7. STOCKHOLDERS' EQUITY

(a) Stock Purchase Rights

All shares of the Company's common stock, if issued prior to the termination by the Company of its rights agreement, dated as of December 4, 2006, include stock purchase rights. The rights are exercisable only if a person or group acquires twenty percent or more of the Company's common stock or announces a tender or exchange offer which would result in ownership of twenty percent or more of the Company's common stock. Following the acquisition of twenty percent or more of the Company's common stock, the holders of the rights, other than the acquiring person or group, may purchase Medivation common stock at half of its fair market value. In the event of a merger or other acquisition of the Company, the holders of the rights, other than the acquiring person or group, may purchase shares of the acquiring entity at half of their fair market value. The rights were not exercisable at December 31, 2011.

(b) Medivation Equity Incentive Plan

The Medivation Amended and Restated 2004 Equity Incentive Award Plan, or the Medivation Equity Incentive Plan, which is stockholder-approved, provides for the issuance of options and other stock-based awards, including restricted stock units, performance share awards and stock appreciation rights, covering up to 7,500,000 shares of Medivation's common stock. Shares issued upon exercise of stock-based awards are new shares that have been reserved for issuance under the Medivation Equity Incentive Plan. The amendment and restatement of the Medivation Equity Incentive Plan was approved by the Company's Board of Directors, or Board, and by the Company's stockholders in March and May 2007, respectively.

The Medivation Equity Incentive Plan is administered by the Board, or a committee appointed by the Board, which determines recipients and types of awards to be granted, including the number of shares subject to the awards, the exercise price and the vesting schedule. The vesting of all outstanding awards under the Medivation Equity Incentive Plan, including all outstanding options, restricted stock units, performance share awards and stock appreciation rights will accelerate and become immediately exercisable upon a "change of control" of Medivation, as defined in the Medivation Equity Incentive Plan.

Stock options

The Company has granted stock options to employees, directors and consultants pursuant to the terms of the Medivation Equity Incentive Plan. The terms of stock options granted under the Medivation Equity Incentive Plan cannot exceed ten years. Options generally have an exercise price equal to the fair market value of the Company's common stock on the grant date, and generally vest over a period of four years.

The Company estimates the fair value of each option granted to employees and directors on the grant date using the Black-Scholes valuation model, which requires the use of subjective assumptions related to the expected stock price volatility, expected stock option term, expected dividend yield and expected risk-free rates of return. The following table presents the assumptions used to estimate the fair value of employee and director stock options granted during the years ended December 31, 2011, 2010 and 2009. No significant option grants were made to consultants during the periods presented.


	Years Ended December 31,
	2011		2010		2009
Risk-free interest rate		1.02-2.34%		1.48-2.39%		1.71-2.87%
Estimated term (in years)		5.6-6.0		6.0		6.0
Estimated volatility		71-86%		71-72%		72–88%
Estimated dividend yield		None		None		None
Weighted-average grant-date fair value per share of options granted	$	13.75	$	9.64	$	23.04

Beginning with the first quarter of 2011, the Company estimates volatility based on the historical price volatility of its common stock and implied volatility of its common stock inherent in the market price of publicly traded options in its common stock. For periods prior to the first quarter of 2011, the Company also considered the historical price volatility of comparable companies' common stock.

Prior to the first quarter of 2010, due to its limited history of stock option exercise behavior, the Company used the simplified method of estimating stock option term provided for in SAB No. 107 and No. 110 for options granted to employees and directors. Beginning in the first quarter of 2010, the Company changed to a method based on its actual exercise experience and an assumption that unexercised options will remain outstanding for a period equal to the midpoint between the date the option vests in full and the contractual option termination date.

The Company has no history or expectation of paying cash dividends on its common stock. The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected term of the awards at the time of grant.

The use of different estimates of expected stock price volatility, expected stock option term, expected dividend yield and risk-free interest rates could materially change the fair value of an option and the resulting non-cash compensation expense.

The following table summarizes stock option activity during the year ended December 31, 2011:


	Number of Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value ⁽¹⁾
Options outstanding at December 31, 2010		5,041,303		$	17.39
Granted		595,364		$	19.71
Exercised		(1,106,403	)	$	14.22
Forfeited		(228,456	)	$	20.79

Options outstanding at December 31, 2011		4,301,808		$	18.34		6.9	$	119.4


Vested and exercisable as of December 31, 2011		2,739,718		$	16.72		5.9	$	80.5

(1)	The aggregate intrinsic value is calculated as the pre-tax difference between the exercise price of the underlying awards and the closing stock price per share of $46.11 of the Company's common stock on December 30, 2011. The amount is presented in millions.

