Stockholders’ Equity

2017

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.

December 2017,

we sold

9.7

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

$15.50

per share. We received total net proceeds of

$142.6

million (net of

$7.4

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

2018

Common Stock Offerings

April 2018,

we sold

6.9

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

$26.00

per share. We received total net cash proceeds of

$168.7

million (net of

$10.7

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

June 2018,

we sold

5.1

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

$39.50

per share. We received total net cash proceeds of

$194.4

million (net of

$5.6

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

Public Offering Warrants

June 2014,

as a component of our public offering, we sold

600,000

pre-funded warrants to purchase shares of our common stock. The pre-funded warrants have an exercise price of

$0.01

per share and expire on

June 30, 2021.

During the year ended

December 31, 2017,

warrant holders exercised

4,426

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

4,423

shares of common stock and

net cash proceeds to us. As of

December 31, 2018,

595,574

warrants from the

June 2014

public offering remain outstanding.

Common Stock Reserved for Future Issuance

Shares of our common stock reserved for future issuance as of

December

31,

2018

were as follows:

	Number of Shares
Stock options outstanding		15,264,606
Stock options available for grant		1,354,280
Employee stock purchase plan		195,818
Warrants outstanding		640,164
Shares of common stock underlying Convertible Notes outstanding (see Note 8)		8,472,820
Total shares reserved for future issuance		25,927,688

Employee Stock Purchase Plan

1997,

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

December 2007,

May 2009,

June 2011,

May 2014,

May 2015,

June 2016

and

June 2017,

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

5,000,

10,000,

25,000,

100,000,

100,000

and

200,000

shares, respectively, for a total of

475,000

shares reserved at

December 31, 2018.

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.

Under the ESPP, we issued

71,499,

77,283,

and

54,932

shares in

2018,

2017

and

2016,

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

2018,

2017

and

2016

was

$16.48,

$12.80

and

$14.03,

respectively. As of

December

31,

2018,

279,182

shares of common stock have been issued under the ESPP and

195,818

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 (

“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,

June 2016

and

June 2017,

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,

3,000,000

and

5,000,000

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

18,800,000

shares of common stock authorized for issuance as of

December 31, 2018.

December 31, 2018,

there were

1,354,280

shares available for future grant under the

2007

Plan. Any shares that are issuable on 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.

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

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.

The following table summarizes the stock option activity:

	Outstanding Options
				Weighted-
				Average
	Number of			Exercise
	Shares			Price
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
Granted		4,300,621			16.17
Exercised		(1,350,605	)		8.49
Cancelled		(1,332,429	)		20.06
Balance at December 31, 2017		13,462,963			15.03
Granted		4,052,011			26.83
Exercised		(1,529,509	)		11.97
Cancelled		(720,859	)		17.98
Balance at December 31, 2018		15,264,606			18.33

For the year ended

December

31,

2018,

options cancelled (included in the above table) consisted of

667,338

options forfeited with a weighted-average exercise price of

$17.04

and

53,521

options expired with a weighted-average exercise price of

$29.71.

As of

December

31,

2018,

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,

2018

and

2017

was

$31.4

million and

$9.9

million, respectively. As of

December

31,

2018

and

2017,

the total intrinsic value of options outstanding and exercisable was

$75.7

million and

$35.6

million, respectively.

	Years Ended December 31,
	2018				2017				2016
			Weighted-				Weighted-				Weighted-
			Average				Average				Average
			Exercise				Exercise				Exercise
	Options		Price		Options		Price		Options		Price
Exercisable at end of year		6,523,093	$	14.83		5,446,586	$	13.25		4,356,665	$	11.66
Options vested or expected to vest		14,449,017	$	18.11		12,854,571	$	14.98		11,234,529	$	14.32

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

December

31,

2018

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
2,635,453	$5.20	–	$9.05		3.03	$	7.99		2,260,453	$	8.12
2,531,622	$9.33	–	$14.20		6.29		12.89		1,406,228		12.66
4,195,066	$14.25	–	$17.00		7.78		16.60		1,512,260		16.54
845,157	$17.05	–	$23.90		7.56		20.52		478,721		20.64
2,860,911	$24.97	–	$24.97		8.94		24.97		—		—
2,196,397	$25.06	–	$39.25		7.42		30.85		865,431		29.71
15,264,606	$5.20	–	$39.25		6.87		18.33		6,523,093		14.83

December

31,

2018,

we had reserved

15,264,606

shares of common stock for future issuance on exercise of outstanding options granted under 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 (in thousands):

	December 31,
	2018		2017		2016
Research and development	$	13,689	$	11,312	$	11,316
General and administrative		9,630		9,469		7,402
Sales and marketing		10,048		9,757		7,238
Total stock-based compensation expense	$	33,367	$	30,538	$	25,956

As of

December

31,

2018,

there was

$117.5

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

2.8

years.

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,
	2018			2017			2016
Risk-free interest rate		2.8	%		2.1	%		1.7	%
Dividend yield		—	%		—	%		—	%
Volatility		70.4	%		74.0	%		89.1	%
Expected life (years)		6			6			6

ESPP:

	December 31,
	2018			2017			2016
Risk-free interest rate		2.4	%		1.2	%		0.4	%
Dividend yield		—	%		—	%		—	%
Volatility		59.7	%		50.0	%		68.3	%
Expected life (months)		6			6			6

The weighted-average fair value of options granted was

$17.24,

$10.61

and

$11.82

for the years ended

December

31,

2018,

2017

and

2016,

respectively.

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

$9.95,

$4.51

and

$6.10

for the years ended

December

31,

2018,

2017

and

2016,

respectively.

The risk-free interest rate assumption is based on observed interest rates on U.S. 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 on 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.