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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2011
Stock-Based Compensation [Abstract]  
Stock-Based Compensation

Note 10. Stock-Based Compensation

We currently grant stock-based compensation under two equity incentive plans. As of December 31, 2011, we had 1,039,966 shares available to grant under these two plans. At our annual stockholders meeting held on June 12, 2007, our stockholders approved an amendment to our 2006 Equity Incentive Plan to provide for an annual increase in the number of shares of common stock available for issuance under the plan each January 1 (beginning January 1, 2008) equal to 4% of the outstanding common shares as of that date. The amendment further provided an aggregate limit of 3,000,000 shares issuable pursuant to incentive stock option awards under the plan. Under these two plans we may grant incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, 401(k) Plan employer match in form of shares and performance-based shares to our employees, directors and consultants, at prices determined by our Board of Directors. Incentive stock options may only be granted to employees under these plans with a grant price not less than the fair market value on the date of grant.

Generally, stock options and restricted stock units granted to employees have a maximum term of ten years, and vest over a four year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three-year service period. We may grant options and restricted stock units with different vesting terms from time to time. Upon employee termination of service, any unexercised vested option will be forfeited three months following termination or the expiration of the option, whichever is earlier.

Our stock-based compensation expense for the last three fiscal years was as follows:

 

                         
    2011     2010     2009  

Research and development expense

   $ 1,680,431     $ 2,034,007     $ 2,208,440  

General and administrative expense

     1,580,506       1,895,627       1,994,830  
   

 

 

    

 

 

    

 

 

  

Total stock-based compensation expense and effect on net loss

   $ 3,260,937     $ 3,929,634     $ 4,203,270  
   

 

 

    

 

 

    

 

 

  

As of December 31, 2011, we have approximately $3,288,000 of total unrecognized compensation expense related to unvested awards granted under our various share-based plans that we expect to recognize over a weighted-average period of 1.9 years.

The fair value of options granted is estimated as of the date of grant using the Black-Scholes option pricing model and expensed on a pro-rata straight-line basis over the period in which the stock options vest. The Black-Scholes option pricing model requires certain assumptions as of the date of grant. The weighted-average assumptions used for the last three fiscal years are as follows:

 

                         
    2011     2010     2009  

Expected term (years)(1)

     7.4       7.2       7.3  

Risk-free interest rate(2)

     2.7 %      2.9 %      2.8 % 

Expected volatility(3)

     79.7 %      88.4 %      93.1 % 

Expected dividend yield(4)

     0 %      0 %      0 % 

 

(1) The expected term represents the period during which our stock-based awards are expected to be outstanding. In 2011 and 2010 we estimated this amount based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting requirements, and expectation of future employee behavior, including post-vesting terminations.
(2) The risk-free interest rate is based on U.S. Treasury debt securities with maturities close to the expected term of the option as of the date of grant.
(3) Expected volatility is based on historical volatility over the most recent historical period equal to the length of the expected term of the option as of the date of grant.
(4) We have neither declared nor paid dividends on any share of common stock and we do not expect to do so in the foreseeable future.

At the end of each reporting period, we estimate forfeiture rates based on our historical experience within separate groups of employees and adjust the stock-based compensation expense accordingly.

 

A summary of our stock option activity and related information for the last three fiscal years is as follows:

 

                                 
    Outstanding Options  
    Number of
Shares		     Weighted-
Average
Exercise Price		     Weighted-Average
Remaining
Contractual Term		     Aggregate
Intrinsic
Value(1)		  

Balance at December 31, 2008

     834,053     $ 23.20       6.6     $ 692,739  

Granted

     154,580     $ 17.00                  

Exercised

     (29,078 )    $ 7.60             $ 281,979  

Cancelled (forfeited and expired)

     (33,474 )    $ 19.30                  
   

 

 

                          

Balance at December 31, 2009

     926,081     $ 22.80       6.2     $ 434,092  

Granted

     257,850     $ 10.70                  

Exercised

     (3,451 )    $ 5.70             $ 13,418  

Cancelled (forfeited and expired)

     (82,239 )    $ 20.50                  
   

 

 

                          

Balance at December 31, 2010

     1,098,241     $ 20.20       6.1     $ 398,219  
   

 

 

                          

Granted

     3,750     $ 7.30                  

Exercised

     (1,692 )    $ 1.41             $ 11,293  

Cancelled (forfeited and expired)

     (224,801 )    $ 20.22                  
   

 

 

                          

Balance at December 31, 2011

     875,498     $ 20.13       5.5     $ —    
   

 

 

                          

Exercisable at December 31, 2011

     723,303     $ 21.89       4.8     $ —    
   

 

 

                          

Vested and expected to vest(2)

     848,001     $ 20.40       5.4     $ —    
   

 

 

                          

 

(1) Aggregate intrinsic value represents the value of the closing price per share of our common stock on the last trading day of the fiscal period in excess of the exercise price multiplied by the number of options outstanding or exercisable, except for the “Exercised” line, which uses the closing price on the date exercised.
(2) Number of shares include options vested and those expected to vest net of estimated forfeitures.

The estimated weighted average fair value per share of options granted was approximately $5.31 in 2011, $8.40 in 2010, and $13.70 in 2009, based on the assumptions in the Black-Scholes model discussed above. Total intrinsic value of options exercised at time of exercise was approximately $11,000 in 2011, $13,000 in 2010, and $282,000 in 2009.

