STOCK OPTIONS AND STOCK AWARDS

6 Months Ended

Jun. 30, 2013

STOCK OPTIONS AND STOCK AWARDS

STOCK OPTIONS AND STOCK AWARDS

10. STOCK OPTIONS AND STOCK AWARDS

Under the Company’s 2004 Equity Compensation Plan, as amended (the “2004 Plan”), as approved by the stockholders of the Company, qualified and nonqualified stock options and stock awards may be granted to employees, non-employee directors, consultants and advisors who provide services. As of June 30, 2013, the Company had granted non-qualified stock options and stock awards under the 2004 Plan. At June 30, 2013, there were 2,923,032 shares available for future grants under the 2004 Plan.

(a) Stock Option Information

During the six months ended June 30, 2013, the Company granted non-qualified stock options to purchase shares of the Company’s common stock pursuant to the 2004 Plan. These options expire ten years from date of grant. Their exercise prices represent the closing price of the common stock of the Company on the respective dates that the options were granted and they vest rateably over four years at one year intervals from the grant date, assuming continued employment of the grantee.

The following tables summarize stock option activity for the six month period ended June 30, 2013:

	Six Months Ended June 30, 2013
					Weighted
			Weighted		average
			average		remaining	Aggregate
			exercise		contractual	intrinsic
Stock options	Shares		price		life (in years)	value
Options outstanding:
Outstanding at December 31, 2012	6,626,176		$	22.50
Granted	1,106,309		17.56
Exercised	(4,600	)	14.14
Forfeited	(208,090	)	26.01
Outstanding at June 30, 2013	7,519,795		21.68		7.19	$	5,243
Exercisable at June 30, 2013	3,995,439		23.35		5.85	4,948

The aggregate intrinsic values in the preceding table represent the total pre-tax intrinsic value, based on the Company’s stock closing price of $16.63 as of June 30, 2013, that would have been received by the option holders had all option holders exercised their options as of that date. During the three months ended June 30, 2013, total intrinsic value of options exercised was $15. As of June 30, 2013, exercisable options to purchase 958,413 shares of the Company’s common stock were in-the-money.

(b) Stock Awards

During the six months ended June 30, 2013, the Company granted a total of 140,550 performance-based restricted stock unit awards to certain officers. The right to receive shares of common stock will be earned (subject to vesting) upon attainment of two performance goals, weighted as follows: 50% weighting on attaining a specified level of net income for the year ending December 31, 2013 and 50% weighting based upon the timing of approval, and labelling required, by the U.S. Food and Drug Administration (the “FDA”) for the supplemental Biologic License Application (“sBLA”) for XIAFLEX for Peyronie’s disease. The number of shares of restricted stock units earned will vest 33% on the date of determination that the performance goal is achieved with an additional 33% vesting on the first anniversary, and the remaining balance vesting on the second anniversary, of the date of determination for the performance goal achievement. As of June 30, 2013, management estimates that the issuance of approximately 47,000 shares of restricted stock is probable under these awards.

In addition to an annual grant of stock options, during the six months ended June 30, 2013, the Company granted 282,360 restricted share units to employees. These restricted share units vest ratably over four years at one year intervals from the grant date. Upon vesting, each restricted share unit is converted into one share of the common stock of the Company.

(c) Restricted Stock

During the six months ended June 30, 2013, the Company granted to members of the Board of Directors 10,000 restricted shares and 20,000 deferred stock units. These awards will vest on the date of the 2014 annual shareholders meeting, assuming continued service of the grantee.

The following table summarizes the restricted stock activity for the six-month period ended June 30, 2013:

			Weighted
			average
			grant-date
	Shares		fair value
Nonvested at December 31, 2012	48,700		$	23.76
Issued	10,000		14.37
Vested	(34,490	)	24.16
Cancelled	(250	)	24.62
Nonvested at June 30, 2013	23,960		19.27

(d) Valuation Assumptions and Expense Information

Total stock-based compensation costs charged against income for the six months ended June 30, 2013 and 2012 amounted to $7,976 and $7,572, respectively. Stock-based compensation costs capitalized as part of inventory amounted to $5,709 at June 30, 2013 and $4,866 at December 31, 2012, respectively.

The fair value of each stock option award was estimated on the date of grant using the Black-Scholes model and applying the assumptions in the following table.

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012
Weighted average assumptions:
Expected life of options (in years)	6.33		6.34		6.27		6.26
Risk-free interest rate	1.26	%	0.97	%	1.17	%	1.04	%
Expected volatility	48.17	%	50.24	%	48.83	%	50.74	%
Expected dividend yield	0.00	%	0.00	%	0.00	%	0.00	%

During the six months ended June 30, 2013, the weighted-average grant-date fair value of options granted was $8.40. As of June 30, 2013, there was approximately $29,700 of total unrecognized stock-based compensation cost related to all share-based payments that will be recognized over the weighted-average period of 2.61 years.