NOTE 8. 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, 2013.

(b) Medivation Equity Incentive Plan

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 will accelerate, and all such awards will 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.

On June 28, 2013, 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 18,600,000 to 19,150,000. At December 31, 2013, approximately 1.7 million shares of common stock were available for issuance under the Medivation Equity Incentive Plan.

Stock Options

The Company has granted stock options 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. Stock 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 except for annual stock option grants to non-employee directors, which vest over a period of one year.

The following table summarizes stock option activity for the year ended December 31, 2013:


	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value⁽¹⁾
Outstanding at December 31, 2012		7,038,291		$	18.90
Granted		496,216		$	51.06
Exercised		(793,756	)	$	11.18
Forfeited/expired		(126,217	)	$	22.59

Outstanding at December 31, 2013		6,614,534		$	22.12		6.58	$	275.8

Vested and exercisable at December 31, 2013		4,402,561		$	14.85		5.63	$	215.6

(1)

The aggregate intrinsic value is calculated as the pre-tax difference between the weighted-average exercise price of the underlying awards and the closing price per share of $63.82 of the Company’s common stock on December 31, 2013. The calculation excludes any awards with an exercise price higher than the closing price of the Company’s common stock on December 31, 2013. The amounts are presented in millions.

Additional information regarding stock options is set forth below (in thousands, except per share data):


	Years Ended December 31,
	2013		2012		2011
Intrinsic value of options exercised	$	35,155	$	116,867	$	22,238
Grant-date fair value of options vested	$	22,278	$	10,795	$	12,608
Weighted-average grant-date fair value per share of options granted	$	30.39	$	26.01	$	6.88

Restricted Stock Units

The Company has granted restricted stock units pursuant to the terms of the Medivation Equity Incentive Plan. A restricted stock unit is an agreement to issue shares of the Company’s common stock at the time of vesting. Restricted stock units generally vest in three equal installments on approximately the first, second and third anniversaries of the grant date, except for annual restricted stock unit grants to non-employee directors, which vest on approximately the first anniversary of the grant date.

The following table summarizes restricted stock unit activity for the year ended December 31, 2013:


	Number of Shares			Weighted- Average Grant-Date Fair Value
Unvested at December 31, 2012		373,625		$	39.06
Granted		143,939		$	54.94
Vested		(188,139	)	$	28.09
Forfeited		(18,078	)	$	47.16

Unvested at December 31, 2013		311,347		$	52.57

The total fair value of restricted stock units that vested during the years ended December 31, 2013, 2012, and 2011 was $11.8 million, $6.2 million, and $2.4 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 provided 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 was 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 was based on the achievement of the performance objective during the ten year term of the performance share awards. The performance shares under the awards were to 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.

During the year ended December 31, 2012, the Committee certified the actual achievement of performance objectives related to certain performance share awards at the upside case level. As a result, recipients earned a total of 83,332 shares of common stock. The total fair market value of performance share awards that vested during year ended December 31, 2012, was $4.7 million. In December 2012, the Committee cancelled all remaining performance share awards covering an aggregate of 41,668 shares of common stock. There were no performance share awards outstanding under the Medivation Equity Incentive Plan at either December 31, 2013 or 2012.

Stock Appreciation Rights

The Company 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 year ended December 31, 2013:


	Number of Rights			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value⁽¹⁾
Outstanding at December 31, 2012		883,600		$	23.91
Granted		—			—
Exercised		(37,442	)	$	23.20
Forfeited		(40,042	)	$	23.20

Outstanding at December 31, 2013		806,116		$	23.98		8.05	$	32.1

Vested and exercisable at December 31, 2013		395,519		$	23.99		8.10	$	15.8

(1)

The intrinsic value of stock appreciation rights exercised during the year ended December 31, 2013 was $1.1 million. No stock appreciation rights were exercised during the year ended December 31, 2012.

The weighted-average grant date fair value per share of stock appreciation rights that were granted during the years ended December 31, 2012 and 2011 were $14.33 and $14.91, respectively. The weighted-average remeasurement-date fair value per share of cash-settled stock appreciation rights that were converted to stock-settled stock appreciation rights during 2012 was $32.94. The fair value (based on the remeasurement-date fair value per share) of stock appreciation rights that vested during the years ended December 31, 2013 and 2012 was $10.0 million and $4.3 million, respectively. No stock appreciation rights were granted during the year ended December 31, 2013.

(c) Medivation Employee Stock Purchase Plan

The Medivation, Inc. 2013 Employee Stock Purchase Plan, or ESPP, which was approved by the Company’s stockholders on June 28, 2013, permits eligible employees to purchase shares of the Company’s common stock through payroll deductions at the lower of 85% of the fair market value of the common stock at the beginning or end of a purchase period. Eligible employee contributions are limited on an annual basis to $25,000 in accordance with Section 423 of the Internal Revenue Code. The first purchase period under the ESPP commenced on October 1, 2013 and will conclude on March 31, 2014. As of December 31, 2013, a total of 3,000,000 shares of the Company’s common stock were authorized for issuance under the ESPP, approximately 51,540 shares are reserved for issuance under the current purchase period, and no shares have been issued. As of December 31, 2013, total employee withholdings for ESPP shares were $1.3 million and were recorded in “accounts payable, accrued expenses and other current liabilities” on the consolidated balance sheet.

(d) Stock-Based Compensation

The Company estimates the fair value of stock options, stock appreciation rights, and ESPP shares using the Black-Scholes valuation model. The Company estimates expected 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. The Company estimates the expected term of stock options and stock appreciation rights based on 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 estimates the expected term of ESPP shares based on the duration of the applicable purchase period. 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 Company uses a dividend yield of zero as it has no history or expectation of paying cash dividends on its common stock.

The Black-Scholes assumptions used to estimate the fair value of stock options and stock appreciation rights were as follows:


	Years Ended December 31,
	2013			2012			2011
Expected volatility		64-75	%		66-73	%		71-86	%
Expected term (in years)		5.2-5.5			5.3-5.5			5.6-6.0
Risk-free interest rate		0.73-1.64	%		0.68-1.01	%		1.02-2.34	%
Expected dividend yield		—			—			—

The fair value of shares issued under the ESPP was estimated on the commencement date of the offering period using the Black-Scholes model and the following assumptions:


	Years Ended December 31,
	2013			2012		2011
Expected volatility		45	%		—		—
Expected term (in years)		0.5			—		—
Risk-free interest rate		0.04	%		—		—
Expected dividend yield		—			—		—

Stock-based compensation expense was as follows:


	Years Ended December 31,
	2013		2012		2011
Stock-based compensation expense recognized as:
R&D expenses	$	16,503	$	11,998	$	8,090
SG&A expenses		20,575		11,680		5,795

Total	$	37,078	$	23,678	$	13,885

At December 31, 2013, the unrecognized stock-based compensation expense related to awards granted under the Medivation Equity Incentive Plan totaled $65.6 million and is expected to be recognized as non-cash compensation expense over a weighted-average period of 2.5 years. At December 31, 2013, the total unrecognized stock-based compensation expense related to the ESPP was $0.4 million, which is expected to be recognized in the first quarter of 2014.

(e) Warrants

During the year ended December 31, 2013, an aggregate of 25,808 warrants to purchase shares of Medivation common stock at an exercise price of $0.78 per share were exercised. At December 31, 2013, an aggregate of 20,000 warrants to purchase shares of Medivation common stock at an exercise price of $6.93 per share were outstanding. These outstanding warrants expire in 2017.