(13) STOCK-BASED COMPENSATION

Compensation expense included in the Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for all stock-based compensation arrangements was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Cost of sales	$	3,246	$	2,510	$	6,386	$	4,796
R&D		15,573		14,647		28,842		26,141
Selling, general and administrative		19,787		22,944		39,986		39,838
Total stock-based compensation expense	$	38,606	$	40,101	$	75,214	$	70,775

Stock-based compensation expense of $5.4 million and $9.0 million was capitalized into inventory for the three and six months ended June 30, 2018, respectively, compared to stock-based compensation expense of $4.4 million and $7.6 million that was capitalized into inventory for the three and six months ended June 30, 2017, respectively. Capitalized stock-based compensation is recognized as cost of sales when the related product is sold.

Equity Awards with Service-Based Vesting Conditions

The assumptions used to estimate the per share fair value of stock options granted under the Company’s 2017 Equity Incentive Plan and the Company’s Amended and Restated 2006 Share Incentive Plan were as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2018	2017	2018	2017
Expected volatility	38.4%	37.8 – 39.6%	37.8 – 38.4%	37.6 – 39.7%
Dividend yield	0.0%	0.0%	0.0%	0.0%
Expected life	5.7 years	5.0 – 6.6 years	4.6 – 5.7 years	5.0 – 6.6 years
Risk-free interest rate	2.7%	1.8 – 1.9%	2.3 – 2.7%	1.8 – 2.2%

During the six months ended June 30, 2018, the Company granted options to purchase 775,380 shares of common stock with a weighted-average fair value of $33.34 per share.

The Company issued new stock purchase rights under the ESPP during the three and six months ended June 30, 2018, using the following assumptions to estimate the per share fair value:

	Three and Six Months Ended June 30,
	2018	2017
Expected volatility	29.7 - 33.3%	30.7 - 42.3%
Dividend yield	0.0%	0.0%
Expected life	6-24 months	6-24 months
Risk-free interest rate	1.2 - 2.5%	1.0 - 1.3%

During the six months ended June 30, 2018, the Company granted 1,519,780 RSUs with service-based vesting conditions with a weighted-average fair value of $84.19 per share.

Restricted Stock Unit Awards with Performance Conditions

The Compensation Committee of the Board (with respect to awards to certain executive officers other than the Chief Executive Officer) and the Board (with respect to awards to the Chief Executive Officer) may grant RSUs with performance-based vesting conditions to certain executive officers. In March 2018, the Compensation Committee and Board approved the grant of 129,680 RSUs (base RSUs) with performance-based vesting conditions. This award is contingent upon the achievement of a 2018 revenue target and the awarded RSUs, if any, vest ratably over a three-year service period. The number of shares that may be earned range between 50% and 200% of the base RSUs, dependent on the percentage of 2018 “managed revenues” (defined as the Company’s net product revenues, excluding net revenues attributable to Aldurazyme, and determined using fixed foreign currency exchange rates) achieved against the target managed revenues, with a threshold achievement level of 70% of target and a ceiling achievement level of 125% of target. RSUs with performance-based vesting conditions with similar performance conditions were granted in 2017, 2016 and 2015. The following table details the base RSUs granted, RSUs earned and expected to vest and the performance multiplier achieved for the RSUs with performance-based vesting conditions for the years ended December 31, 2017, 2016 and 2015, respectively, as well as the base RSUs granted in March 2018:

			Grant Date
Date of Grant	Base RSUs Granted		Fair Value per RSU		Multiplier Achieved	RSUs Earned
March 2018		129,680	$	83.57	(a)	(a)
March 2017		133,250	$	87.42	1.03		132,548
March 2016		130,310	$	83.43	1.03		134,219
March 2015		58,300	$	108.36	1.11		64,713

(a)

The Company’s Compensation Committee is expected to approve the multiplier and total earned RSUs in the first quarter of 2019 based on the Company’s performance against the 2018 managed revenue target. The Company evaluated the 2018 revenue target in the context of its current 2018 revenue forecast, and related confidence level in the forecast, and determined that attainment of the revenue target was probable for accounting purposes commencing in the first quarter of 2018.