12. Stock option plans

2007 Equity Incentive Plan

In 2007, the Company adopted the 2007 Equity Incentive Plan, or the Option Plan, that provides for the issuance of the Company's common stock to employees, including officers, directors and consultants of the Company and its affiliates. The Option Plan was amended and restated in May 2010 to reserve an additional 7,500,000 shares thereunder, such that an aggregate of 12,500,000 shares of the Company's common stock were reserved for issuance under the Option Plan at December 31, 2011. Under the Option Plan, the Company may issue stock options (including incentive stock options and nonstatutory stock options), restricted stock, restricted stock units, stock appreciation rights and other similar types of awards. No awardee may be granted, in any calendar year under the Option Plan, options or stock awards covering more than 1,000,000 shares. The Option Plan will terminate in December 2017 unless it is terminated earlier pursuant to its terms.

Incentive stock options under the Option Plan may be granted only to employees of the Company or its subsidiaries. The exercise price of an incentive stock option or a nonstatutory stock option may not be less than 100% of the fair market value of the common stock on the date the option is granted and have a maximum term of ten years from the date of grant. In the case of options granted to holders of more than 10% of the voting power of the Company, the exercise price may not be less than 110% of the fair market value of the common stock on the date the option is granted and the term of the option may not exceed five years. The Company may grant options with exercise prices lower than the fair market value of its common stock on the date of grant in connection with an acquisition by the Company of another company. Options become exercisable in whole or in part from time to time as determined by the Board of Directors, which administers the Option Plan. Generally, options granted under the Option Plan vest 25% one year after the beginning of the vesting period and thereafter ratably each month over the following three years. The Plan provides for (i) the full acceleration of vesting of stock awards, including stock options, upon a change in control (as defined in the Plans) if the successor company does not assume, substitute or otherwise replace the stock awards upon the change in control; and (ii) the full acceleration of vesting of any stock awards, including stock options held by a holder of such stock awards, if at the time of, immediately prior to or within twelve months after a change in control of the Company, the holder of such stock awards is involuntarily terminated without cause or is constructively terminated by the successor company that assumed, substituted or otherwise replaced such stock awards in connection with the change in control.

Stock awards under the Option Plan may be restricted stock grants, restricted stock units, stock appreciation rights or other similar stock awards (including awards that do not require the awardee to pay any amount in connection with receiving the shares or that have an exercise or purchase price that is less than the grant date fair market value of the Company's stock). Restricted stock grants are awards of a specific number of shares of the Company's common stock. Restricted stock units represent a promise to deliver shares of the Company's common stock, or an amount of cash or property equal to the value of the underlying shares, at a future date. Stock appreciation rights are rights to receive cash and/or shares of the Company's common stock based on the amount by which the exercise date fair market value of a specific number of shares exceeds the grant date fair market value of the exercised portion of the stock appreciation right.

Each stock award agreement under the Option Plan contains provisions regarding (i) the number of shares subject to the stock award, (ii) the purchase price of the shares, if any, and the means of payment for the shares, (iii) the performance criteria (including qualifying performance criteria), if any, and level of achievement versus these criteria that will determine the number of shares granted, issued, retainable and vested, as applicable, (iv) such terms and conditions on the grant, issuance, vesting and forfeiture of the shares, as applicable, as may be determined from time to time by the plan administrator (the Company's Board of Directors or the Compensation Committee of the Board of Directors), (v) restrictions on the transferability of the stock award or the shares, and (vi) such further terms and conditions, in each case not inconsistent with the Option Plan, as may be determined from time to time by the plan administrator; provided, however, that each stock award must have a minimum vesting period of one year from the date of grant. Stock awards were granted in the form of restricted stock units, or RSUs, for the first time in 2011. RSUs granted in 2011 vest 100% on the second or third anniversary of the date of grant, as applicable.

2000 Directors' Stock Option Plan

The Company had a 2000 Directors' Stock Option Plan, or the Directors' Plan. Under the terms of the Directors' Plan, each non-employee director was automatically granted a nonstatutory stock option to purchase 25,000 shares of common stock on the date on which such individual first became a member of the Board of Directors. Each initial option vests at the rate of 25% of the total number of shares subject to such option twelve months after the date of grant, with the remaining shares vesting thereafter in equal monthly installments over three years. In addition, on the dates of each annual stockholder meeting, each non-employee director who had been a member of the Board of Directors for at least six months was automatically granted a nonstatutory stock option to purchase additional shares of common stock. Each annual option vests at the rate of 100% of the total number of shares subject to such option on the day before the one-year anniversary of the grant date. The Director's Plan expired in 2011. Future grants to directors will be made from the Option Plan.

