Share-Based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Non-Cash Share-Based Compensation Expense

Non-cash share-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award (generally three to four years) using the straight-line method. Non-cash share-based compensation expense, consisting of expense for stock options, Restricted Share Units ("RSUs") and Employee Share Purchase Plan ("ESPP"), was classified in the condensed consolidated statements of operations as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Research and development expenses	$	5,250	$	3,638	$	17,927	$	17,668
Selling, general and administrative expenses	9,315		6,333		25,279		17,187
	$	14,565	$	9,971	$	43,206	$	34,855
Less: Share-based compensation expense attributable to non-controlling interests	$	(1,439)	$	—	$	(1,439)	$	—
Share-based compensation expense attributable to Biohaven Pharmaceutical Holding Company Ltd.	$	13,126	$	9,971	$	41,767	$	34,855

Stock Options

All stock option grants are awarded at fair value on the date of grant. The fair value of stock options is estimated using the Black-Scholes option pricing model and stock-based compensation is recognized on a straight-line basis over the requisite service period. Stock options granted generally become exercisable over a three-year or four-year period from the grant date. Stock options generally expire 10 years after the grant date.

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company's common shares for those stock options that had exercise prices lower than the fair value of the Company's common shares at September 30, 2020.

As of September 30, 2020, the Company's unrecognized compensation expense related to unvested stock options totaled $65,128, which the Company expects to be recognized over a weighted-average period of 1.95 years. The Company expects approximately 3,471,272 of the unvested stock options to vest over the requisite service period.

The following table is a summary of the Company's stock option activity for the nine months ended September 30, 2020:


	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at December 31, 2019	9,423,015	$24.58
Granted	311,338	$53.60
Exercised	(1,700,357)	$11.69
Forfeited	(87,876)	$42.32
Outstanding at September 30, 2020	7,946,120	$28.28	7.23	$	292,267
Options exercisable at September 30, 2020	4,474,848	$20.13	6.43	$	200,903
Vested at September 30, 2020 and expected to vest in the future	7,946,120	$28.28	7.23	$	292,267

Restricted Share Units

The Company’s RSUs are considered nonvested share awards and require no payment from the employee. For each RSU, employees receive one common share at the end of the vesting period. The employee can elect to receive the one common share net of taxes or pay for taxes separately and receive the entire share. Compensation cost is recorded based on the market price of the Company’s common shares on the grant date and is recognized on a straight-line basis over the requisite service period.

As of September 30, 2020, there was $20,487 of total unrecognized compensation cost related to Company RSUs that are expected to vest. These costs are expected to be recognized over a weighted-average period of 2.29 years. The total fair value of RSUs vested during the nine months ended September 30, 2020 was $5,035.

The following table is a summary of the RSU activity for the nine months ended September 30, 2020:


	Number of Shares	Weighted Average Grant Date Fair Value
Unvested outstanding as of December 31, 2019	88,950	$57.40
Granted	499,525	$55.14
Forfeited	(11,957)	$54.30
Vested	(90,258)	$56.10
Unvested outstanding as of September 30, 2020	486,260	$55.40

Employee Share Purchase Plan

In April 2020, the Company’s board of directors approved the rules and procedures of the ESPP approved by shareholders of the Company on May 3, 2017. The ESPP allows each eligible employee who is participating in the plan to purchase shares by authorizing payroll deductions of up to 15% of eligible earnings. Unless the participating employee has previously withdrawn from the offering, accumulated payroll deductions will be used to purchase shares on the last business day of the offering period at a price equal to 85% of the fair market value of the shares on the first business day or the last business day of the offering period, whichever is lower. Under applicable tax rules, an employee may purchase no more than $25,000 worth of ordinary shares, valued at the start of the purchase period, under the ESPP in any calendar year. There is no minimum holding period associated with shares purchased pursuant to this plan. An employee’s purchase rights terminate immediately upon termination of employment.

The Company accounts for employee share purchases made under its ESPP using an estimate of the grant date fair value, which is determined in accordance with ASC 718, Stock Compensation. The purchase price discount and the look-back feature cause the ESPP to be compensatory and the Company to recognize compensation expense. The compensation cost is recognized on a straight-line basis over the requisite service period. The Company recognized $990 and $1,724 of compensation expense for the three and nine months ended September 30, 2020, respectively. The Company values ESPP shares using the Black-Scholes model.

As of September 30, 2020, there was $830 of unrecognized share compensation expense related to the ESPP, which is expected to be recognized over the remaining offer period ending November 30, 2020. There were no shares issued under the ESPP during the three and nine months ended September 30, 2020.