View Filing Data

Document And Entity Information - shares	9 Months Ended
Document And Entity Information - shares	Sep. 30, 2011	Oct. 31, 2011
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Entity Registrant Name	PACIFIC BIOSCIENCES OF CALIFORNIA INC
Entity Central Index Key	0001299130
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		54,812,464

Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands

Sep. 30, 2011

Dec. 31, 2010

^[1]

Assets

Cash and cash equivalents

$ 57,580

$ 147,650

Investments

136,116

136,024

Accounts receivable

4,434

341

Inventory, net

20,262

6,864

Prepaid expenses and other current assets

1,891

2,235

Total current assets

220,283

293,114

Property and equipment, net

17,359

12,311

Other long-term assets

319

322

Total assets

237,961

305,747

Liabilities and Stockholders' Equity

Accounts payable

8,158

9,515

Accrued expenses and other current liabilities

8,872

7,994

Deferred revenue

3,970

3,221

Current portion of facility financing obligation

132

110

Total current liabilities

21,132

20,840

Lease incentives and other long-term liabilities

3,321

2,114

Facility financing obligation, less current portion

2,824

2,927

Total liabilities

27,277

25,881

Stockholders' equity

Common Stock, $0.001 par value; Authorized 1,000,000,000 shares; Issued and outstanding 54,795,382 shares at September 30, 2011 and 52,855,267 shares at December 31, 2010

Additional paid-in capital

629,365

612,001

Accumulated other comprehensive loss

(4)

(21)

Accumulated deficit

(418,732)

(332,167)

Total stockholders' equity

210,684

279,866

Total liabilities and stockholders' equity

$ 237,961

$ 305,747

[1]	The condensed consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2011	Dec. 31, 2010
Condensed Consolidated Balance Sheets [Abstract]
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	1,000,000,000	1,000,000,000
Common stock, shares issued	54,795,382	52,855,267
Common stock, shares outstanding	54,795,382	52,855,267

Condensed Consolidated Statements Of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Revenue:
Product revenue	$ 9,819		$ 19,966
Service and other revenue	535		728
Grant revenue	165	$ 220	725	$ 1,394
Total revenue	10,519	220	21,419	1,394
Cost of Revenue:
Cost of product revenue	6,546		9,083
Cost of service and other revenue	645		839
Total cost of revenue	7,191		9,922
Gross profit	3,328	220	11,497	1,394
Operating Expense:
Research and development	20,001	32,873	63,665	85,279
Sales, general and administrative	12,764	8,043	34,899	19,760
Total operating expense	32,765	40,916	98,564	105,039
Operating loss	(29,437)	(40,696)	(87,067)	(103,645)
Other income (expense), net	156	(12)	502	(102)
Net loss	$ (29,281)	$ (40,708)	$ (86,565)	$ (103,747)
Basic and diluted net loss per share	$ (0.54)	$ (39.70)	$ (1.62)	$ (134.07)
Shares used in computing basic and diluted net loss per share	54,283,162	1,025,326	53,465,836	773,839

Condensed Consolidated Statements Of Cash Flows - USD ($)
$ in Thousands

9 Months Ended

Sep. 30, 2011

Sep. 30, 2010

Cash flows from operating activities

Net loss

$ (86,565)

$ (103,747)

Adjustments to reconcile net loss to net cash used in operating activities

Depreciation

4,296

3,703

Stock-based compensation

9,100

6,268

Other items

Changes in assets and liabilities

Accounts receivable

(4,093)

(1,052)

Inventory

(15,071)

Prepaid expenses and other assets

1,764

(2,381)

Accounts payable

(1,209)

7,433

Accrued expenses and other current liabilities

1,658

7,061

Deferred revenue

749

Lease incentives and other long-term liabilities

1,127

(300)

Net cash used in operating activities

(88,202)

(82,949)

Cash flows from investing activities

Purchase of property and equipment

(7,846)

