Stockholders’ Equity

2014

Common Stock Offering

June

2014,

we sold

4.8

million shares of our common stock at a public offering price of

$11.75

per share. In addition, as a component of the offering, we sold

600,000

pre-funded warrants to purchase shares of our common stock at a public offering price of

$11.74

per share. The pre-funded warrants have an exercise price of

$0.01

per share and expire on

June

30,

2021.

We received total net proceeds of

$58.9

million (net of

$4.0

million in issuance costs) from the sale of the common stock and the pre-funded warrants. As of

December

31,

2016,

all warrants from the

June

2014

public offering remain outstanding.

2015

Common Stock Offering

June

2015,

we sold

5.5

million shares of our common stock at a public offering price of

$24.75

per share. We received total net proceeds of

$128.2

million (net of

$8.4

million in issuance costs) from the sale of the common stock.

201

Common Stock Offering

January

2017,

we sold

14.1

million shares of our common stock at a public offering price of

$12.20

per share. We received total net proceeds of

$163.7

million (net of

$8.8

million in issuance costs) from the sale of the common stock.

Private Placement Warrants

June

2011,

we sold shares of common stock and warrants to purchase common stock in a private placement. A total of

4,000,000

warrants to purchase common stock at an exercise price of

$3.60

per share were issued as part of this private placement. As of

December

31,

2016,

all warrants from the

June

2011

Private Placement have been exercised.

During the year ended

December

31,

2016,

warrant holders exercised

2,965,477

warrants under the cashless exercise provision in each such holder’s warrant, which resulted in the net issuance of

2,395,700

shares of common stock and no net cash proceeds to us. During the year ended

December

31,

2015,

warrant holders exercised

343,813

warrants under the cashless exercise provision in each such holder’s warrant, which resulted in the net issuance of

285,713

shares of common stock and no net cash proceeds to us. During the year ended

December

31,

2014,

warrant holders exercised

460,706

warrants under the cashless exercise provision in the warrant agreement, which resulted in the net issuance of

303,614

shares of common stock and no net cash proceeds to us.

Common Stock Reserved for Future Issuance

Shares of our common stock reserved for future issuance as of

December

31,

2016

were as follows:

	Number of Shares
Stock options outstanding		11,845,376
Stock options available for grant		2,653,548
Employee stock purchase plan		144,600
Warrants outstanding		600,000
Shares of common stock underlying Convertible Notes outstanding (see Note 7)		7,521,416
Total shares reserved for future issuance		22,764,940

Employee Stock Purchase Plan

1997,

our stockholders approved our Employee Stock Purchase Plan (the “ESPP”). In

December

2007,

May

2009,

June

2011,

May

2014,

May

2015

and

June

2016,

our stockholders authorized increases in the number of shares reserved for issuance under the ESPP by

5,000,

10,000,

25,000,

100,000

and

100,000

shares, respectively, for a total of

275,000

shares reserved at

December

31,

2016.

Under the terms of the ESPP, employees can elect to have up to a maximum of

10%

of their base earnings withheld to purchase our common stock. The purchase price of the stock is

85%

of the lower of the closing prices for our common stock on: (i) the

first

trading day in the enrollment period, as defined in the ESPP, in which the purchase is made, or (ii) the purchase date. The length of the enrollment period is

six

months. Enrollment dates are the

first

business day of

May

and

November.

2016,

51%

of eligible employees participated in the ESPP. Under the ESPP, we issued

54,932,

30,361,

and

12,028

shares in

2016,

2015

and

2014,

respectively. The weighted-average exercise price per share of the purchase rights exercised during

2016,

2015

and

2014

was

$14.03,

$8.46

and

$7.59,

respectively. As of

December

31,

2016,

130,400

shares of common stock have been issued under the ESPP and

144,600

shares of common stock are available for future issuance.

Stock Option Plans

We currently have

one

stock option plan from which we can grant options and restricted stock awards to employees, officers, directors and consultants. In

December

2007,

the stockholders approved our

2007

Equity Incentive Plan (the

“2007

Plan”) at which time a maximum of

150,000

shares of common stock were available for grant. In

May

2010,

June

2011,

May

2014,

May

2015

and

June

2016,

our stockholders approved amendments to our

2007

Plan to increase the maximum number of shares of common stock available for grant by

100,000,

4,500,000,

1,750,000,

4,300,000

and

3,000,000

shares of common stock, respectively, resulting in an aggregate of

13,800,000

shares of common stock authorized for issuance as of

December

31,

2016.

December

31,

2016,

there were

2,653,548

shares available for future grant under the

2007

Plan. Any shares that are issuable upon exercise of options granted that expire, are cancelled, or that we receive pursuant to a net exercise of options, are available for future grant and issuance.

We also granted stock options and restricted stock awards under the

2002

Stock Incentive Plan (the

“2002

Plan”) in prior years. The remaining shares available to be granted under the

2002

Plan expired in

February

2012.

2014,

2013

and

2012,

we granted options to certain employees outside of our stockholder approved stock option plans. All options to purchase our common stock were granted with an exercise price that equals fair market value of the underlying common stock on the grant dates and expire no later than

ten

years from the date of grant. The options are exercisable in accordance with vesting schedules that generally provide for them to be fully vested and exercisable

four

years after the date of grant, provided, however, that we have also issued stock options awards that are subject to performance vesting requirements. All stock option grants issued outside of our stockholder approved plans have been registered on Form S-

with the SEC.

