Stockholders' Equity

12 Months Ended

Dec. 31, 2012

Stockholders' Equity [Abstract]

Stockholders' Equity

7. Stockholders’ Equity

Reverse Stock Splits

The Board of Directors approved the 2012 Reverse Stock Split of the Company’s Common Stock, which became effective on February 17, 2012, with an exchange ratio of 1-for-100. As a result of the 2012 Reverse Stock Split, each 100 shares of the Company’s issued and outstanding Common Stock were automatically reclassified as, and changed into, one share of the Company’s Common Stock. No fractional shares were issued in connection with the 2012 Reverse Stock Split. Stockholders who were entitled to fractional shares instead became entitled to receive a cash payment in lieu of receiving fractional shares (after taking into account and aggregating all shares of the Company’s Common Stock then held by such stockholder) equal to the fractional share interest. The 2012 Reverse Stock Split affected all of the holders of the Company’s Common Stock uniformly. Shares of the Company’s Common Stock underlying outstanding options and warrants were proportionately reduced and the exercise prices of outstanding options and warrants were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of the Company’s Common Stock underlying outstanding convertible preferred stock and warrants were proportionately reduced and the conversion rates were proportionately decreased in accordance with the terms of the agreements governing such securities.

The Board of Directors approved the 2011 Reverse Stock Split of the Company’s Common Stock, which became effective on April 14, 2011, with an exchange ratio of 1-for-100. As a result of the 2011 Reverse Stock Split, each 100 shares of the Company’s issued and outstanding Common Stock were automatically reclassified as, and changed into, one share of the Company’s Common Stock. No fractional shares were issued in connection with the 2011 Reverse Stock Split. Stockholders who were entitled to fractional shares instead became entitled to receive a cash payment in lieu of receiving fractional shares (after taking into account and aggregating all shares of the Company’s Common Stock then held by such stockholder) equal to the fractional share interest. The 2011 Reverse Stock Split affected all of the holders of the Company’s Common Stock uniformly. Shares of the Company’s Common Stock underlying outstanding options and warrants were proportionately reduced and the exercise prices of outstanding options and warrants were proportionately increased in accordance with the terms of the agreements governing such securities. Shares of the Company’s Common Stock underlying outstanding convertible preferred stock and warrants were proportionately reduced and the conversion rates were proportionately decreased in accordance with the terms of the agreements governing such securities.

All Common Stock share and per share information in the accompanying consolidated financial statements and notes included in this report have been restated to reflect retrospective application of the two reverse stock splits for all periods presented, except for par value per share and the number of authorized shares, which were not affected by the 2012 Reverse Stock Split or 2011 Reverse Stock Split.

Preferred Stock

As of December 31, 2012, the Company’s Board of Directors is authorized to issue 8,000,000 shares of preferred stock, with a par value of $0.0001 per share, in one or more series, of which 11,000 are designated for Series C-1 ² Stock, 22,000 are designated Series C-2 ² Stock, 5,134 are designated Series D-1 ² Stock and 10,868 are designated Series D-2 ² Stock. As of December 31, 2012, 5,792 shares of Series C-1² Stock, 500 shares of Series C-2 ² Stock and 4,615 shares of Series D-1 ² Stock were issued and outstanding. As of December 31, 2011, 5,043 shares of Series C-1¹ Preferred were issued and outstanding.

Warrants

In connection with the May 2008 public offering, the Company issued warrants to purchase 390 shares of the Company’s Common Stock. The warrants were immediately exercisable upon issuance, have an exercise price of $21,500 per share and remain exercisable for five years. As of December 31, 2012, all of these warrants were outstanding and 390 shares of Common Stock are reserved for issuance upon exercise of the warrants.

Stock Option Plans

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, and as shares have forfeited or expired, they have been retired reducing the number of shares authorized for issuance. As of December 31, 2012, there were a total of 5 options outstanding and authorized for issuance under the1994 Plan.

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 were 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 December 31, 2012, there were a total of 75 options outstanding and 537 shares remained available for future grant under the 2004 Plan.

In May 2010, the Company granted options to purchase a total of 580 shares of Common Stock to two employees. These grants were made outside of the Company’s existing stockholder-approved equity compensation plans but were otherwise legally binding awards and did not require stockholder approval. These stock options were treated in all respects as if granted under the Company’s 2010 Equity Incentive Plan (the “2010 Plan”). During the first quarter of 2012, following termination of the two employees, the options were forfeited and are no longer available for grant.

In August 2010, the Company adopted the 2010 Plan under which 960 shares of Common Stock were authorized for issuance. The 2010 Plan is similar to the 2004 Plan. The 2010 Plan provided for automatic increases to the number of authorized shares available for grant; and as such, in May and September 2011, the authorized shares were increased by 33 and 16,007 shares, respectively, to the maximum authorized allowed of 17,000 shares. In May 2012, the stockholders approved an amendment to the 2010 Plan that increased the amount of shares authorized to 1,188,414, with automatic quarterly increases on the first day of each quarter based on 10% of the outstanding shares of Common Stock as of the last day of the previous quarter end. The authorized shares were increased by 47,804 and 120,520 at July and October 2012, respectively. The adjustments will continue through to the quarter ending June 30, 2015, but in no event will the number of shares issuable exceed 676,640,705. As of December 31, 2012, there were a total of 16 options outstanding and 1,356,722 shares remained available for future grant under the 2010 Plan. On January 1, 2013, the authorized shares automatically increased by 70,000 shares.