All options granted under the Directors' Plan have a term of ten years and an exercise price equal to the fair value of the underlying shares on the date of grant.

Share-based compensation expense

The impact on the Company's results of operations of share-based payment awards was as follows (in thousands):


	Years ended December 31,
	2011		2010		2009
Research and development	$	9,820	$	8,230	$	7,312
General and administrative		10,164		6,100		4,537

Total	$	19,984	$	14,330	$	11,849

No tax benefit was recognized related to share-based compensation expense since the Company has never reported taxable income and has established a full valuation allowance to offset all of the potential tax benefits associated with its deferred tax assets. During 2011, $0.3 million was capitalized as part of the cost of inventory. No amounts were capitalized as part of inventory cost in 2010 or 2009.

Valuation assumptions

The Company calculates the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used for the periods indicated:


	Stock option plans									Employee stock purchase plan
	Years ended December 31,									Years ended December 31,
	2011			2010			2009			2011			2010			2009
Risk-free interest rate		1.3	%		1.6	%		2.3	%		0.2	%		0.5	%		1.2	%
Expected lives in years		5.6			5.7			5.5			0.5			1.3			1.3
Expected dividends		0	%		0	%		0	%		0	%		0	%		0	%
Expected volatility		52	%		54	%		56	%		36	%		47	%		50	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected life of the award. The Company's computation of expected life was determined based on its historical experience with similar awards, giving consideration to the contractual terms of the share-based awards, vesting schedules and expectations of future employee behavior. A forfeiture rate is estimated at the time of grant to reflect the amount of awards that are granted, but are expected to be forfeited by the award holder prior to vesting. The estimated forfeiture rate applied to these amounts is derived from historical stock award forfeiture behavior. The Company has never paid cash dividends and does not currently intend to pay cash dividends, thus has assumed a 0% dividend yield. The Company's computation of expected volatility is based on the historical volatility of the Company's stock price. Determination of all of these assumptions involves management's best estimates at the time, which impact the fair value of the awards calculated under the Black-Scholes methodology, and ultimately the expense that will be recognized over the life of the award.

Stock option activity

A summary of stock option activity for the Option Plan and the Directors' Plan (collectively, the "Stock Option Plans") is as follows:


	Shares			Weighted- average exercise price per share		Weighted-average remaining contractual term (in years)		Aggregate intrinsic value (in thousands)
Balances at December 31, 2010		12,739,831		$	9.94

Granted		2,828,125			16.45
Exercised		(1,669,489	)		7.38
Forfeited/expired		(143,899	)		12.73

Balances at December 31, 2011		13,754,568		$	11.55		7.19	$	72,667


Expected to vest		13,204,038		$	11.43		7.08	$	71,326
Options exercisable		7,823,456		$	9.60		5.96	$	55,664

The weighted average grant-date fair value of options granted with exercise prices equal to market were $7.94, $6.27 and $5.84 for the years ended December 31, 2011, 2010 and 2009, respectively.

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the quoted price of the Company's common stock for all options that were in-the-money at December 31, 2011. The aggregate intrinsic value of options exercised under the Stock Option Plans was $16.9 million during 2011, $6.0 million during 2010 and $4.4 million during 2009, determined as of the date of option exercise. As of December 31, 2011, there was approximately $19.9 million of total unrecognized compensation cost related to unvested option arrangements, as adjusted for expected forfeitures, granted under the Stock Option Plans. That cost is expected to be recognized over a weighted-average period of 1.4 years.

RSU activity

During 2011, the Company began granting a mix of stock options and RSUs to employees under the Option Plan. The fair value of RSUs is determined based on the closing price of the Company's common stock on the date of grant.

A summary of RSU activity under the Option Plan is as follows:


	Share equivalent			Weighted- average grant date fair value
Nonvested RSUs	Share equivalent			Weighted- average grant date fair value
Nonvested at December 31, 2010		0		$	0
Changes during the period:
Granted		517,911			15.62
Vested		0			0
Forfeited		(6,744	)		15.33

Nonvested at December 31, 2011		511,167		$	15.62

As of December 31, 2011, there was $5.8 million of total unrecognized compensation cost related to non-vested awards of RSUs that will be recognized as expense over a weighted-average period of 2.39 years. The Company recognizes compensation cost on a straight-line basis over the requisite service period for the entire award, as adjusted for expected forfeitures. No RSUs have vested to date. The Company will utilize newly issued shares to satisfy the vesting of RSUs.