Stockholders' Equity

9 Months Ended

Sep. 30, 2012

Stockholders' Equity [Abstract]

Stockholders' Equity

NOTE 7. STOCKHOLDERS’ EQUITY

Equity Offering

In August 2012, we completed an equity offering in which we sold and issued 4,462,686 shares of our common stock at an offering price of $13.40 per share. We raised a total of $59.8 million in gross proceeds, or approximately $55.8 million in net proceeds after deducting underwriting discounts and commissions and offering expenses.

Restricted Stock Units

In February 2010, the Compensation Committee of our Board of Directors approved awards of RSUs with performance-based vesting from our 2007 Equity Award Plan, or our 2007 Plan, to certain of our employees. Each RSU represents one equivalent share of our common stock to be awarded upon vesting at the end of the performance periods, if specific performance goals set by the Compensation Committee are achieved. No RSUs with performance-based vesting will vest if the performance goals are not met. The fair value of these RSUs is based on the closing price of our common stock on the date of grant. We measure compensation expense for these RSUs over the expected vesting period and we adjust it periodically for any changes to our probability assessment of the number of RSUs expected to vest as a result of our achievement of the performance goals. We make a quarterly probability assessment as to whether the performance goals will be achieved. The RSUs do not entitle participants to the rights of holders of common stock, such as voting rights, until the shares are issued.

Beginning in 2011, the Compensation Committee of our Board of Directors has approved awards of RSUs with time-based vesting from our 2007 Plan to certain of our employees. Each RSU represents one equivalent share of our common stock to be awarded after the vesting period. These RSUs vest over four years at a rate of 25% annually. The fair value for these RSUs is based on the closing price of our common stock on the date of grant. We measure compensation expense for these RSUs at fair value on the date of grant and recognize the expense over the expected vesting period on a straight-line basis. The RSUs do not entitle participants to the rights of holders of common stock, such as voting rights, until the shares are issued.

For RSUs that vest, we withhold a number of shares of common stock equal in value to the amount of the minimum statutory tax withholding obligations that arise due to such vesting, and issue shares of common stock for the remainder of the vested amount. The settlement of vested RSUs on a net share basis results in fewer shares issued by us.

For the nine months ended September 30, 2012, activity for RSUs under our 2007 Plan was as follows:

	Number of Shares			Weighted Average Grant Date Fair Value
RSUs outstanding at December 31, 2011		202,143		$	15.88
RSUs granted		192,911		$	14.09
RSUs vested		(37,680	)	$	15.87
RSUs forfeited		(29,558	)	$	15.22
Unvested RSUs outstanding at September 30, 2012		327,816		$	14.89

Stock Options

For the nine months ended September 30, 2012, stock option activity under our 2007 Plan, was as follows:

	Number of Shares			Weighted Average Exercise Price
Balances, at December 31, 2011		4,378,053		$	10.86
Options granted		914,750		$	14.21
Options exercised		(122,622	)	$	6.91
Options forfeited		(150,332	)	$	14.11
Options expired		(39,653	)	$	15.21
Balances, at September 30, 2012		4,980,196		$	11.44

As of September 30, 2012, we had 2,221,071 shares of common stock available for grant under our 2007 Plan.

Warrants

We issued warrants to purchase 73,989 shares of common stock to selected lenders in connection with an earlier working capital loan which was fully paid in May 2008 and an equipment loan which was fully paid in September 2009. The warrants are exercisable at a price of $7.43 per share and expire in September 2013. In October 2009 and March 2010, warrants to purchase 22,418 shares and 24,668 shares were exercised, respectively, resulting in a net issuance of 5,817 shares and 12,295 shares, respectively. As of September 30, 2012, warrants to purchase the remaining 26,903 shares of common stock were outstanding.

In October 2012, the warrant to purchase the remaining 26,903 shares was exercised on a cashless basis, resulting in a net issuance of 14,312 shares of common stock. We did not receive any proceeds from the exercise of this warrant.

Stock-Based Compensation for Employees

The stock-based compensation expense recognized in the condensed consolidated statements of operations, including stock options granted, RSUs and shares purchased under the ESPP, was as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
Research and development	$	796	$	805	$	2,707	$	2,502
Sales, general and administrative		1,169		907		3,579		2,982
	$	1,965	$	1,712	$	6,286	$	5,484

We used the following assumptions to estimate the fair value of options granted under our stock option plan for the three and nine months ended September 30, 2012 and 2011, respectively:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Risk-free interest rate	0.7%	0.9% - 1.6%	0.7% - 0.9%	0.9% - 2.2%
Expected volatility	99%	70%	94% - 99%	69% - 70%
Expected term (in years)	5	5	5	5
Expected dividend yield	0%	0%	0%	0%

We used the following assumptions to estimate the fair value of shares purchased under the ESPP for the three and nine months ended September 30, 2012 and 2011, respectively:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2012	2011	2012	2011
Risk-free interest rate	0.1%	0.1%	0.05% - 0.1%	0.1% - 0.2%
Expected volatility	49%	30%	49% - 52%	30% - 38%
Expected term (in years)	0.5	0.5	0.5	0.5
Expected dividend yield	0%	0%	0%	0%

We selected the Black-Scholes valuation model as the most appropriate valuation method for stock option grants and shares from the ESPP. The fair value of the stock option grants and shares from the ESPP is estimated as of the date of grant using the Black-Scholes valuation model.

Risk-Free Interest Rate: The risk-free interest rate assumption was based on U.S. Treasury instruments with a term that is consistent with the expected term of our stock options or shares from the ESPP.

Expected Volatility: Historically, the expected stock price volatility of stock options was determined by examining the historical volatilities for industry peers and using an average of the historical volatilities of our industry peers as we did not have sufficient trading history for our common stock. Industry peers consist of several public companies in the biopharmaceutical industry similar to us in size, stage of life-cycle and financial leverage. Beginning in the first quarter of 2012, the expected stock price volatility was calculated based on the historical volatility of industry peers and the historical volatility of our common stock. We will continue to analyze the expected stock price volatility of stock options as more historical data for our common stock becomes available. The expected stock price volatility for shares from the ESPP is determined based on our own historical volatilities.

Expected Term: The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding. It was calculated based on the historical experience that we have had with stock option grants as well as the expected term of industry peers, as we did not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for the full term of our stock options. We will continue to analyze the expected term of stock options as more historical data for our common stock becomes available. The expected term for shares from the ESPP is determined based on the length of offering periods for the ESPP.

Expected Dividend Yield: The expected dividend yield of 0% is based on our history and expectation of dividend payouts. We do not anticipate paying any dividends in the near future. We have not paid any dividends, other than a cumulative dividend on our preferred stock paid in connection with our Initial Public Offering, or IPO, in 2007, pursuant to the terms of our certificate of incorporation.

Forfeitures: Forfeitures are determined based on when awards are ultimately expected to vest. ASC 718 Compensation – Stock Compensation, requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on our historical experience.

As of September 30, 2012, there were unrecognized compensation costs of approximately $7.3 million related to non-vested stock option awards granted after January 1, 2006 that will be recognized on a straight-line basis over the weighted average remaining period of 2.2 years.