(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, the Company grants nonqualified stock options to employees to purchase shares of the Company’s ordinary shares. These grants are made pursuant to employment agreements on terms consistent with the 2011 Plan.

Under the terms of the 2011 Plan, and grants made pursuant to employment agreements, options typically vest over a four year period, expire after a 10 year term and are granted at an exercise price equal to the closing price of the Company’s American Depository Receipts on the grant date. The following table summarizes all stock option activity for the year ended December 31, 2012:


	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, 2012		11,871		$	5.33
Granted		2,705			10.49
Cancelled/Expired		(304	)		13.09
Exercised		(3,380	)		2.44

Outstanding, December 31, 2012		10,892		$	7.29		8.3 years	$	26,337

Exercisable, December 31, 2012		3,857		$	5.23		7.8 years	$	15,234

Vested and Expected to Vest, December 31, 2012		10,632		$	7.26		8.2 years	$	25,927

Available for future grant at December 31, 2012		7,864

The weighted average fair value of the stock options granted during the year ended December 31, 2012, 2011 and 2010 was $8.79, $8.61, and $2.21, respectively.

During the year ended December 31, 2012, the Company received cash of $8.3 million from the exercise of options. The intrinsic value of options exercised during fiscal 2012 was $34.1 million and $11.9 million during fiscal 2011. As of December 31, 2012 and 2011, there was $41.8 million and $36.9 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 2.3 years. There was an impact of $11.3 million, on the presentation in the consolidated statement of cash flows relating to excess tax benefits on the U.S. federal level that have been realized as a reduction in taxes payable for the year ended December 31, 2012. The Company recognizes compensation expense for the fair values of those awards which have graded vesting on a straight line basis.

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 and does not anticipate doing so in the foreseeable future.

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. The Company recorded compensation expense in relation to stock options of $16.7 million, $9.2 million and $5.2 million for the years ended December 31, 2012, 2011 and 2010, respectively.

For 2012, 2011 and 2010, the Company used the following assumptions to estimate the fair value of share-based payment awards:


	2012	2011	2010
Risk free interest rate	0.81% - 1.39%	2.03% - 2.56%	1.5% - 3.1%
Expected dividend yield	0.00%	0.00%	0.00%
Expected option life (years)	6.25	6.25	5.75 - 6.25
Expected volatility	109% - 111%	105% - 112%	105% - 110%

Restricted Stock Units

The 2011 Plan also allows for granting of restricted stock unit awards under the terms of the Plan. The majority of the restricted stock units vest upon the achievement of various performance conditions such as FDA approval. Additionally, there is a service condition tied to each performance condition achieved. The company estimated the fair value of the restricted stock units using the market price of its common stock on the date of grant. The fair value of restricted stock units is amortized on a straight-line basis over the vesting period. The following table presents the restricted stock unit activity for the year ended December 31, 2012.


	Shares			Weighted Average Grant Date Fair Value
	(in thousands)
Outstanding January 1, 2012:
Granted		584		$	8.86
Vested		(97	)		8.86
Forfeited		(22	)		8.86

Outstanding—as of December 31, 2012		465			8.86

The Company recorded compensation expense in relation to restricted stock units of $1.4 million, $0, and $0 for the years ended December 31, 2012, 2011 and 2010 respectively.

The following table presents the stock-based compensation expense related to stock based awards for the period ended December 31:


	2012		2011		2010
	(in thousands)
Research and development	$	3,700	$	1,464	$	1,534
General and administrative		14,375		7,830		3,673

Stock-based compensation expense	$	18,075	$	9,294	$	5,207