(4,030)

Purchase of investments

(232,957)

(76,315)

Sales of investments

36,520

Maturities of investments

194,929

29,607

Net cash used in investing activities

(9,354)

(50,738)

Cash flows from financing activities

Proceeds from issuance of Convertible Preferred Stock, net

105,874

Proceeds from issuance of Common Stock

7,486

1,298

Net cash provided by financing activities

7,486

107,172

Net decrease in cash and cash equivalents

(90,070)

(26,515)

Cash and cash equivalents at beginning of period

147,650

^[1]

89,232

Cash and cash equivalents at end of period

57,580

62,717

Supplemental disclosure of non-cash investing and financing activities

Assets acquired under facility financing obligation

2,971

Additions to property and equipment under tenant improvement allowances

$ 1,910

Inventory transferred to property and equipment for internal use

1,673

Vesting of stock options related to early exercises

$ 780

[1]	The condensed consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

Overview

9 Months Ended

Sep. 30, 2011

Overview [Abstract]

Overview

1. Overview

Pacific Biosciences of California, Inc., ("Pacific Biosciences", "PacBio", "we", "us") has commercialized a platform for single molecule, real-time detection of biological events. Our initial focus is on the DNA sequencing market where we have developed and introduced a third generation sequencing platform.

The names "Pacific Biosciences," "PacBio," "SMRT," "SMRTbell" and our logo are our trademarks.

- Definition

The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 51
-Paragraph 2-6
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Name Statement of Position (SOP)
-Publisher AICPA
-Number 94-6
-Paragraph 10
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Name FASB Interpretation (FIN)
-Publisher FASB
-Number 46R
-Paragraph 4, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
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-Topic 235
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+ Details

Summary Of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Summary Of Significant Accounting Policies [Abstract]

Summary Of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, for interim financial information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments, consisting of normal recurring entries considered necessary for a fair presentation have been included. The financial results present in these interim financial statements are not necessarily indicative of results to be expected for the full fiscal year or any future period.

During the second quarter of 2011, we commercially launched and generated significant revenue from our initial product, the PacBio RS, a third generation sequencing platform. We were considered a development-stage enterprise through March 31, 2011, but, as a result of the commercial launch during 2011, we are no longer considered a development-stage enterprise.

The balance sheet at December 31, 2010 has been derived from our audited financial statements at that date. The financial statements and related disclosures have been prepared with the presumption that users of the interim financial statements have read or have access to our audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and notes thereto contained in our Annual Report on Form 10-K.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting periods. Our estimates include, but are not limited to, estimated selling price, inventory valuation, cost of revenue, useful lives assigned to long-lived assets, the valuation of common stock and options, stock-based compensation expense and contingencies. We base our estimates on historical experience and on various other market-specific and other relevant assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from our estimates, and such differences could be material to our financial position and results of operations.

Fair Value of Financial Instruments

The carrying amount of our financial assets and liabilities, including accounts receivable, prepaid expenses, other current assets, other long-term assets, accounts payable, accrued expenses and other current liabilities, approximate fair value due to their short maturities. The carrying value of the facility financing obligation approximates fair value based on currently available borrowing rates and after consideration of non-performance risk and credit risk.

A fair value hierarchy was established under GAAP that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels of inputs that may be used to measure fair value are as follows:

•

Level 1: quoted prices in active markets for identical assets or liabilities;

•

Level 2: inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We consider an active market to be one in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis, and view an inactive market as one in which there are few transactions for the asset or liability, the prices are not current, or price quotations vary substantially either over time or among market makers. Where appropriate, our non-performance risk, or that of our counterparty, is considered in determining the fair values of liabilities and assets, respectively.