Additional information regarding stock options is set forth below:


	Years Ended December 31,
	2011		2010		2009
Intrinsic value of options exercised	$	22,238	$	8,584	$	6,208
Grant-date fair value of options vested	$	12,608	$	13,730	$	11,653

Restricted Stock Units

The Company has granted restricted stock units to employees pursuant to the terms of the Medivation Equity Incentive Plan. A restricted stock unit award is an agreement to issue shares of the Company's common stock at the time of vesting. All restricted stock units granted to date by the Company vest in three equal installments on the first, second and third anniversaries of the grant date. The fair value of restricted stock units equals the closing market price of the Company's common stock on the grant date.

The following table summarizes restricted stock unit activity:


	Number of Shares			Weighted- Average Grant-Date Fair Value
Unvested at December 31, 2010		173,119		$	14.23
Vested		(51,606	)	$	14.37
Forfeited		(19,896	)	$	13.29

Unvested at December 31, 2011		101,617		$	14.35

The total fair value of restricted stock units that vested during the years ended December 31, 2011, 2010 and 2009 were $2.4 million, $0.2 million and $0.4 million, respectively.

Performance Share Awards

The Company granted performance share awards in 2011 to certain employees pursuant to the terms of the Medivation Equity Incentive Plan. The terms of the performance share awards provide for base case and upside case numbers of shares eligible to be earned based on the level of achievement of specified performance objectives relating to commercial product sales and timelines.

The performance shares under the awards will be earned, if at all, upon determination by the Compensation Committee of the Board of Directors, or the Committee, of actual achievement of performance objectives, subject to specified change of control exceptions. Each recipient of a performance share award must remain an employee of the Company through the date the Committee determines actual performance has been achieved in order to earn the performance shares eligible under the award. Each performance share award is convertible into one share of the Company's common stock upon the achievement of the performance objective. The base and upside case numbers of shares eligible to be earned under the performance share awards are set forth below. The number of performance shares eligible to be earned at the upside case level is based on achievement of the applicable performance objectives by specified dates, and the number of performance shares eligible to be earned at the base case level is based on the achievement of the performance objectives during the ten year term of the performance share awards. The following summarizes the performance share awards outstanding at December 31, 2011:

Base Case Achievement

Upside Case Achievement

Minimum

Maximum

Minimum

Maximum

Performance shares eligible to be earned

10,419

31,254

20,834

62,500

Stock-based compensation expense associated with performance share awards is based on the estimated grant date fair value of the Company's common stock using the Black Scholes valuation model, and is recognized based on the probable outcome of the performance conditions, which are evaluated quarterly.

Stock Appreciation Rights

The Company granted stock appreciation rights in 2011 to certain employees pursuant to the terms of the Medivation Equity Incentive Plan. Stock appreciation rights give the holder the right, upon exercise, to receive the difference between the price per share of the Company's common stock at the time of exercise and the exercise price of the stock appreciation right. The exercise price of the stock appreciation rights is equal to the market price of the Company's common stock at the date of grant. One-fourth of the shares subject to the stock appreciation rights vest and become exercisable on the first anniversary of the grant date, and the remaining three-fourths of the shares vest monthly over the three years thereafter. The term of the stock appreciation rights is ten years.

Until such time, if any, that the Company's stockholders approve an increase to the number of shares of common stock available pursuant to the Medivation Equity Incentive Plan, the stock appreciation rights may be settled only in cash; following such approval, if it occurs, the stock appreciation rights may be settled only in the Company's common stock.

The Company estimates the fair value of each stock appreciation right on the grant date using the Black-Scholes valuation model. The following grant date assumptions were used to estimate the fair value of stock appreciation rights granted during the year ended December 31, 2011:


Risk-free interest rate		1.07	%
Estimated term (in years)		5.6
Estimated volatility		71	%
Estimated dividend yield		None
Weighted-average grant-date fair value per share of stock appreciation rights granted	$	29.81

The stock appreciation rights are currently liability-classified awards for which compensation expense and the liability are remeasured at each reporting date through the date of settlement based on the portion of the requisite service period rendered. At December 31, 2011, 262,800 stock appreciation rights were outstanding, none of which were exercisable.

Warrants

At December 31, 2011, warrants to purchase an aggregate of 22,904 shares of Medivation common stock at a weighted-average exercise price of $6.92 per share were outstanding. These outstanding warrants expire between 2014 and 2017.

Stock-Based Compensation

Stock-based compensation expense was as follows:


	Years Ended December 31,
	2011		2010		2009
Stock-based compensation expense recognized as:
Research and development expense	$	5,795	$	7,629	$	5,664
Selling, general and administrative expense		8,090		5,901		5,062

Total	$	13,885	$	13,530	$	10,726

The Company applies a forfeiture rate when determining non-cash stock-based compensation expense to account for an estimate of the granted awards not expected to vest. If actual forfeitures differ from the expected rate, the Company may be required to make additional adjustments to compensation expense in future periods. At December 31, 2011, the unrecognized stock-based compensation expense related to awards granted under the Medivation Equity Incentive Plan totaled $27.7 million, which is expected to be recognized as non-cash compensation expense over a weighted-average period of 2.68 years.