A summary of our stock option activity and related data follows:

	Outstanding Options
				Weighted-
				Average
	Number of			Exercise
	Shares			Price
Balance at December 31, 2013		6,355,681		$	8.22
Granted		3,181,001			9.40
Exercised		(756,593	)		6.34
Cancelled		(862,085	)		9.88
Balance at December 31, 2014		7,918,004			8.69
Granted		2,134,505			28.95
Exercised		(1,042,343	)		9.15
Cancelled		(575,178	)		10.42
Balance at December 31, 2015		8,434,988			13.64
Granted		4,920,661			15.98
Exercised		(798,363	)		8.37
Cancelled		(711,910	)		22.43
Balance at December 31, 2016		11,845,376		$	14.44

For the year ended

December

31,

2016,

option holders exercised

798,363

stock options resulting in cash proceeds to us of

$6.7

million.

For the year ended

December

31,

2016,

options cancelled (included in the above table) consisted of

707,617

options forfeited with a weighted-average exercise price of

$22.35

and

4,293

options expired with a weighted-average exercise price of

$35.09.

As of

December

31,

2016,

options exercisable have a weighted-average remaining contractual term of

5.3

years. The total intrinsic value of stock option exercises, which is the difference between the exercise price and closing price of our common stock on the date of exercise, during the years ended

December

31,

2016

and

2015,

was

$10.4

million and

$13.9

million, respectively. As of

December

31,

2016

and

2015,

the total intrinsic value of options outstanding and exercisable was

$16.9

million and

$46.6

million, respectively, which is the difference between the exercise price and closing price of our common stock.

	Years Ended December 31,
	2016				2015				2014
			Weighted-				Weighted-				Weighted-
			Average				Average				Average
			Exercise				Exercise				Exercise
	Options		Price		Options		Price		Options		Price
Exercisable at end of year		4,356,665	$	11.66		2,587,392	$	8.72		2,237,901	$	9.01
Options vested or expected to vest		11,234,529	$	14.32		8,059,481	$	13.38		7,841,074	$	8.69

Exercise prices and weighted-average remaining contractual lives for the options outstanding as of

December

31,

2016

were:

											Weighted-
					Weighted-						Average
					Average		Weighted-				Exercise
					Remaining		Average				Price of
Options	Range of				Contractual		Exercise		Options		Options
Outstanding	Exercise Prices				Life (in years)		Price		Exercisable		Exercisable
581,518		$3.80	–	7.00		1.01	$	6.02		581,518	$	6.02
1,935,473			$7.20			6.28		7.20		1,054,143		7.20
1,793,013		$7.61	–	9.05		7.09		8.93		1,104,899		8.94
843,387		$9.20	–	12.65		4.23		10.33		736,434		10.39
2,271,111			$13.00			9.97		13.00		—		—
548,025		$13.20	–	16.62		7.38		15.46		202,650		14.57
1,241,350			$16.83			9.71		16.83		51,320		16.83
1,226,884		$17.10	–	28.30		8.41		22.48		164,692		26.76
1,203,272		$28.73	–	29.86		8.49		29.44		395,686		29.44
201,343		$29.95	–	102.40		8.61		34.78		65,323		35.03
11,845,376		$3.80	–	102.40		7.60		14.44		4,356,665		11.66

December

31,

2016,

we had reserved

11,845,376

shares of common stock for future issuance upon exercise of outstanding options granted under the

2002

Plan and the

2007

Plan, as well as the non-plan grants.

Valuation and Expense Information

The following table summarizes stock-based compensation expense related to stock-based payment awards granted pursuant to all of our equity compensation arrangements for the years ended

December

31,

2016,

2015

and

2014

(in thousands):

	December 31,
	2016		2015		2014
Research and development	$	11,316	$	4,701	$	3,329
General and administrative		7,402		6,282		2,532
Sales and marketing		7,238		3,377		2,206
Stock-based compensation expense included in operating expenses	$	25,956	$	14,360	$	8,067

As of

December

31,

2016,

there was

$86.4

million of total unrecognized compensation cost related to non-vested, stock-based payment awards granted under all of our equity compensation plans and all non-plan option grants. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize this compensation cost over a weighted-average period of

2.9

years.

For the years ended

December

31,

2016,

2015

and

2014,

we estimated the fair value of each option grant and ESPP purchase right on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Options:

	December 31,
	2016			2015			2014
Risk-free interest rate		1.7	%		1.7	%		1.9	%
Dividend yield		—	%		—	%		—	%
Volatility		89.1	%		92.7	%		99.0	%
Expected life (years)		6			6			6

ESPP:

	December 31,
	2016			2015			2014
Risk-free interest rate		0.4	%		0.1	%		0.1	%
Dividend yield		—	%		—	%		—	%
Volatility		68.3	%		86.7	%		53.8	%
Expected life (months)		6			6			6

The weighted-average fair value of options granted was

$11.82,

$21.92

and

$7.40

for the years ended

December

31,

2016,

2015

and

2014,

respectively.

The weighted-average fair value of shares purchased through the ESPP was

$6.10,

$8.23

and

$3.06

for the years ended

December

31,

2016,

2015

and

2014,

respectively.

The risk-free interest rate assumption is based on observed interest rates on United States Treasury debt securities with maturities close to the expected term of our employee and director stock options and ESPP purchases.

The dividend yield assumption is based on our history and expectation of dividend payouts. We have never paid dividends on our common stock and we do not anticipate paying dividends in the foreseeable future.

We used our historical stock price to estimate volatility.

The expected life of employee and director stock options represents the average of the contractual term of the options and the weighted-average vesting period, as permitted under the simplified method. We have elected to use the simplified method, as we do not have enough historical exercise experience to provide a reasonable basis upon which to estimate the expected term. The expected life for the ESPP purchase rights is

six

months, which represents the length of each purchase period.