Our cash and cash equivalents, which include money market funds and commercial paper, are classified as Level I or Level II assets. Our investments, which include commercial paper, certificates of deposit, corporate debt securities, asset backed securities, and U.S. government and agency securities, are classified as Level II assets within the fair value hierarchy. We did not have any Level III items at the dates presented.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability. The following table sets forth our financial assets that were measured at fair value as of September 30, 2011 and December 31, 2010 by level within the fair value hierarchy (in thousands).


	September 30, 2011						December 31, 2010
	Level I		Level II		Total		Level I		Level II		Total
Assets
Money Market Funds	$	13,532	$	—	$	13,532	$	118,462	$	—	$	118,462
Certificates of Deposits		—		4,053		4,053		—		—		—
Commercial Paper		—		72,618		72,618		—		59,573		59,573
Corporate Debt Securities		—		46,843		46,843		—		49,970		49,970
Asset Backed Securities		—		10,554		10,554		—		—		—
U.S. Government and Agency Securities		—		36,192		36,192		—		47,141		47,141

Total assets measured at fair value	$	13,532	$	170,260	$	183,792	$	118,462	$	156,684	$	275,146

Revenue Recognition

Our revenue is generated primarily from the sale of products and services. Product revenue primarily consists of sales of our PacBio RS instrument and related consumables, and service and other revenue primarily consists of revenue earned from product maintenance agreements. Grant revenue reflects revenue from government grants that generally provide cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period. Revenue from grants is recognized in the period during which the related costs are incurred, provided that the conditions under which the grants were provided have been met.

We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectibility is reasonably assured. In instances where final acceptance of the product or system is required, revenue is deferred until all acceptance criteria have been met. Revenue for product sales is generally recognized upon customer acceptance. Revenue for product maintenance agreements is recognized when earned, which is generally ratably over the service period.

In order to assess whether the price is fixed or determinable, we evaluate whether refund rights exist. If there are refund rights or payment terms based on future performance, we defer revenue recognition until the price becomes fixed or determinable. We assess collectibility based on a number of factors, including customer creditworthiness. If we determine that collection of amounts due is not reasonably assured, revenue recognition is deferred until receipt of payment.

We regularly enter into contracts where revenue is derived from multiple deliverables including a mix of products or services. Revenue recognition for contracts with multiple deliverables is based on the individual units of accounting determined to exist in the contract. A delivered item is considered a separate unit of accounting when 1) the delivered item has value to the customer on a stand-alone basis; and 2) when a general right of return exists, the delivery or performance of an undelivered item is considered probable and under the control of the Company. Items are considered to have stand-alone value when they are sold separately by any vendor or when the customer could resell the item on a stand-alone basis. Our revenue arrangements generally do not have a general right of return. When a deliverable does not meet the criteria to be considered a separate unit of accounting, we group it with other deliverables that, when combined, meet the criteria, and the appropriate allocation of arrangement consideration and revenue recognition is determined. Consideration is allocated at the inception of the contract to all deliverables based on their relative selling price. In order to determine the relative selling price of a deliverable, we apply the following hierarchy: 1) vendor-specific objective evidence ("VSOE"); 2) third-party evidence if VSOE is not available; and 3) our best estimate of selling price for the deliverable if neither VSOE nor third-party evidence is available.

In order to establish VSOE, we must regularly sell the product or service on a standalone basis with a substantial majority priced within a relatively narrow range. If there are not a sufficient number of standalone sales and VSOE cannot be determined, then we consider whether third party evidence can be used to establish selling price. Due to the lack of similar products and services sold by other companies within our industry, we have not established selling price using third-party evidence. If neither VSOE nor third party evidence of selling price exists, we determine our best estimate of selling price using a combination of prices set by our pricing committee adjusted for applicable discounts and customer orders received to date.

Deferred revenue primarily represents product maintenance agreement revenue that is expected to be recognized over the related service period.

