STOCK-BASED COMPENSATION AND STOCK PLANS

6 Months Ended

Jun. 30, 2011

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

STOCK-BASED COMPENSATION AND STOCK PLANS

7.    STOCK-BASED COMPENSATION AND STOCK PLANS

Our  stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employees’ requisite service period (generally the vesting period of the equity grant). We estimate the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, expected option term, expected volatility of our stock over the option’s expected term, risk-free interest rate over the option’s expected term, and the expected annual dividend yield. We believe that the valuation technique and approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of our stock options granted in the three and six months ended June 30, 2011 and 2010.

The following table presents stock-based compensation expense included in our Condensed Consolidated Statements of Operations:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Research and development	$	394	$	308	$	831	$	664
General and administrative		815		732		1,470		1,242
Total stock-based compensation expense	$	1,209	$	1,040	$	2,301	$	1,906

In the three and six months ended June 30, 2011 and 2010, no stock-based compensation expense was capitalized and there were no recognized tax benefits associated with the stock-based compensation expense.

Option activity under our stock plans for the six months ended June 30, 2011 was as follows:

Stock Options	Number of Shares			Weighted Average Exercise Price
Outstanding as of December 31, 2010		6,355,827		$	5.29
Granted		1,658,950			6.71
Exercised		(670,796	)		5.50
Cancelled		(378,463	)		9.77
Outstanding as of June 30, 2011		6,965,518			5.37
Exercisable as of June 30, 2011		4,015,734		$	5.45

The aggregate intrinsic value of options outstanding at June 30, 2011 was $8,015, of which $4,366 related to exercisable options. The weighted average fair value of options granted in the six months ended June 30, 2011 and 2010 was $4.00 and $2.18 per share, respectively. The intrinsic value of options exercised in the six months ended June 30, 2011 and 2010 was $897 and $175, respectively.

Shares vested, expected to vest and exercisable at June 30, 2011 are as follows:

	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Vested and unvested expected to vest at June 30, 2011		6,818,903	$	5.37		7.1	$	13,671
Exercisable at June 30, 2011		4,015,734	$	5.45		5.7	$	4,366

The total compensation cost not yet recognized as of June 30, 2011 related to non-vested option awards was $7.9 million, which will be recognized over a weighted-average period of 2.9 years. During the six months ended June 30, 2011, there were 118,113 shares forfeited with a weighted average grant date fair value of $3.21 per share. The weighted average remaining contractual life for options exercisable at June 30, 2011 was 5.7 years.

No restricted stock was granted in 2010. In 2009, we granted 412,200 shares of restricted stock to employees, vesting annually over a four year period. In 2008 we granted 103,316 shares of restricted stock to employees, vesting annually over a four year period and 125,000 shares vesting annually over a two year period. The shares of restricted stock were issued at no cost to the recipients. The weighted average fair value of the restricted stock at the time of grant in 2009 and 2008 was $3.54 and $4.31 respectively, per share, and is being expensed ratably over the vesting period. Through June 30, 2011, 50,271 shares have been forfeited, and 383,592 shares have vested. We recognized share-based compensation expense related to restricted stock of $186 and $214 for the six months ended June 30, 2011 and 2010, respectively.

Restricted stock activity under the Plan for the six months ended June 30, 2011 was as follows:

Restricted Stock	Number of Shares			Weighted Average Grant Date Fair Value
Unvested as of December 31, 2010		333,314		$	3.68
Granted		—			—
Vested		(117,648	)		3.74
Cancelled		(9,013	)		3.80
Unvested as of June 30, 2011		206,653		$	3.64

The fair value of restricted stock vested in the six months ended June 30, 2011 and 2010 was $440 and $449, respectively.

In July 2010, the Company amended its chief executive officer’s (the “CEO’s”) employment agreement to grant the CEO 100,000 stock options, of which 25% vested upon grant and 25% vest annually over the following three years, and a maximum of 390,000 performance-based stock units that vest upon the achievement of certain performance and market based targets. Through June 30, 2011, no expense has been recorded for these performance-based stock units.

In June 2011 our stockholders voted to increase the number of common shares available for awards under our Amended and Restated 1994 Equity Incentive Plan by 3,000,000 from 12,500,000 to 15,500,000, to increase the number of common shares available for purchase by participants under our Amended and Restated 1996 Employee Stock Purchase Plan by 400,000 from 2,000,000 to 2,400,000, and to increase the number of common shares available for awards under our Amended and Restated 1996 Director Stock Option Plan by 200,000 from 750,500 to 950,500.