NOTE 6 — STOCK-BASED COMPENSATION

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. 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.

On July 13, 2012, the Company’s stockholders approved an amendment and restatement of the Medivation Equity Incentive Plan to increase the aggregate number of shares of common stock authorized for issuance under the Medivation Equity Incentive Plan from 7,500,000 to 9,300,000. As a result of the two-for-one forward stock split described previously, the number of shares of common stock authorized for issuance under the Medivation Equity Incentive Plan was increased to 18,600,000 effective September 21, 2012. As a result of the stock split, the number of shares of the Company’s common stock issuable upon exercise of outstanding stock options and vesting of other stock-based awards was proportionally increased, and the exercise price per share thereof was proportionally decreased, in accordance with the terms of the Medivation Equity Incentive Plan.

Stock Options

The following table summarizes stock option activity for the nine months ended September 30, 2012, as adjusted to reflect the two-for-one forward stock split effected on September 21, 2012:


	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value ⁽¹⁾
Outstanding at December 31, 2011		8,603,616		$	9.17
Granted		1,044,736		$	37.41
Exercised		(2,630,328	)	$	6.89
Forfeited		(120,554	)	$	14.84

Outstanding at September 30, 2012		6,897,470		$	14.25		7.14	$	290.4

Vested and exercisable at September 30, 2012		3,942,153		$	9.99		5.98	$	182.8

(1)	The aggregate intrinsic value is calculated as the pre-tax difference between the exercise price of the underlying awards and the closing price per share of $56.35 of the Company’s common stock on September 28, 2012. The amount is presented in millions.

The Company estimates the fair value of each stock option 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 presents the assumptions used to estimate the fair value of stock options granted and the weighted-average grant date fair value per share of options granted during the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Risk-free interest rate		0.68	%		1.17-1.78	%		0.68-1.01	%		1.17-2.34	%
Estimated term (in years)		5.28			5.88			5.28-5.48			5.88-5.99
Estimated volatility		66	%		86	%		66-73	%		81-86	%
Estimated dividend yield		—			—			—			—
Weighted-average grant date fair value per share of options granted	$	26.73		$	7.00		$	22.37		$	13.54

Restricted Stock Units

The following table summarizes restricted stock unit activity for the nine months ended September 30, 2012, as adjusted to reflect the two-for-one forward stock split effected on September 21, 2012:


	Number of Shares			Weighted- Average Grant-Date Fair Value
Unvested at December 31, 2011		203,234		$	7.17
Granted		65,806		$	23.20
Forfeited		(22,240	)	$	12.15

Unvested at September 30, 2012		246,800		$	11.00

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 related to commercial product sales and timelines. The number of performance shares eligible to be earned at the upside case level is based on achievement of the applicable performance objective by a specified date, and the number of performance shares eligible to be earned at the base case level is based on the achievement of the performance objective during the ten year term of the performance share awards. 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. Stock-based compensation expense associated with performance share awards is based on the grant date fair value of the Company’s common stock and is recognized based on the probable outcome of the performance conditions, which are evaluated quarterly.

During the third quarter of 2012, the Committee certified the actual achievement of objectives related to certain performance share awards at the upside case level. As a result, recipients earned a total of 83,332 common shares, of which 28,541 shares were withheld by the Company to satisfy applicable tax withholding obligations of $1.6 million. The total grant date fair value of performance share awards recognized in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2012 was $2.0 million. The total fair market value of performance share awards that vested during the three and nine months ended September 30, 2012 was $4.7 million. At September 30, 2012, there were 41,668 shares of common stock subject to performance share awards (at the upside case level) outstanding and eligible to be earned by recipients, but the Company does not expect any of these shares to be earned.

Stock Appreciation Rights

The Company has granted stock appreciation rights 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 market 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 right is equal to the market price of the Company’s common stock at the date of the grant. Initially, the stock appreciation rights were only settlable in cash. On July 13, 2012, upon approval of an increase in the number of shares of common stock available for issuance under the Medivation Equity Incentive Plan by the Company’s stockholders, the stock appreciation rights were converted to stock-settled awards.

The following table summarizes stock appreciation rights activity for the nine months ended September 30, 2012, as adjusted to reflect the two-for-one forward stock split effected on September 21, 2012:


	Number of Rights			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value ⁽¹⁾
Outstanding at December 31, 2011		525,600		$	24.40
Granted		387,400		$	23.20
Forfeited		(29,400	)	$	23.20

Outstanding at September 30, 2012		883,600		$	23.91		9.23	$	28.7

(1)	The aggregate intrinsic value is calculated as the pre-tax difference between the exercise price of the underlying awards and the closing price per share of $56.35 of the Company’s common stock on September 28, 2012. The amount is presented in millions.

The Company initially recorded compensation expense for the cash-settled stock appreciation rights based on the estimated fair value on the date of grant using the Black-Scholes valuation model, which requires the use of subjective assumptions related to the expected stock price volatility, expected term, expected dividend yield and risk-free interest rate. Cash-settled stock appreciation rights are liability-classified awards for which compensation expense and the liability are remeasured using the then-current Black Scholes assumptions at each interim reporting date until they are settled based upon the portion of the requisite service period rendered. Upon conversion of the cash-settled stock appreciation rights to stock-settled stock appreciation rights on July 13, 2012, the Company remeasured the awards using then-current Black-Scholes assumptions and reclassified $3.8 million from current liabilities to additional-paid-in-capital. The stock appreciation rights will be accounted for as equity-classified awards from the conversion date forward. The fair value of each cash-settled stock appreciation right was estimated on the date of the grant and was remeasured at the conversion date of July 13, 2012 using the Black-Scholes valuation model with the following assumptions:


	Stock Appreciation Rights Granted During the Nine Months Ended September 30, 2012			Remeasurement as of July 13, 2012
Risk-free interest rate		1.01	%		0.83	%
Estimated term (in years)		5.48			5.42
Estimated volatility		73	%		71	%
Estimated dividend yield		—			—

The weighted average fair value per share of stock appreciation rights granted during the nine months ended September 30, 2012 was $14.33. The weighted average fair value per share of all outstanding stock appreciation rights as of September 30, 2012 was $32.94. No stock appreciation rights were granted during the three months ended September 30, 2012. As of September 30, 2012, no stock appreciation rights were exercisable.

Stock-Based Compensation

Stock-based compensation expense was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock-based compensation expense recognized as:
R&D	$	3,512	$	1,926	$	8,997	$	6,104
SG&A		4,091		1,301		8,523		4,412

Total	$	7,603	$	3,227	$	17,520	$	10,516

A summary of stock based compensation expense by equity award type was as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Stock options	$	3,575	$	3,088	$	9,523	$	10,008
Restricted stock units		267		139		788		508
Stock appreciation rights		1,728		—		5,176		—
Performance share awards		2,033		—		2,033		—

Total	$	7,603	$	3,227	$	17,520	$	10,516

Unrecognized stock-based compensation expense totaled $53.5 million at September 30, 2012 and is expected to be recognized over a weighted-average period of 3.0 years.