Net Loss Per Share

The following table presents the computation of basic and diluted net loss per share (in thousands, except shares and per share amounts):


	Three-Months Ended September 30,						Nine-Months Ended September 30,
	2011			2010			2011			2010
Net loss per share:
Numerator
Net loss	$	(29,281	)	$	(40,708	)	$	(86,565	)	$	(103,747	)

Denominator:
Weighted average shares of common stock outstanding		54,283,162			1,147,535			53,541,391			845,074
Less: Shares of common stock subject to repurchase		—			(122,209	)		(75,555	)		(71,235	)

Weighted average shares used in computation of basic and diluted net loss per share		54,283,162			1,025,326			53,465,836			773,839

Basic and diluted net loss per share	$	(0.54	)	$	(39.70	)	$	(1.62	)	$	(134.07	)

The following convertible preferred stock, outstanding options, common stock subject to repurchase, and warrants to purchase convertible preferred stock were excluded from the computation of diluted net loss per share for the periods presented because including them would have had an anti-dilutive effect:


	As of September 30,
	2011		2010
Convertible Preferred Stock (on an as if converted basis)		—		37,183,560
Options outstanding		8,824,838		9,327,813
Common Stock subject to repurchase		—		178,024
Warrants to purchase Common Stock		9,898		25,282

Recent Accounting Pronouncements

In June of 2011, Accounting Standards Codification Topic 220, Comprehensive Income was amended to increase the prominence of items reported in other comprehensive income. Accordingly, we can present all non-owner changes in stockholders' equity either in a single continuous statement of comprehensive income or in two separate but consecutive statements. We plan to adopt this guidance as of January 1, 2012 on a retrospective basis and do not expect the adoption thereof to have a material effect on our consolidated financial statements.

In May of 2011, Accounting Standards Update No. 2011-04 ("ASU 2011-04"), Fair Value Measurements was amended. ASU 2011-04 clarifies the application of existing fair value measurement requirements and results in common measurement and disclosure requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS"). ASU 2011-04 also expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively for reporting periods beginning on or after December 15, 2011. We plan to adopt this guidance as of January 1, 2012 on a prospective basis and do not expect the adoption thereof to have a material effect on our consolidated financial statements.

Cash And Cash Equivalents And Investments

9 Months Ended

Sep. 30, 2011

Cash And Cash Equivalents And Investments [Abstract]

Cash And Cash Equivalents And Investments

3. Cash and Cash Equivalents and Investments

Our investments consist of marketable debt securities, including U.S. Government and Agency securities; corporate debt securities, bonds and asset-backed securities; mortgage-backed securities, municipal notes and bonds; and publicly traded equity securities. We report all securities with stated maturities of 90 days or less at the date of purchase that are readily convertible into cash and have insignificant interest rate risk as cash equivalents. Our investments are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) ("OCI") in stockholders' equity. The cost of marketable securities is adjusted for the amortization of premiums and discounts to expected maturity. Premium and discount amortization is included in interest income and other, net. Realized gains and losses, as well as interest income, on available-for-sale securities are also included in interest income and other, net. The cost of securities sold is based on the specific identification method. The fair values of securities are based on quoted market prices. We include all of our available-for-sale securities in current assets.

The following table summarizes the gross unrealized gains and losses and fair value for investments reported as cash and cash equivalents and investments as of September 30, 2011 and December 31, 2010 (in thousands):


	As of September 30, 2011
	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair Value
Cash and Cash Equivalents:
Commercial Paper	$	34,141	$	3	$	—		$	34,144
Investments:
Commercial Paper	$	38,470	$	4	$	—		$	38,474
Corporate Debt Securities		46,917		37		(111	)		46,843
Asset Backed Securities		10,546		10		(2	)		10,554
Certificates of Deposit		4,031		22		—			4,053
U.S. Government and Agency Securities		36,159		34		(1	)		36,192

	$	136,123	$	107	$	(114	)	$	136,116

	$	170,264	$	110	$	(114	)	$	170,260


	As of December 31, 2010
	Amortized Cost		Gross unrealized gains		Gross unrealized losses			Fair Value
Cash and Cash Equivalents:
Commercial Paper	$	14,495	$	—	$	—		$	14,495
Corporate Debt Securities		6,167		—		(2	)		6,165

