(12) Stock Incentive Plans and Stock Based Compensation

On April 29, 2011 the Board, upon the recommendation of the Remuneration Committee, adopted the 2011 Stock Incentive Plan (“2011 Plan”), which was approved by the Company’s shareholders on July 12, 2011. The 2011 Plan replaced the Company’s 2002 Stock Option Plan (“2002 Plan”), which expired on January 1, 2012. The maximum number of the Company’s Ordinary Shares of £0.50 each or any ADS’s, as to be issued under the 2011 Plan shall not exceed the sum of (i) 3.5 million newly authorized Shares available for award and (ii) the number of Shares that remained available for grants under the Company’s 2002 Plan and (iii) the number of Shares underlying then outstanding awards under the 2002 Plan that could be subsequently forfeited, cancelled, expire or are otherwise terminated. The award of stock options (both incentive and non-qualified options) and restricted stock units, and awards of unrestricted Shares to Directors are permitted. The 2011 Plan is administered by the Remuneration Committee of our Board of Directors and expires on July 12, 2021.

In addition to the grants under the 2011 Plan, on December 16, 2011, the Company granted nonqualified stock options to an employee to purchase 600,000 shares of the Company’s ordinary shares with a 10-year term and an exercise price equal to $6.35 per share, the closing price of the Company’s American Depositary Receipts on the grant date. Twenty-five percent of the options vest on the first anniversary of the grant date with the remaining seventy-five percent to vest ratably over the subsequent 36-month period, subject to continued employment with the Company. These grants were made pursuant to an employment agreement on terms consistent with the 2011 Plan.

Under the terms of the 2011 Plan, options are exercisable at various periods and expire as set forth in the grant document. In the case where an incentive stock option is granted, the maximum expiration date is not later than 10 years from the date of grant. The following table summarizes all stock option activity for the year ended December 31, 2011:


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
	(in thousands, except for per share amounts)
Outstanding January 1, 2011		10,028		$	2.69
Granted		4,445			10.53
Cancelled/Expired		(328	)		16.43
Exercised		(2,274	)		2.27

Outstanding, December 31, 2011		11,871		$	5.33		8.68 years	$	40,475

Exercisable, December 31, 2011		3,495		$	2.69		8.09 years	$	17,972

Vested and Expected to Vest, December 31, 2011		11,787		$	5.32		8.68 years	$	40,250

Available for future grant at December 31, 2011		2,231

The weighted average fair value of the stock options granted during the year ended December 31, 2011, 2010 and 2009 was $8.61, $2.21, and $1.12, respectively.

During the year ended December 31, 2011, the Company received cash of $5.2 million from the exercise of options. The intrinsic value of options exercised during fiscal 2011 was $11.9 million and $10.3 million during fiscal 2010. As of December 31, 2011 and 2010, there was $36.9 million and $9.6 million of unrecognized stock-based compensation expense related to unvested stock option share-based compensation arrangements granted under the Company’s stock award plans. This expense is expected to be recognized over a weighted-average period of approximately 2.5 years. There was an impact of $0.5 million, on the presentation in the consolidated statement of cash flows relating to excess tax benefits on the federal level that have been realized as a reduction in taxes payable for the year ended December 31, 2010. The Company recognizes compensation expense for the fair values of those awards which have graded vesting on a straight line basis. There were no option exercises during fiscal year 2009. The following table presents the stock-based compensation expense related to option awards for the period ended December 31:


	2011		2010		2009
	(in thousands)
Research and development	$	1,464	$	1,534	$	1,481
General and administrative		7,830		3,673		1,378

Stock-based compensation expense	$	9,294	$	5,207	$	2,859

The fair value of options on the date of grant was estimated using the Black-Scholes option pricing model. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected stock price volatility was calculated based on the historical volatility of the Company’s common stock over the expected life of the option. The expected life was determined based on the expected holding period of an industry peer group due to lack of history of employee exercises. The risk-free interest rate is based on zero-coupon U.S. Treasury securities with a maturity term approximating the expected life of the option at the date of grant. No dividend yield has been assumed as the Company does not currently pay dividends on its common stock.

Employee stock options granted prior to June 30, 2009 generally vested over a three-year service period. Employee stock options granted after June 30, 2009 generally vest over a four-year service period and all stock options are settled by the issuance of new shares. Compensation expense recognized for all option grants is net of estimated forfeitures and is recognized over the awards’ respective requisite service periods.

For 2011, 2010 and 2009, the Company used the following assumptions to estimate the fair value of share-based payment awards:


	2011	2010	2009
Risk free interest rate	2.03% - 2.56%	1.5% - 3.1%	2.5% - 3.0%
Expected dividend yield	0.00%	0.00%	0.00%
Expected option life (years)	6.25	5.75 - 6.25	5.75 - 6.25
Expected volatility	105% - 112%	105% - 110%	105% - 110%