Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation

Stock-Based Compensation

(6) Stock-Based Compensation

The Company’s 2006 Stock Plan provides for the grant of incentive stock options, nonstatutory stock options and non-vested stock to employees, officers, directors and consultants to the Company. A total of 6,400,000 shares of common stock have been reserved for issuance under the 2006 Stock Plan. In January 2011, the number of shares of common stock reserved for issuance under the 2006 Stock Plan was increased from 5,100,000 to 6,400,000 pursuant to an “evergreen” provision, which provides for an annual increase based on the lesser of 1,300,000 shares, 5% of the Company’s then outstanding shares of common stock, or such other amount as the board of directors may determine. This increase was ratified by the board of directors in December 2010. The administration of the 2006 Stock Plan is under the general supervision of the compensation committee of the board of directors. The exercise price of the stock options is determined by the compensation committee of the board of directors, provided that incentive stock options are granted at not less than fair market value of the common stock on the date of grant and expire no later than ten years from the date the option is granted. Options vest over one to four years.

As of September 30, 2011, under its 2001 Stock Plan, which was terminated in March 2006, the Company had options outstanding to purchase 1,791,582 shares of its common stock and had no shares available for future issuance.

As of September 30, 2011, under its 2006 Stock Plan, the Company had options outstanding to purchase 4,126,977 shares of its common stock, had outstanding 86,871 restricted shares of common stock and had 1,703,980 shares available for future issuance.

The following table summarizes stock option activity during the nine months ended September 30, 2011:

	Shares		Weighted average exercise price
Outstanding at January 1	5,326,979		$	7.95
Options granted	1,222,965		5.29
Options exercised	(152,360	)	2.57
Options cancelled	(479,025	)	8.61
Outstanding at September 30	5,918,559		$	7.49
Exercisable at September 30	3,948,332		$	8.75

The weighted-average grant date fair values of options granted during the three months ended September 30, 2011 and 2010 were $3.93 and $2.53, respectively, and during the nine months ended September 30, 2011 and 2010 were $4.27 and $3.25, respectively.

Non-Vested (“Restricted”) Stock Awards With Service Conditions

The Company’s share-based compensation plan provides for awards of restricted shares of common stock to senior management and non-employee directors. Restricted stock awards are subject to forfeiture if employment or service terminates during the prescribed retention period. Restricted shares issued to non-employee directors and senior management vest over the service period.

The following table summarizes unvested restricted shares during the nine months ended September 30, 2011:

	Shares		Weighted average grant date fair value
Outstanding at January 1	140,613		$	3.84
Granted	70,585		5.22
Vested	(117,796	)	3.80
Cancelled	(6,531	)	4.84
Outstanding at September 30	86,871		$	4.94

Stock-Based Compensation Expense

For the three months and nine months ended September 30, 2011 and 2010, the fair value of each employee stock option award was estimated on the date of grant based on the fair value method using the Black-Scholes option pricing valuation model with the following weighted average assumptions:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Risk-free interest rate	2.05	%	1.98	%	2.49	%	2.74	%
Expected life in years	6.25		6.25		6.25		6.25
Volatility	100	%	102	%	101	%	102	%
Expected dividend yield	—		—		—		—

Stock-based compensation expense during the three months and nine months ended September 30, 2011 and 2010 was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Stock-based compensation expense by type of award:
Employee stock options	$	774	$	882	$	2,196	$	2,876
Restricted stock	93		81		310		309
Total stock-based compensation expense	$	867	$	963	$	2,506	$	3,185
Effect of stock-based compensation expense by line item:
Research and development	$	648	$	758	$	1,861	$	2,443
General and administrative	219		205		645		742
Total stock-based compensation expense included in net loss	$	867	$	963	$	2,506	$	3,185

Unrecognized stock-based compensation expense as of September 30, 2011 was as follows (in thousands):

	Unrecognized stock compensation expense as of September 30, 2011		Weighted average remaining period(in years)
Employee stock options	$	6,123	2.52
Restricted stock	258		1.15
Total	$	6,381	2.46