The following is a summary of changes in unvested options:

 

                 

Unvested Options

   Number  of
Options		     Weighted
Average
Grant Date Fair
Value		  

Unvested options at December 31, 2010

     336,516     $ 10.30  

Granted

     3,750     $ 5.31  

Vested

     (138,184 )    $ 11.18  

Cancelled

     (49,890 )    $ 10.07  
   

 

 

          

Unvested options at December 31, 2011

     152,192     $ 9.43  
   

 

 

          

The estimated fair value of options vested were approximately $1,545,000 in 2011, $2,179,000 in 2010 and $2,606,000 in 2009.

 

The following table presents weighted average exercise price and remaining term information about significant option groups outstanding at December 31, 2011:

 

                                 

Options Outstanding at December 31, 2011

  

Range of

Exercise Prices

   Number
Outstanding		     Weighted  Average
Remaining
Term (Yrs.)		     Weighted  Average
Exercise
Price		     Aggregate Intrinsic
Value  at December 31,
2011		  

Less than $10.00

     38,859       1.8     $ 3.90       —    

$10.00 - $19.99

     398,919       6.6     $ 13.26       —    

$20.00 - $29.99

     332,420       5.0     $ 22.08       —    

$30.00 - $39.99

     46,800       4.0     $ 36.64       —    

$40.00 - $49.99

     5,500       3.7     $ 46.51       —    

$50.00 - $59.99

     53,000       3.7     $ 54.10       —    
   

 

 

                    

 

 

  
      875,498             $ 20.13       —    
   

 

 

                    

 

 

  

 

                 

Vested Options Outstanding at December 31, 2011

  

Range of Exercise Prices

   Number
Outstanding		     Weighted Average
Exercise Price		  

Less than $10.00

     34,912     $ 3.51  

$10.00 - $19.99

     250,671     $ 14.09  

$20.00 - $29.99

     332,420     $ 22.08  

$30.00 - $39.99

     46,800     $ 36.64  

$40.00 - $49.99

     5,500     $ 46.51  

$50.00 - $59.99

     53,000     $ 54.09  
   

 

 

          
      723,303     $ 21.89  
   

 

 

          

Restricted Stock Units

We have granted restricted stock units (RSUs) to our directors and to certain employees which entitle the holders to receive shares of our common stock upon vesting of the RSUs. The fair value of restricted stock units granted are based upon the market price of the underlying common stock as if it were vested and issued on the date of grant.

A summary of our restricted stock unit activity for the year ended December 31, 2011 is as follows:

 

                 
    Number  of
RSUs		     Weighted Average
Grant Date Fair
Value		  

Outstanding at January 1, 2011

     469,506     $ 12.30  

Granted (1)

     64,500     $ 5.48  

Vested RSUs

     (158,184 )    $ 12.07  

Cancelled

     (18,280 )    $ 13.41  
   

 

 

          

Outstanding at December 31, 2011

     357,542     $ 11.14  
   

 

 

          

 

(1) 6,500 of these restricted stock units vest and convert into shares of our common stock after one year from the date of grant. 50,000 of these restricted stock units vest and convert into shares of our common stock over a three year period from the date of grant: one-third of the award will vest on each grant date anniversary following the grant. 8,000 of these restricted stock units will vest and convert into shares of our common stock subject to attainment of certain performance criteria and will be forfeited if not met.

Stock Appreciation Rights

In July 2006, we granted cash-settled Stock Appreciation Rights (SARs) to certain employees under the 2006 Equity Incentive Plan. The SARs give the holder the right, upon exercise, to the difference between the price per share of our common stock at the time of exercise and the exercise price of the SAR. The exercise price of the SAR is equal to the market price of our common stock at the date of grant. The SARs vest 25% on the first anniversary of the grant date and 75% vest monthly over the remaining three-year service period. Compensation expense is based on the fair value of SARs which is calculated using the Black-Scholes option pricing model. The stock-based compensation expenses and liability are re-measured at each reporting date through the date of settlement. The compensation liability as re-measured at December 31, 2011 was not significant as the exercise price of the SARs was significantly below the market price of our common share.

The following is a summary of the changes in non-vested SARs for the last three fiscal years:

 

                                                 
    2011     2010     2009  
    Number     Weighted
Average
Exercise
Price		     Number     Weighted
Average
Exercise
Price		     Number     Weighted
Average
Exercise
Price		  

Outstanding at January 1,

     135,409     $ 20.00       143,085     $ 20.00       143,085     $ 20.00  

Granted

     —         —         —         —         —         —    

Exercised

     —         —         —         —         —         —    

Forfeited

     (20,222 )              (7,676 )              —            
   

 

 

            

 

 

            

 

 

          

Outstanding at December 31,

     115,187     $ 20.00       135,409     $ 20.00       143,085     $ 20.00  
   

 

 

            

 

 

            

 

 

          

Exercisable at December 31,

     115,187     $ 20.00       135,409     $ 20.00       143,085     $ 20.00  
   

 

 

            

 

 

            

 

 

          

For the year ended December 31, 2010 and 2011, we re-measured the liability related to the SARs and reduced compensation expense by approximately $344,000 and $265,000, respectively. The total compensation expense related to SARs was approximately $108,000 in 2009. The resulting effect on net loss and net loss per share attributable to common stockholders is not likely to be representative of the effects in future periods, due to changes in the fair value calculation which is dependent on the stock price, volatility, interest and forfeiture rates, additional grants and subsequent periods of vesting. We will continue to recognize compensation cost each period, which will be the change in fair value from the previous period through the earlier date of settlement or forfeiture of the SARs.