L.BASIC AND DILUTED NET INCOME (LOSS) PER SHARE

We compute basic net income (loss) per share by dividing net income (loss) by the weighted average number of common shares outstanding during the relevant period. Diluted net income (loss) per common share has been computed by dividing net income (loss) by the diluted number of shares outstanding during the period. Except where the result would be antidilutive to net income (loss), diluted net income (loss) per common share would be computed assuming the impact of the conversion of Convertible Notes, the exercise of outstanding stock options, the vesting of restricted stock units (“RSUs”), and the exercise of warrants.

We have a choice to settle the conversion obligation under the Convertible Notes in cash, shares or any combination of the two. Pursuant to certain covenants in our 2015 Term Loan Facility, which we entered into to partially fund the acquisition of CBR, we may be restricted from settling the conversion obligation in whole or in part with cash unless certain conditions in the 2015 Term Loan Facility are satisfied, including a total leverage ratio. During the three and nine months ended September 30, 2015, we utilized the if‑converted method to reflect the impact of the conversion of the Convertible Notes. This method assumes the conversion of the Convertible Notes into shares of our common stock and reflects the elimination of the interest expense related to the Convertible Notes. Prior to the acquisition of Lumara Health in November 2014, we intended to settle the principal value of the Convertible Notes in cash and the excess conversion premium in shares. The dilutive effect of the conversion premium is reflected in the calculation of diluted earnings per share for the three months ended September 30, 2014, as if it were a freestanding written call option on our shares. The impact of the conversion premium has been considered in the calculation of diluted net income per share for the three months ended September 30, 2014 by applying the closing price of our common stock on September 30, 2014 to calculate the number of shares issuable under the conversion premium. In connection with the issuance of the Convertible Notes, in February 2014, we entered into convertible bond hedges. The convertible bond hedges are not included for purposes of calculating the number of diluted shares outstanding, as their effect would be anti‑dilutive. The convertible bond hedges are generally expected, but not guaranteed, to reduce the potential dilution and/or offset the cash payments we are required to make upon conversion of the Convertible Notes. See Note Q, “Debt,” for additional information.

The dilutive effect of the warrants, stock options and RSUs has been calculated using the treasury stock method.

The components of basic and diluted net income (loss) per share for the three and nine months ended September 30, 2015 and 2014 were as follows (in thousands, except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Net income (loss)	$	(20,584)	$	1,458	$	25,578	$	(7,191)

Weighted average common shares outstanding		33,223		21,984		30,379		21,912
Effect of dilutive securities:
Warrants		—		—		3,015		—
Stock options and RSUs		—		369		1,568		—
Convertible 2.5% notes		—		1,114		—		—
Shares used in calculating dilutive net income (loss) per share		33,223		23,467		34,962		21,912

Net income (loss) per share:
Basic	$	(0.62)	$	0.07	$	0.84	$	(0.33)
Diluted	$	(0.62)	$	0.06	$	0.73	$	(0.33)

The following table sets forth the potential common shares issuable upon the exercise of outstanding options, the vesting of RSUs and the exercise of warrants (prior to consideration of the treasury stock method), and the conversion of the 2.5% Convertible Notes, which were excluded from our computation of diluted net income (loss) per share because their inclusion would have been anti‑dilutive (in thousands):


	Three months ended September 30,		Nine months ended September 30,
	2015	2014	2015	2014
Options to purchase shares of common stock	2,989	2,013	791	3,081
Shares of common stock issuable upon the vesting of RSUs	712	289	157	760
Warrants	7,382	7,382	—	7,382
Convertible 2.5% notes	7,382	6,268	7,382	7,382
Total	18,465	15,952	8,330	18,605

During the three and nine months ended September 30, 2014, the average common stock price was below the exercise price of the warrants.