Stock compensation

9 Months Ended

Sep. 30, 2013

Stock compensation

Stock compensation

7. Stock compensation

We recorded $9.5 million and $28.6 million of stock compensation expense in our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2013, respectively. We recorded $9.5 million and $29.4 million of stock compensation expense in our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2012, respectively.

Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $6.4 million, $19.6 million, $6.4 million and $19.6 million for the three and nine months ended September 30, 2013 and 2012, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $3.1 million, $9.0 million, $3.1 million and $9.8 million for the three and nine months ended September 30, 2013 and 2012, respectively.

We utilized the Black-Scholes valuation model for estimating the fair value of the stock compensation granted, with the following weighted-average assumptions:

	Employee Stock Options								Employee Stock Purchase Plan
	For theThreeMonthsEnded				For theNineMonthsEnded				For theThreeMonthsEnded				For theNineMonthsEnded
	September 30,								September 30,
	2013		2012		2013		2012		2013		2012		2013		2012
Average risk-free interest rates	1.05	%	0.46	%	0.59	%	0.48	%	0.27	%	0.25	%	0.27	%	0.25	%
Average expected life (in years)	4.34		4.13		4.25		3.87		0.50		0.50		0.50		0.50
Volatility	47	%	50	%	47	%	57	%	51	%	53	%	51	%	53	%
Weighted-average fair value (in dollars)	12.18		8.59		7.34		7.84		3.81		3.84		3.81		3.84

The risk-free interest rate is derived from the U.S. Federal Reserve rate in effect at the time of grant. The expected life calculation is based on the observed and expected time to the exercise of options by our employees based on historical exercise patterns for similar type options. Expected volatility is based on the historical volatility of our common stock over the period commensurate with the expected life of the options. A dividend yield of zero is assumed based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends.

Based on our historical experience, we have assumed an annualized forfeiture rate of 5% for our options. Under the true-up provisions of the stock based compensation guidance, we will record additional expense if the actual forfeiture rate is lower than we estimated, and will record a recovery of prior expense if the actual forfeiture is higher than we estimated.

Total compensation cost of options granted but not yet vested, as of September 30, 2013, was $27.5 million, which is expected to be recognized over the vesting period of 3 years.

The following table summarizes activity under all stock option plans:

	SharesAvailable forGrant		NumberOutstanding		WeightedAverageExercisePrice perShare
Balance at December 31, 2012	5,406,277		21,816,611		$	12.05
Additional authorized	5,200,000		—		—
Options granted	(5,215,500	)	5,215,500		19.21
Options exercised	—		(5,524,527	)	9.61
Options cancelled	441,305		(441,589	)	17.46
Balance at September 30, 2013	5,832,082		21,065,995		$	14.36
Exercisable, September 30, 2013	—		12,911,434		$	11.71