Stockholders' Equity

9 Months Ended

Sep. 30, 2012

Stockholders' Equity [Abstract]

Stockholders' Equity

8. Stockholders’ Equity

Warrants

In connection with the Company’s public offering of shares of Common Stock and warrants to purchase shares of Common Stock in May 2008, the Company issued warrants to purchase 390 shares of the Company’s Common Stock. The warrants were immediately exercisable upon grant, have an exercise price of $2,150 per share and remain exercisable for five years. As of September 30, 2012, all of these warrants were outstanding and 390 shares of common stock are reserved for issuance upon exercise of the warrants.

Share-Based Compensation

In June 1994, the Company adopted the La Jolla Pharmaceutical Company 1994 Stock Incentive Plan (the “1994 Plan”), under which, as amended, 164 shares of common stock were authorized for issuance. The 1994 Plan expired in June 2004 with no shares available for future grants, and there were 8 options outstanding under the 1994 Plan as of September 30, 2012.

In May 2004, the Company adopted the La Jolla Pharmaceutical Company 2004 Equity Incentive Plan (the “2004 Plan”), under which, as amended, 640 shares of common stock have been authorized for issuance. The 2004 Plan provides for the grant of incentive and non-qualified stock options, as well as other share-based payment awards, to employees, directors, consultants and advisors of the Company with up to a 10-year contractual life and various vesting periods as determined by the Company’s Compensation Committee or the Board of Directors, as well as automatic fixed grants to non-employee directors of the Company. As of September 30, 2012, there were a total of 75 options outstanding under the 2004 Plan and 537 shares remained available for future grant.

In August 2010, the Company adopted the 2010 Plan. The 2010 Plan is similar to the 2004 Plan, other than with regard to the number of shares authorized for issuance. On May 22, 2012, the 2010 Plan was amended to reset the authorized number of shares for issuance to a total of 1,188,414 shares, representing 10% of the number of shares of common stock issued and outstanding on April 11, 2012 (the record date used in connection with the Company’s annual proxy). This number of shares is initially reserved for issuance and is subject to quarterly upward adjustment so that the total number of shares reserved under the 2010 Plan will, on the first day of each calendar quarter, be equal to 10% of the common stock issued and outstanding as of the last day of the prior calendar quarter. The adjustments continue through the quarter ending June 30, 2015 (resulting in a final adjustment on July 1, 2015). In no event will the number of shares potentially issuable under the 2010 Plan exceed 676,640,705, which represents 10% of the number of shares of common stock potentially outstanding on a fully-diluted and as-converted basis on April 11, 2012, after giving effect to the potential conversion of the convertible preferred stock that was issued and outstanding on April 11, 2012. Effective as of July 1, 2012, the Company authorized 47,804 additional shares for issuance based on 10% of the number of shares of common stock outstanding on June 30, 2012. As of September 30, 2012, there were a total of 16 options outstanding and 1,236,202 shares remained available for future grant. Effective as of October 1, 2012, the Company authorized 120,520 additional shares for issuance based on 10% of the number of shares of common stock outstanding on September 30, 2012.

On April 10, 2012, the Company awarded options to purchase up to 592,230,471 shares of common stock to the President and Chief Executive Officer, a board member and an employee. The inducement options were granted outside of the 2010 Plan, but they are subject to the terms and conditions of the 2010 Plan. The inducement options were granted at an exercise price of $0.06 and two of the grants vest with respect to 25% of the underlying shares on a specified one-year anniversary date, with the remainder vesting monthly, in equal monthly installments, over the three years thereafter. The grant made to a board member vests on a quarterly basis over a one-year period (see note 9).

A summary of the Company’s stock option activity and related data for the nine months ended September 30, 2012 follows:

	Outstanding Options
	Number of Shares			Weighted-Average Exercise  Price
Balance at December 31, 2011		894		$	17,462
Grant		592,230,471		$	0.06
Forfeited/Expired		(795	)	$	11,420
Balance at September 30, 2012		592,230,570		$	0.067

As of September 30, 2012, options exercisable have a weighted-average remaining contractual term of 9.53 years. No stock option exercises occurred during the year ended December 31, 2011. As of September 30, 2012 and December 31, 2011, the total intrinsic value, which is the difference between the exercise price and closing price of the Company’s common stock for options outstanding and exercisable, was $0.

	September 30, 2012				December 31, 2011
	Options		Weighted-Average Exercise Price		Options		Weighted-Average Exercise Price
Exercisable at end of period		9,453,848	$	0.5012		585	$	26,243
Weighted-average fair value of options granted during the period	$	0.06			$	—

Exercise prices and weighted-average remaining contractual lives for the options outstanding (excluding shares of restricted stock) as of September 30, 2012 were:

Options Outstanding	Range of Exercise Prices	Weighted- Average Remaining Contractual Life (in years)	Weighted- Average Exercise Price		Options Exercisable		Weighted- Average Price of Options Exercisable
592,230,471	$0.06	9.53	$	0.06		9,453,749	$	0.06
55	$210 - $21,500	7.11	$	4,876		55	$	4,876
10	$39,900	3.63	$	39,900		10	$	39,900
11	$42,000	3.03	$	42,000		11	$	42,000
1	$52,600	3.45	$	52,600		1	$	52,600
10	$59,700	4.65	$	59,700		10	$	59,700
5	$148,000	1.64	$	148,000		5	$	148,000
2	$148,500	0.61	$	148,500		2	$	148,500
2	$235,500	0.97	$	235,500		2	$	235,500
3	$295,000	0.14	$	295,000		3	$	295,000
592,230,570	$0.06-$295,000	9.53	$	0.067		9,453,848	$	0.5012

At September 30, 2012, the Company has reserved 593,467,889 shares of common stock for future issuance upon exercise of options granted or to be granted under the 1994, 2004 and 2010 Plans, as well as for inducement options granted outside of the Company’s equity compensation plans.