	$	20,662	$	—	$	(2	)	$	20,660

Investments:
Commercial Paper	$	45,077	$	1	$	—		$	45,078
Corporate Debt Securities		43,820		11		(26	)		43,805
U.S. Government and Agency Securities		47,146		3		(8	)		47,141

	$	136,043	$	15	$	(34	)	$	136,024

	$	156,705	$	15	$	(36	)	$	156,684

Balance Sheet Components

9 Months Ended

Sep. 30, 2011

Balance Sheet Components [Abstract]

Balance Sheet Components

4. Balance Sheet Components

As of September 30, 2011 and December 31, 2010 our inventory, net, consisted of the following (in thousands):


	September 30, 2011		December 31, 2010
Purchased materials	$	5,743	$	4,051
Work in process		9,233		2,813
Finished goods		5,286		—

Inventory, net	$	20,262	$	6,864

As of September 30, 2011 and December 31, 2010, our accrued expenses and other current liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2011		2010
Salaries and benefits	$	5,277	$	5,494
Professional services		1,369		659
Short-term portion of deferred rent		816		573
Customer deposits		985		—
Other		425		1,268

Accrued expenses and other current liabilities	$	8,872	$	7,994

Contingencies

9 Months Ended

Sep. 30, 2011

Contingencies [Abstract]

Contingencies

5. Contingencies

We may become subject to claims and assessments from time to time in the ordinary course of business. We accrue liabilities for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

On August 27, 2010, we were named as a defendant in a complaint filed by Helicos Biosciences Corporation, or Helicos, alleging infringement of patents owned and in–licensed by the plaintiffs. Helicos seeks a permanent injunction enjoining us from further infringement of the asserted patents, and unspecified monetary damages. On October 22, 2010, Helicos filed an amended complaint naming additional defendants in the lawsuit. On November 8, 2010, we filed our response to Helicos' complaint denying Helicos' allegations, asserting affirmative defenses of noninfringement, invalidity and unenforceability of the claims of the patents in suit, and asserting counterclaims for declaratory judgment that our products do not infringe the claims of the patents in suit, and that those claims are invalid and unenforceable. On January 27, 2011, we filed requests that the U.S. Patent and Trademark Office ("USPTO") order re-examination of all of the claims of each of the asserted patents. The USPTO granted our request for re-examination of each of the asserted patents, and rejected all of the claims of the asserted patents as being unpatentable over prior art. On October 20, 2011, the USPTO issued actions closing prosecution in three of the asserted patents, maintaining the rejection of all claims of each of these patents as unpatentable over the prior art, and has not yet issued a further action in the fourth asserted patent. Despite our defenses and counterclaims, we cannot guarantee any outcome of this lawsuit.

On October 21, 2011 and October 24, 2011 we and certain of our officers and directors were named in two identical purported class action lawsuits filed in the Superior Court of the State of California, County of San Mateo. Plaintiffs have brought claims for violation of several provisions of federal securities laws in connection with the Company's August 16, 2010 registration statement (as amended, effective as of October 26, 2010). The complaints seek, among other things, compensatory damages, rescission, and attorney's fees and costs. Pursuant to Delaware law, we may have obligations, under certain circumstances, to hold harmless and indemnify each of our directors and certain officers, including those named in the actions, against judgments, fines, settlements and expenses related to claims arising against such directors and officers to the fullest extent permitted under Delaware law, our bylaws and certificate of incorporation. Such obligations for indemnification may apply to these lawsuits.

We believe that the allegations in each of these pending actions are without merit and intend to vigorously contest the actions. However, there can be no assurance that we will be successful in our defense.

In addition, from time to time, we are a party to litigation and subject to claims incident to the ordinary course of business.