In April 10, 2012, the Company awarded options to purchase up to 592,230,471 shares of Common Stock to the Chief Executive Officer, a board member and an employee. The inducement options were granted outside of the 2010 Plan, but are subject to the terms and conditions of the 2010 Plan. The inducement options were granted at an exercise price of $0.06. Two of the grants vest 25% on the one-year anniversary date of the grants and 1/48 of the shares monthly thereafter. The grant to the board member vests quarterly over a one-year period.

Options granted under each of the Plans must have an exercise price equal to at least 100% of the fair market value of the Company’s Common Stock on the date of grant. The options will generally have a maximum contractual term of ten years and vest at the rate of one-fourth of the shares on the first anniversary of the date of grant and 1/48 of the shares monthly thereafter.

A summary of the Company’s stock option award activity as of and for the years ended December 31, 2012 and 2011 is as follows:

	Outstanding Options
	Shares Underlying Stock Options			Weighted- Average Exercise Price per Share		Weighted- Average Remaining Contractual Term (yrs)		Aggregate Intrinsic Value
Outstanding at December 31, 2010		980		$	20,370
Granted		—		$	—
Forfeited/Expired		(86	)	$	50,529
Outstanding at December 31, 2011		894		$	17,462
Granted		592,230,471		$	0.06
Forfeited/Expired		(798	)	$	12,095
Outstanding at December 31, 2012		592,230,567		$	0.0655		9.27	$	2,961,152
Vested and expected to vest at December 31, 2012		592,230,567		$	0.0655		1.17	$	2,961,152
Exercisable at December 31, 2012		14,180,719		$	0.2917		9.27	$	70,903

The weighted-average grant date fair value of options granted during the year ended December 31, 2012 was $0.0598 per share. As of December 31, 2012, approximately $27,832,000 of total unrecognized compensation costs related to non-vested stock option awards is expected to be recognized over a weighted average period of approximately 1.2 years. No stock option exercises occurred during the years ended December 31, 2012 and 2011.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model (“Black-Scholes model”) that uses the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s Common Stock. In determining the expected life of the options, the Company uses the “simplified” method. Under this method, the expected life is presumed to be the mid-point between the vesting date and the end of the contractual term. The Company will continue to use the “simplified” method until it has sufficient historical exercise data to estimate the expected life of the options. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The dividend yield assumption is based on the expectation of no future dividend payments by the Company.

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:

	December 31,
	2012			2011
Risk-free interest rate		1.1	%		0	%
Dividend yield		0	%		0	%
Volatility		236	%		0	%
Expected life (years)		6.04 years			0	%

Share-based compensation expense recognized in the Consolidated Statements of Operations for fiscal years 2012 and 2011 is based on awards ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures for 2012 and 2011 were estimated to be zero for both years.

At December 31, 2012, the Company has reserved 607,318,125 shares of Common Stock for future issuance upon exercise of all options granted or to be granted under the 1994, 2004 and 2010 Plans, as well as for awards granted outside of the Company’s equity compensation plans.

Restricted Stock Awards

In April 2012, the Company issued restricted stock awards (“RSAs”) to the Chief Executive Officer, a board member and an employee. RSAs are grants that entitle the holder to acquire shares of the Company’s Common Stock for no cash consideration. The shares covered by RSAs cannot be sold, pledged, or otherwise disposed of until the award vests, and any unvested shares are subject to a reacquisition right following the awardee’s termination of service. 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 RSAs were issued outside of the 2010 Plan but are subject to the terms and conditions of the 2010 Plan. The total restricted shares of 2,987,850 vested on January 19, 2013. The stock-based compensation cost of RSAs is measured by the market value of the Company’s Common Stock on the date of grant. The grant date value of the award is amortized on a straight-line basis over the vesting period. The weighted-average grant date value was $0.06 per share. The share-based compensation expense for the year ended December 31, 2012 by expense category was $132,000 and $35,000 for general and administrative expense and research and development expense, respectively. The remaining unamortized share-based compensation expense to be recognized through January 19, 2013 is $12,000.

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 RSU for the board member vests quarterly beginning on April 20, 2012 and ending on January 20, 2013. Twenty-five percent of the RSU for the employee vested 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 non-employee consultants, 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 RSU for one consultant vested monthly beginning on August 20, 2012 and ending on January 20, 2013. The RSU for the second consultant vested forty-five and one half percent (45.5%) on August 20, 2012 and the remainder vested monthly thereafter until January 20, 2013.

The 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 the award is amortized on a straight-line basis over the vesting period. The weighted-average grant date value was $0.06 per RSU for the April 10, 2012 grant and $0.069 per RSU for the August 17, 2012 grant. The share-based compensation expense relating to RSU’s for the year ended December 31, 2012 by expense category was $755,000 and $205 for general and administrative expense and for research and development expense, respectively. The remaining unamortized share-based compensation expense to be recognized up through January 20, 2013 is $24,000 for the board member’s RSU and $18,000 for the consultants’ RSUs. The employee’s RSU has unamortized share-based compensation expense of $648 to be recognized over the remaining service period of three years.

Employee Stock Purchase Plan

During 2011 the Company suspended all activity under the Employee Stock Purchase Plan (“ESPP”), which was adopted in 1995. There were no employee stock purchases in 2012 or 2011.