Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

10.  Stock-Based Compensation

Equity Incentive Plan

The 2004 Plan provides for the granting of stock options, stock appreciation rights, RSUs and RSAs to employees, officers, directors and consultants of the Company. Stock options may be granted with an exercise price not less than 100% of the fair market value of the common stock on the date of grant. On April 27, 2010, an amendment and restatement of the 2004 Plan was approved by the Company’s stockholders to, among other things, reserve additional shares of common stock for issuance thereunder. As of June 30, 2011, total shares remaining available for issuance under the 2004 Plan were 2,439,637.

Employee Stock Purchase Plan

As of June 30, 2011, a total of 2,025,000 shares of common stock were approved and authorized for issuance under the Employee Stock Purchase Plan (ESPP). Through June 30, 2011, the Company issued 1,419,532 shares under the ESPP at an average price of $9.90 per share.

Stock-Based Compensation Expense

The allocation of stock-based compensation expense included in the condensed consolidated statements of operations was as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2011		2010		2011		2010
Research and development	$	3,379	$	2,618	$	6,511	$	5,145
General and administrative	2,896		2,704		5,305		4,675
Total	$	6,275	$	5,322	$	11,816	$	9,820

As of June 30, 2011, unrecognized compensation expense was as follows: $6.5 million related to unvested stock options; $24.4 million related to unvested RSUs; and $26.4 million related to unvested RSAs.

Compensation Awards

The Company granted the following compensation awards:

	Six Months Ended June 30, 2011			Six Months Ended June 30, 2010
	Number of Compensation Awards Granted	Weighted Average Exercise Price/Fair Value		Number of Compensation Awards Granted	Weighted Average Exercise Price/ Fair Value
2004 Plan
Stock options	307,500	$	24.56	143,750	$	16.37
RSUs time-based	465,000	25.03		940,042	10.47
RSAs time-based	1,148,000	24.70		—	—
RSUs performance-contingent(1)	—	—		210,000	10.12
RSAs performance-contingent(2)	1,290,000	24.73		—	—
2008 Plan
Stock options	—	$	—	110,000	$	10.95

(1) These performance-contingent RSUs awarded to senior management in 2010 have dual triggers of vesting based upon the successful achievement of certain corporate operating milestones during 2010 and 2011, as well as a requirement for continued employment through early 2014. As of February 11, 2011, both performance milestones had been deemed achieved, and time-based vesting had commenced with respect to all of the performance-contingent RSU shares.

(2) These performance-contingent RSAs granted to senior management in 2011 have dual triggers of vesting based upon the achievement of certain performance targets over a six-year timeframe from 2011-2016 and continued employment, both of which must be satisfied in order for the RSAs to vest. Expense associated with these RSAs would be recognized, if at all, during these years depending on the probability of meeting the performance conditions. The maximum potential expense associated with the RSAs could be up to approximately $31.9 million (allocated as $6.3 million for research and development expense and $25.6 million for general and administrative expense) if all of the performance targets are achieved on time. As of June 30, 2011, the Company had determined that the achievement of the requisite performance conditions was not probable, and as a result, no compensation expense has been recognized. As the RSAs are dependent upon the achievement of certain performance targets, the expense associated with the RSAs may vary significantly from period to period.

Valuation Assumptions

The range of weighted average assumptions used to estimate the fair value of stock options granted was as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Employee stock options
Risk-free interest rate	1.94%-2.57%			2.42%-2.82%			1.94%-2.57%			2.42%-2.82%
Expected term (in years)	5-6			5-6			5-6			5-6
Volatility	0.53-0.55			0.52			0.49-0.55			0.48-0.52
Dividend yield	—		%	—		%	—		%	—		%
Weighted average estimated fair value of stock options granted	$	13.09		$	8.41		$	12.41		$	7.07
Employee stock purchase plan issuances
Risk-free interest rate	.07%-.54%			0.22%-0.79%			.07%-.54%			0.22%-0.79%
Expected term (in years)	0.5-2.0			0.5-2.0			0.5-2.0			0.5-2.0
Volatility	0.48-0.50			0.50-0.69			0.48-0.50			0.50-0.69
Dividend yield	—		%	—		%	—		%	—		%
Weighted average estimated fair value of ESPP issuances	$	9.25		$	5.86		$	9.25		$	5.86

Stockholders’ equity

For the six months ended June 30, 2011, approximately 1,120,000 shares were exercised at a weighted average exercise price of $8.90 per share for a total of $10.0 million.