The following table summarizes share-based compensation expense related to stock options, restricted stock and restricted stock units by expense category (in thousands):

	Three Months Ended September 30,				Nine Months Ended Spetember 30,
	2012		2011		2012		2011
Research and development	$	279	$	—	$	526	$	—
General and administrative		2,683		63		5,146		194
Share-based compensation expense included in operating expenses	$	2,962	$	63	$	5,672	$	194

The Company determines the fair value of share-based payment awards on the date of grant using the Black-Scholes option-pricing model, which is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. Option pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Although the fair value of employee and director stock options granted by the Company is determined using an option pricing model, that value may not be indicative of the fair value observed in a willing-buyer/willing-seller market transaction.

The Company estimated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

	Three Months  Ended September 30,						Nine Months  Ended September 30,
Option:	2012			2011			2012			2011
Risk-free interest rate		—	%		—	%		1.10	%		—	%
Dividend yield		—	%		—	%		0.0	%		—	%
Volatility		—	%		—	%		236	%		—	%
Expected life (years)		—			—			6.04			—

The remaining unamortized share-based compensation expense related to stock options as of September 30, 2012 is $30,428,000. The remaining expense of the inducement option issued to the board member totaling $444,000 will be recognized over four months, ending in January 2013. The remaining expense of the inducement options issued to the President and Chief Executive Officer and an employee totaling $29,984,000, will be recognized over approximately 40 months, ending in January 2016.

Employee Stock Purchase Plan

Effective August 1, 1995, the Company adopted the 1995 Employee Stock Purchase Plan, or ESPP, under which shares of common stock are reserved for sale to eligible employees, as defined in the ESPP. Employees may purchase common stock under the ESPP every three months (up to but not exceeding 10% of each employee’s base salary or hourly compensation, and any cash bonus paid, subject to certain limitations) over the offering period at 85% of the fair market value of the common stock at specified dates. The offering period may not exceed 24 months. At the Annual Meeting of Stockholders held on August 12, 2010, the stockholders approved an amendment to the ESPP to extend the term thereof from 2015 to 2025 and to increase the shares of common stock authorized for issuance hereunder from 85 to 485. As of September 30, 2012, 72 shares of common stock have been purchased under the ESPP and 413 shares of common stock are available for future issuance. No shares were issued under the ESPP during the year ended December 31, 2011 or for the nine months ended September 30, 2012.

Restricted Stock

In April 2012, the Company issued restricted common stock to the President and Chief Executive Officer, a board member and an employee. The shares were issued outside of the 2010 Plan but are subject to the terms and conditions of the 2010 Plan. The total restricted shares are 2,987,850 and the stock will vest as of January 19, 2013, so long as the holders of the Series C-1² Preferred have not elected to redeem their holdings (see Note 4). If the services of the holder are terminated during the vesting period, the shares are subject to a reacquisition right. No consideration is paid for the redemption of the shares under the reacquisition right, but the holder is required to return to the Company any cash dividends paid or payable with respect to the shares. The grant date fair value is the market value on the grant date multiplied by the number of shares granted and share-based compensation expense is recognized on a straight-line basis over the vesting period. The share-based compensation expense during the three months and nine months ended September 30, 2012 by expense category was $46,000 and $86,000 for general and administrative expenses and $12,000 and $23,000 for research and development expenses, respectively. The remaining unamortized share-based compensation expense to be recognized over the next four months is $70,000.

Restricted Stock Units

On April 10, 2012, the Company granted restricted stock units (“RSUs”) of 14,219 units to an employee and 10,360,892 units to a board member, where each RSU represents a contingent right to receive one share of the Company’s common stock. The RSUs are to vest according to a defined schedule in each agreement. Upon the designated vesting dates, the holders will receive common stock of the Company. The RSUs for the board member vest quarterly beginning on April 20, 2012 and ending on January 20, 2013. Twenty-five percent of the RSUs for the employee vest on January 19, 2013 with the remainder vesting monthly thereafter for 36 months.

On August 17, 2012, the Company granted RSUs of 2,700,000 units to two consultants of the Company, where each RSU represents a contingent right to receive one share of the Company’s common stock. The RSUs are to vest according to a defined schedule in each agreement. Upon the designated vesting dates, the holders will receive common stock of the Company. The RSUs for one consultant vest monthly beginning on August 20, 2012 and ending on January 20, 2012. Forty-five and one half percent (45.5%) of the RSUs for the second consultant vest on August 20, 2012 and the remainder vest monthly after that date until January 20, 2013.

Stock-based compensation cost of RSUs is measured by the market value of the Company’s common stock on the date of grant. The grant date value of awards granted is amortized on a straight-line basis over the requisite service periods of the awards, which are the vesting periods. The weighted average grant date value was $0.06 per RSU for the April 10, 2012 grants and $0.069 per RSU for the August 17, 2012 grants. The share-based compensation expense during the three months and nine months ended September 30, 2012 by expense category is

$159,000 and $439,000 for general and administrative expenses and $55 and $151 for research and development expenses, respectively. The remaining unamortized share-based compensation expense to be recognized over the next four months is $184,000 for the board member RSUs, $702 to be recognized over the remaining service period for the employee RSUs, and $81,000 to be recognized over the remaining service period for the consultant RSUs.