Share-Based Compensation

6 Months Ended

Jun. 30, 2012

Share-Based Compensation Plans/Share-Based Compensation [Abstract]

Share-Based Compensation

5. Share-Based Compensation

Employee Share-Based Awards

Compensation cost for employee share-based awards is based on the grant-date fair value and is recognized over the vesting period of the applicable award on a straight-line basis. The Company issues employee share-based awards in the form of stock options and restricted stock units under the Company’s equity incentive plans, and stock purchase rights under the ESPP.

Valuation of Stock Options, Stock Purchase Rights and Restricted Stock Units

During the three and six months ended June 30, 2012, the weighted average fair value of the employee stock options granted was $2.57 and $2.78, respectively. During the three and six months ended June 30, 2011, the weighted average fair value of the employee stock options granted, excluding the options issued in the Exchange Program, was $11.30 and $9.70, respectively. The weighted average fair value of restricted stock units issued was $4.40 and $4.90 in the three and six months ended June 30, 2012, respectively. The weighted average fair value of restricted stock units issued was $13.30 in the six months ended June 30, 2011. The Company did not issue any restricted stock units during the three months ended June 30, 2011. The weighted average fair value of stock purchase rights granted under the ESPP was $3.30 and $4.23 during the three and six months ended June 30, 2012, respectively, and $10.50 and $10.50 during the same periods in 2011, respectively.

The estimated grant date fair values of the stock options, excluding the options issued in the Exchange Program in 2011, and stock purchase rights were calculated using the Black-Scholes valuation model, and the following weighted average assumptions:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Stock Option Plans
Expected term		5.0 years			5.0 years			5.0 years			5.0 years
Expected volatility		99	%		90	%		99	%		89	%
Risk-free interest rate		0.71	%		1.73	%		0.73	%		1.90	%
Dividend yield		0	%		0	%		0	%		0	%
Employee Stock Purchase Plan
Expected term		0.5 years			2.0 years			0.6 years			2.0 years
Expected volatility		135	%		96	%		97	%		96	%
Risk-free interest rate		0.15	%		0.89	%		0.13	%		0.89	%
Dividend yield		0	%		0	%		0	%		0	%

The Exchange Program described in Note 4 did not result in incremental expense, as the fair value of the New Options granted was less than the fair values of the Original Options measured immediately prior to being replaced on the date the New Options were granted and the Original Options were cancelled. The estimated grant date fair value of the New Options was calculated using the Black-Sholes valuation model. At the time of exchange, the exercise price of the Original Options was in excess of the market price, therefore the expected term of the Original Options granted was determined using the Monte Carlo Simulation method. The expected term of New Options granted was determined using the “shortcut” method, as illustrated in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107, because the terms of the New Options are unique as compared to the existing awards and the Company does not have historical experience under the New Options terms. Under this approach, the expected term is estimated to be the average of the vesting term and the contractual term of the option. All other assumptions have been calculated using the historical methodologies applied by the Company to all other stock option awards. The number of shares underlying the options included in the Exchange Program and the weighted average assumptions utilized in the Black-Scholes valuation model were:

	Original			New
	Options			Options
Number of shares		212,843			80,890
Expected term		4.7 years			3.4 years
Expected volatility		94	%		98	%
Risk-free interest rate		1.96	%		1.38	%
Dividend yield		0	%		0	%

The estimated fair value of restricted stock units awards is calculated based on the market price of Alexza’s common stock on the date of grant, reduced by the present value of dividends expected to be paid on Alexza common stock prior to vesting of the restricted stock unit. The Company’s estimate assumes no dividends will be paid prior to the vesting of the restricted stock unit.

As of June 30, 2012, there were $4,121,000, $377,000 and $41,000 of total unrecognized compensation expense related to unvested stock option awards, unvested restricted stock units and stock purchase rights, respectively, which are expected to be recognized over a weighted average period of 1.34 years, 0.15 years and 0.33 years, respectively.

There was no share-based compensation capitalized at June 30, 2012.