We cannot guarantee any outcome of these lawsuits. An estimate of the possible loss or possible range of loss associated with the resolution of these contingencies cannot be provided with certainty or confidence, and therefore no estimate is provided and we have not recorded a liability.

- Definition

The entire disclosure for loss and gain contingencies. Describes any existing condition, situation, or set of circumstances involving uncertainty as of the balance sheet date (or prior to issuance of the financial statements) as to a probable or reasonably possible loss incurred by an entity that will ultimately be resolved when one or more future events occur or fail to occur, and typically discloses the amount of loss recorded or a range of possible loss, or an assertion that no reasonable estimate can be made.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Interpretation (FIN)
-Number 14
-Paragraph 3
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 9, 10, 11, 12
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 450
-SubTopic 20
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6952336&loc=d3e14326-108349

Reference 4: http://www.xbrl.org/2003/role/presentationRef
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-Topic 450
-SubTopic 20
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6952336&loc=d3e14435-108349

Reference 5: http://www.xbrl.org/2003/role/presentationRef
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-Name Accounting Standards Codification
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Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
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Reference 7: http://www.xbrl.org/2003/role/presentationRef
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-Topic 450
-SubTopic 20
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Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 460
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6851643&loc=d3e12021-110248

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 460
-SubTopic 10
-Section 50
-Paragraph 3
-URI http://asc.fasb.org/extlink&oid=6851643&loc=d3e12053-110248

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 450
-SubTopic 20
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Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 450
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-URI http://asc.fasb.org/extlink&oid=6952336&loc=d3e14615-108349

+ Details

Stock Option Plans

9 Months Ended

Sep. 30, 2011

Stock Option Plans [Abstract]

Stock Option Plans

6. Stock Option Plans

As of September 30, 2011, we had two active equity compensation plans, the 2010 Equity Incentive Plan, or 2010 Plan, and the 2010 Outside Director Equity Incentive Plan, or 2010 Director Plan. Prior to the adoption of these plans, we granted options pursuant to the 2004 Equity Incentive Plan, through August 2005, and the 2005 Stock Plan, through October 2010. Upon termination of the predecessor plans, the shares available for grant at the time of termination, and shares subsequently returned to the plans upon forfeiture or option termination, were transferred to the successor plan in effect at the time of share return.

We also have the 2010 Employee Stock Purchase Plan, or ESPP, under which 129,576 shares of our common stock have been reserved for issuance as of September 30, 2011. Our ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Each offering period will generally consist of four purchase periods, each purchase period being approximately six months. The price at which the stock is purchased is equal to the lower of 85% of the fair market value of the common stock at the beginning of an offering period or at the end of a purchase period. Shares issued under the ESPP totaled 620,424 shares during the three- and nine-month periods ended September 30, 2011. We estimate the value of the employee stock purchase rights on the date of grant using the Black-Scholes model.

The following table summarizes stock option activity for all stock option plans:


				Common Stock Options Outstanding
	Shares available for grant			Number of shares			Exercise price		Weighted average exercise price
Balances, December 31, 2010		3,637,548			9,813,373		$	0.20 – 16.00	$	6.78

Additional shares reserved
Options granted		(1,371,200	)		1,371,200		$	5.99 – 15.98	$	10.60
Options exercised		—			(1,320,542	)	$	0.20 – 10.84	$	3.10
Options repurchased		851			—		$	1.96	$	1.96
Options canceled		1,039,193			(1,039,193	)	$	1.96 – 16.00	$	9.30

Balances, September 30, 2011		3,306,392			8,824,838		$	0.20 – 16.00	$	7.62

Stock-based Compensation

Total stock-based compensation expense for employee stock options and stock purchases under the 2010 Employee stock Purchase Plan, or ESPP, consists of the following (in thousands):


	Three-Month Periods Ended September 30,				Nine-Month Periods Ended September 30,
	2011		2010		2011		2010
Research and development	$	1,623	$	1,515	$	5,029	$	4,280
Sales, general and administrative		1,366		747		4,071		1,988

Total stock-based compensation expense	$	2,989	$	2,262	$	9,100	$	6,268

Employee Stock-based Compensation

We estimated the fair value of employee stock options using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards.

