Stock Option Plans

6 Months Ended

Jun. 30, 2011

Stock Option Plans

Stock Option Plans

10. Stock Option Plans

The Company has several share-based compensation plans under which stock options, restricted stock, restricted stock units, and other share-based awards are available for grant to employees, directors and consultants of the Company. At June 30, 2011 and December 31, 2010, options for 3,328,825 and 5,574,857 shares, respectively, were available for future grant under the plans.

In calculating share-based compensation costs, the Company estimated the fair value of stock options using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived, exchange-traded options that have no vesting restrictions and are fully transferable. The Company estimates the number of awards that will be forfeited in calculating compensation costs. Such costs are then recognized over the requisite service period of the awards on a straight-line basis.

Determining the fair value of share-based awards using the Black-Scholes option-pricing model requires the use of highly subjective assumptions, including the expected term of the award and expected stock price volatility. The weighted average assumptions used to estimate the fair value of the stock options using the Black-Scholes option-pricing model were as follows for the three and six months ended June 30, 2011 and 2010:

	Three Months Ended June 30,				Six Months Ended June 30,
	2011		2010		2011		2010
Expected volatility	48.3	%	57.3	%	49.6	%	57.7	%
Expected term (in years)	6.5		6.5		6.5		6.5
Risk-free interest rate	2.6	%	3.1	%	2.8	%	3.1	%
Expected dividend yield	—	%	—	%	—	%	—	%

The following table summarizes the expense recognized for these share-based compensation arrangements in the condensed consolidated statements of operations (in thousands):

	Three Months EndedJune 30,				Six Months EndedJune 30,
	2011		2010		2011		2010
Ironwood:
Employee stock options	$	2,759	$	1,407	$	5,243	$	2,865
Restricted stock awards	97		119		215		227
Non-employee stock options	41		46		78		58
ESPP	47		—		98		—
Stock awards	7		93		15		103
	2,951		1,665		5,649		3,253
Microbia Stock Plan (included in discontinued operations)	—		25		—		45
	$	2,951	$	1,690	$	5,649	$	3,298

Share-based compensation is reflected in the condensed consolidated statements of operations as follows for the three and six months ended June 30, 2011 and 2010 (in thousands):

	Three Months EndedJune 30,				Six Months EndedJune 30,
	2011		2010		2011		2010
Research and development	$	1,465	$	1,034	$	2,803	$	1,756
General and administrative	1,486		631		2,846		1,497
Net loss from discontinued operations	—		25		—		45

The following table summarizes stock option activity under the share-based compensation plans, including performance-based options:

	Shares of Common Stock Attributable to Options		Weighted Average Exercise Price		Weighted Average Contractual Life	Aggregate Intrinsic Value
					(in years)	(in thousands)
Outstanding at December 31, 2010	14,603,229		$	4.25	6.44	$	91,575
Granted	2,440,050		$	11.66
Exercised	(1,068,688	)	$	1.62
Cancelled	(187,833	)	$	8.17
Outstanding at June 30, 2011	15,786,758		$	5.53	6.61	$	160,914
Vested or expected to vest at June 30, 2011	14,330,899		$	5.43	6.52	$	147,403
Exercisable at June 30, 2011(1)	6,551,243		$	2.91	4.96	$	83,936

(1) All stock options granted under the1998 Amended and Restated Stock Option Plan, the Amended and Restated 2002 Stock Incentive Plan and the 2005 Plan contain provisions allowing for the early exercise of such options into restricted stock. The exercisable shares disclosed above represent those that are vested as of June 30, 2011.

The weighted average grant date fair value per share of options granted to employees during the three and six months ended June 30, 2011 was approximately $7.67 and $6.10, respectively, and approximately $7.26 and $6.69 during the three and six months ended June 30, 2010, respectively. The grant date fair value of the options granted to employees during the three and six months ended June 30, 2011 was approximately $3.0 million and $14.9 million, respectively, and approximately $2.4 million and $12.5 million during the three and six months ended June 30, 2010, respectively. The total intrinsic value of options exercised during the three and six months ended June 30, 2011 was approximately $6.6 million and $12.8 million, respectively, and approximately $2.0 million and $8.4 million during the three and six months ended June 30, 2010, respectively.

As of June 30, 2011, there was approximately $1.1 million and $24.1 million of unrecognized share-based compensation, net of estimated forfeitures, related to restricted stock awards and unvested stock option grants with time-based vesting, respectively, which are expected to be recognized over a weighted average period of 2.5 years and 3.2 years, respectively. The total unrecognized share-based compensation cost will be adjusted for future changes in estimated forfeitures.