2020, the aggregate intrinsic value of the options outstanding was $1.2 million. As of December 31, 2020, the aggregate intrinsic value of the options exercisable was $0.8 million. The total estimated fair value of options vested (excluding vested options that have expired) was $6.4 million in 2020.

The following table summarizes total RSU and RSA activity (including performance RSUs and RSAs) for the year ended December 31, 2020:


	Number of Shares	Number of Shares
	Subject to	Outstanding Subject to
	Outstanding RSUs	Performance Conditions (RSAs)
Outstanding at December 31, 2019	4,939,774	776,250
Granted	2,576,326	—
Released	(1,907,307)	(362,250)
Forfeited	(614,875)	—
Outstanding at December 31, 2020	4,993,918	414,000

As of December 31, 2020, the aggregate intrinsic value of the RSUs and RSAs outstanding was $88.7 million and $7.4 million, respectively. The total estimated fair value of RSUs vested was $46.8 million and $32.4 million in 2020 and 2019, respectively.

Valuation Assumptions

The range of assumptions used to estimate the fair value of options granted and rights granted under the 2013 ESPP was as follows:


	Year Ended December 31,
	2020		2019		2018
Options
Risk-free interest rate		0.3% - 1.7%		1.6% - 2.5%		2.3% - 3.0%
Expected term (in years)		5.2 - 6.1		6.0		6.0
Volatility		50% - 53%		51% - 53%		53% - 54%
Dividend yield		—		—		—
Weighted-average estimated fair value	$	11.03	$	10.20	$	14.32
2013 ESPP
Risk-free interest rate		0.1% - 0.2%		1.5% - 2.4%		2.1% - 2.8%
Expected term (in years)		0.5 - 2.0		0.5 - 2.0		0.5 - 2.0
Volatility		53% - 76%		40% - 48%		42% - 53%
Dividend yield		—		—		—
Weighted-average estimated fair value	$	8.04	$	6.17	$	9.13