The fair values of the common stock underlying stock options granted through the date of our initial public offering, ("IPO"), were estimated by our board of directors, which intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock underlying those options on the date of grant. The fair value of the shares of common stock underlying the stock options has historically been the responsibility of and determined by our board of directors. Because there was no public market for our common stock, our board of directors determined fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including independent third-party valuations of our common stock, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook, amongst other factors. The fair value of the underlying common stock was determined by our board of directors until such time as our common stock was publicly traded. Our common stock became publicly listed upon our IPO from which time options granted are issued at a price equal to the closing price on the date of grant.

The fair value of employee stock options was estimated using the following assumptions:


	Three-Month Periods Ended September 30,				Nine-Month Periods Ended September 30,
	2011		2010		2011		2010
Expected term		6.1 years		6.05 years		6.1 years		6.05 years
Expected volatility		60%		55%		58%		46 - 55%
Risk-free interest rate		1.2 - 1.8%		1.6 - 2.2%		1.2 - 2.6%		1.6 - 2.6%
Dividend yield		—		—		—		—

Expected term — Expected term represents the period that our stock-based awards are expected to be outstanding. Our assumptions about the expected term have been on our historic cancellation and exercise experience and trends as well as our expectations for future periods.

Expected volatility — We do not have sufficient trading history to use the volatility of our own common stock for establishing expected volatility. Therefore, we based our expected volatility on the historical stock volatilities of several publicly listed comparable companies over a period equal to the expected terms of the options.

Risk-free interest rate — The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for zero coupon U.S. Treasury notes with maturities approximately equal to the option's expected term.

Expected dividend yield — We have never paid dividends and do not expect to pay dividends in the foreseeable future.

We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. The impact from a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual number of future forfeitures differs from that estimated, we may be required to record adjustments to stock-based compensation expense in future periods.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 123R
-Paragraph 64, 65, A240
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Statement of Position (SOP)
-Number 93-6
-Paragraph 53
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher SEC
-Name Staff Accounting Bulletin (SAB)
-Number Topic 14

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 505
-SubTopic 50
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
-Paragraph 4
-URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 40
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929

+ Details

Restructuring

9 Months Ended

Sep. 30, 2011

Restructuring [Abstract]

Restructuring

7. Restructuring

During September 2011, the Company implemented a workforce reduction of approximately 130 employees, or 28% of its workforce. The actions taken were in consideration of uncertainties associated with the economic environment and to position the Company for long-term success. The costs associated with this restructuring consist of termination benefits of approximately $4.9 million, of which $3.5 million is included in research and development expense and $1.4 million is included in sales, general and administrative expense for the three and nine-month periods ended September 30, 2011.

A summary of the Company's accrued restructuring expense and accrued restructuring liability as of September 30, 2011 is as follows (in thousands):


	Expense for Three Months Ended September 30, 2011		Balance June 30 2011		Accrued		Paid			Balance September 30, 2011
Salaries and benefits	$	4,592	$	—	$	4,592	$	(3,163	)	$	1,429
Administrative		347		—		347		(187	)		160

Total Restructuring	$	4,939	$	—	$	4,939	$	(3,350	)	$	1,589

With respect to our workforce reduction, we do not expect to incur further restructuring charges. We expect the termination benefits to be paid during the fourth quarter of 2011.

- Definition

The entire disclosure for restructuring and related activities. Description of restructuring activities such as exit and disposal activities, include facts and circumstances leading to the plan, the expected plan completion date, the major types of costs associated with the plan activities, total expected costs, the accrual balance at the end of the period, and the periods over which the remaining accrual will be settled.

+ References + Details