NOTE 5. BALANCE SHEET COMPONENTS

Inventory

As of December 31, 2017 and 2016, our inventory consisted of the following components:



	December 31,
(in thousands)	2017		2016
Purchased materials	$	8,884	$	4,817
Work in process		9,994		7,287
Finished goods		4,187		3,530
Inventory	$	23,065	$	15,634

Prepaid Expenses and Other Current Assets

As of December 31, 2017 and 2016, our prepaid expenses and other current assets consisted of the following components:


	December 31,
(in thousands)	2017		2016
Receivable from Prior Landlord	$	—	$	5,000
Rent deposits for O'Brien building		—		2,160
Prepaid expenses		1,318		2,342
Other current assets		931		476
Prepaid expenses and other current assets	$	2,249	$	9,978

On July 23, 2015, we entered into a Lease Amendment Agreement (the “Lease Amendment Agreement”) with Peninsula Innovation Partners, LLC (the “Prior Landlord”), which amended the terms and conditions of certain of our then existing Menlo Park facility real property leases. As consideration for our agreement to amend the existing leases pursuant to the Lease Amendment Agreement, and subject to the terms and conditions contained therein, we became eligible to receive up to $20.0 million from the Prior Landlord over time (the “Landlord Payments”), and rent abatement for the remainder of the lease. As of December 31, 2016, $5.0 million of the Landlord Payments were outstanding.

In January 2017, we entered into a Third Lease Amendment Agreement with the Prior Landlord that increased the amount of the Landlord Payments by $65,000. During the first quarter of 2017, we received Landlord Payments totaling $2,628,000. In May 2017, we entered into a Fourth Lease Amendment Agreement with the Prior Landlord, based on which we turned over the 940 Hamilton and 1010 Hamilton buildings to the Prior Landlord. Accordingly, in June 2017 we received $1,682,000 in Landlord Payments. In September 2017, we entered into a Fifth Lease Amendment Agreement with the Prior Landlord, pursuant to which we extended the term and rent abatement period for the remaining two buildings: 960 Hamilton and 1180 Hamilton, from September 30, 2017 to December 31, 2017. As of December 31, 2017, we returned the remaining two buildings: 960 Hamilton and 1180 Hamilton to the Prior Landlord and received $755,000 in Landlord Payments in return.

Other Long-term Assets

As of December 31, 2017 and 2016, our other long-term assets consisted of the following components:


	December 31,
(in thousands)	2017		2016
Rent deposits and tenant improvements for O'Brien building	$	—	$	9,641
Other		45		172
Other long-term assets	$	45	$	9,813

Payments toward tenant improvements for our 1305 O’Brien building of $9.6 million were recorded in “Other long-term assets” in the consolidated balance sheets at December 31, 2016.

In January 2017 we moved into the O’Brien building, and accordingly, the $9.6 million tenant improvements balance recorded in “Other Long-term Assets” at December 31, 2016 was transferred into leasehold improvements under “Property and Equipment” in the current year.

Property and Equipment, Net

As of December 31, 2017 and 2016, our property and equipment, net, consisted of the following components:



	December 31,
(in thousands)	2017		2016
Building	$	—	$	1,160
Laboratory equipment and machinery		24,703		23,337
Leasehold improvements		29,728		8,138
Computer equipment		8,301		7,170
Software		4,615		5,189
Furniture and fixtures		2,382		823
Construction in progress		385		5,772
		70,114		51,589
Less: Accumulated depreciation		(32,194)		(37,029)
Property and equipment, net	$	37,920	$	14,560

At December 31, 2016, out of the construction-in-progress balance of $5.8 million, approximately $5.2 million related to1305 O’Brien building purchases.

By the end of the first quarter of 2017, improvements associated with our O’Brien premises were substantially completed. As a result, during the first quarter of 2017 we capitalized $28.8 million of tenant improvements. As the premises were completed in phases during 2017, tenant improvements were placed into service in phases once construction was substantially complete and the related asset was ready for its intended use. Refer to “Note 7. Commitments and Contingencies” for additional details

In May 2017, we entered into a Fourth Lease Amendment Agreement with the Prior Landlord, based on which we turned over the 940 Hamilton and 1010 Hamilton buildings to the Prior Landlord. The 940 Hamilton building was a capital lease with a long-term facility financing obligation associated with this lease included in “Other liabilities, non-current” and the corresponding building and related leasehold improvements were included in “Property and equipment, net” in the consolidated balance sheets. Upon turning over the building to the Prior Landlord, the capital lease was terminated, resulting in the extinguishment of the facility financing obligation.

Depreciation expense during the years ended December 31, 2017, 2016 and 2015 was $8.4 million, $3.9 million and $3.7 million, respectively.

Accrued Expenses

As of December 31, 2017 and 2016, our accrued expenses consisted of the following components:



	December 31,
(in thousands)	2017		2016
Salaries and benefits	$	7,570	$	8,562
Accrued product development costs		2,034		5,411
Inventory accrual, professional services, accrued interest and other		3,014		2,631
Accrued expenses	$	12,618	$	16,604