8. Stock compensation

We recorded $20.8 million and $17.6 million of stock compensation expense on our condensed consolidated statements of operations for the three months ended March 31, 2016 and 2015, respectively. Stock compensation expense included within our condensed consolidated statements of operations included research and development expense of $13.0 million and $10.3 million for the three months ended March 31, 2016 and 2015, respectively. Stock compensation expense included within our condensed consolidated statements of operations also included selling, general and administrative expense of $7.8 million and $7.3 million for the three months ended March 31, 2016 and 2015, 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 For the Three Months Ended				Employee Stock Purchase Plan For the Three Months Ended
	March 31,				March 31,
	2016		2015		2016		2015
Average risk-free interest rates	1.50	%	1.35	%	0.73	%	0.56	%
Average expected life (in years)	5.00		5.05		0.25		0.25
Volatility	49	%	50	%	61	%	38	%
Weighted-average fair value (in dollars)	41.56		32.59		26.67		9.56

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.

Option activity under the 2010 Stock Plan was as follows:


		Shares Subject to
		Outstanding Options
	Shares Available		Weighted Average
	for Grant	Shares	Exercise Price
Balance at December 31, 2015	3,846,717	11,052,279	$	33.55
Options granted	(1,412,583)	1,412,583	$	94.69
Options exercised	—	(751,784)	$	14.06
Options cancelled	68,324	(68,324)	$	73.24
Options expired	—	(1,834)	$	3.11
Balance at March 31, 2016	2,502,458	11,642,920	$	42.00

RSU and PSU award activity under the 2010 Stock Plan was as follows:


		Shares Subject to
	Shares Available	Outstanding Awards
	for Grant	Shares	Grant Date Value
Balance at December 31, 2015	834,433	565,567		—
RSUs granted	(216,711)	216,711	$	88.28
PSUs granted	—	—		—
RSUs cancelled	12,843	(12,843)	$	67.62
PSUs cancelled	—	—		—
Balance at March 31, 2016	630,565	769,435		—

In January 2014, we began granting RSUs and PSUs to our employees at the share price on the date of grant. Each RSU represents the right to acquire one share of our common stock. We granted a total of 216,711 RSUs during the three months ended March 31, 2016 which will cliff vest in three years and will be recognized as stock compensation expense over this period. Also, in January 2014, Hervé Hoppenot, our President and Chief Executive Officer, was granted a one-time grant of 400,000 RSUs outside of our 2010 Stock Incentive Plan. Vesting of the RSUs will be subject to Mr. Hoppenot’s continued employment on the applicable vesting dates, with one-sixth of the RSUs vesting at the end of each of the calendar years 2014 through 2019, subject to earlier acceleration of vesting upon the occurrence of certain events in accordance with the terms of his employment agreement. As of March 31, 2016, a total of 133,333 RSUs granted to Mr. Hoppenot vested and were released leaving 266,667 RSUs outstanding.

At March 31, 2016, we have only recognized stock compensation expense relating to performance conditions of the outstanding PSUs that are deemed probable of achievement at that date. For PSUs containing performance conditions which have not been deemed probable of achievement at March 31, 2016, no stock compensation expense has been recognized for these awards. The actual number of shares of our common stock into which each PSU may convert are subject to a multiplier of up to 125% based on the level at which the performance conditions are achieved.

Based on our historical experience of employee turnover, we have assumed an annualized forfeiture rate of 5% for our options, PSUs and RSUs. Under the true-up provisions of the stock 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 March 31, 2016, was $68.7 million, which is expected to be recognized over the weighted average period of 3.0 years. Total compensation cost of RSUs granted but not yet vested, as of March 31, 2016, was $35.4 million, which is expected to be recognized over the weighted average period of 3.0 years. Total compensation cost of PSUs granted but not yet vested, as of March 31, 2016, was $0.7 million, which is expected to be recognized over the weighted average period of 3.0 years, should the underlying performance conditions be deemed probable of achievement.