Stockholders' Deficit

12 Months Ended

Dec. 31, 2017

Stockholders' Deficit

Stockholders' Deficit

Note 10. Stockholders’ Deficit

Preferred Stock.  We are authorized to issue 5,000,000 shares of preferred stock, none of which was outstanding as of December 31, 2017 and 2016. The Board of Directors may determine the rights, preferences and privileges of any preferred stock issued in the future.

Common Stock.  We are authorized to issue 400,000,000 shares of common stock. 

On September 7, 2017, we completed a public offering of 4,945,000 shares of our authorized but unissued common stock pursuant to an effective shelf registration statement.  The underwriter had an option for a period of 30 days to purchase a maximum of 741,750 additional shares of our common stock, which expired unexercised.  We sold the shares of common stock to the underwriter at a price of $131.46 per share, resulting in net proceeds, after deducting expenses related to the offering, of approximately $649.4 million.

Stock Compensation Plans.  As of December 31, 2017, we had reserved a total of 13,512,446 shares of our common stock for future issuance related to our stock plans as described below.

2010 Stock Incentive Plan.  In May 2010 the Board of Directors adopted the 2010 Stock Incentive Plan, which was amended and restated in April 2013 (the “2010 Plan”) for issuance of common stock to employees, non‑employee directors, consultants, and scientific advisors. Options are granted to employees, consultants, and scientific advisors under the 2010 Plan, pursuant to a formula determined by our Board of Directors. All options are exercisable at the fair market value of the stock on the date of grant. Non‑employee director options expire after ten years.

In May 2012, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Plan from 12,553,475 to 16,553,475. In May 2013, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Plan from 16,553,475 to 21,753,475. In May 2014, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Plan from 21,753,475 to 24,753,475. In May 2016, our stockholders approved an increase in the number of shares of common stock reserved for issuance under the 2010 Plan from 24,753,475 to 30,753,475.

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, 2016	6,327,138	11,504,572	$	48.40
Options granted	(2,562,773)	2,562,773	$	119.48
Options exercised	—	(2,715,456)	$	30.50
Options cancelled	145,336	(145,336)	$	97.30
Balance at December 31, 2017	3,909,701	11,206,553	$	68.36

In July 2016, we revised the terms of our annual stock option grants to provide that new option grants would generally have a 10-year term and vest over four years, with 25% vesting after one year and the remainder vesting in 36 equal monthly installments. Previously, our option grants generally had 7-year terms and vested over three years, with 33% vesting after one year and the remainder vesting in 24 equal monthly installments.

Options to purchase a total of 7,250,283,  7,995,735 and 8,239,929 shares as of December 31, 2017, 2016 and 2015, respectively, were exercisable and vested. The aggregate intrinsic value of options exercised for the years ended December 31, 2017, 2016 and 2015 were $264.2 million, $137.0 million and $416.3 million, respectively. At December 31, 2017 the aggregate intrinsic value of options outstanding and vested options are $362.8 million and $362.0 million, respectively.

The following table summarizes information about stock options outstanding as of December 31, 2017 for the 2010 Plan:

	Options Outstanding				Options Exercisable
		Weighted Average	Weighted			Weighted
		Remaining	Average			Average
	Number	Contractual Life	Exercise		Number	Exercise
Range of Exercise Prices	Outstanding	(in years)	Price		Exercisable	Price
$2.80 - $17.79	1,460,251	0.94	$	16.13	1,460,251	$	16.13
$17.89 - $18.30	105,542	1.50		18.12	105,542		18.12
$18.32 - $18.32	1,634,218	2.09		18.32	1,634,218		18.32
$18.97 - $64.55	1,605,405	3.16		47.54	1,605,405		47.54
$67.06 - $73.21	1,168,504	4.80		73.09	828,825		73.06
$73.29 - $85.49	1,137,905	8.02		82.88	508,487		82.45
$88.46 - $95.54	198,735	7.72		91.49	81,033		90.38
$95.76 - $95.76	1,161,545	5.75		95.76	539,083		95.76
$101.00 - $109.68	262,613	7.42		106.54	154,362		107.32
$113.64 - $138.52	2,471,835	9.13		120.26	333,077		115.11
	11,206,553				7,250,283

Restricted Stock Units and Performance Stock Units.

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.  Each RSU granted prior to July 2016 was subject to cliff vesting after three years. In July 2016, we revised the terms of our RSU grants to provide that the awards will vest 25% annually over four years.

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 December 31, 2017, a total of 200,000 RSUs granted to Mr. Hoppenot vested, leaving 200,000 RSUs outstanding.

We did not grant any PSUs during the years ended December, 31, 2015, 2016 or 2017.  We granted a total of 55,326 PSUs during the year ended December 31, 2014.  At December 31, 2016, we recognized stock compensation expense for these awards if the performance conditions were deemed probable of achievement at that date.  For PSUs, containing performance conditions which were not deemed probable of achievement at December 31, 2016, no stock compensation expense was recognized for these awards.  The actual number of shares of our common stock into which each PSU converted was at a multiplier of 100% based on the performance conditions achieved as of December 31, 2016. As of December 31, 2017, all PSUs had vested and were released.  

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 as the awards vest 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.

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, 2016	1,146,152	1,246,570	$	82.05
RSUs granted	(427,668)	427,668	$	124.87
RSUs cancelled	50,718	(50,718)	$	90.21
RSUs released	—	(401,484)	$	125.83
PSUs released	—	(43,376)	$	122.16
Balance at December 31, 2017	769,202	1,178,660	$	98.88

Employee Stock Purchase Plan.  On May 21, 1997, our stockholders adopted the 1997 Employee Stock Purchase Plan (the “ESPP”). Each regular full‑time and part‑time employee working 20 hours or more per week is eligible to participate after one month of employment. We issued 157,277, 126,648 and 194,453 shares under the ESPP in 2017,  2016 and 2015, respectively. For the years ended December 31, 2017, 2016 and 2015, we recorded stock compensation expense of $3.2 million, $2.4 million and $2.4 million, respectively, as the ESPP is considered compensatory under the FASB stock compensation rules. As of December 31, 2017, 927,233 shares remain available for issuance under the ESPP.