Equity Transactions and Share-Based Compensation

6 Months Ended

Dec. 31, 2011

Equity Transactions and Share-Based Compensation [Abstract]

Equity Transactions and Share-Based Compensation

4. Equity Transactions and Share-Based Compensation

In November 2011, the Company issued 8,250,000 shares of common stock and raised $33.8 million, net of issuance costs, through an underwritten registered public offering. The Company intends to use the proceeds from its public offering to fund the continued development and commercial supply of its diversified portfolio of advanced drug delivery systems and to drive the expansion of its workforce to support anticipated customer demands.

In December 2011, the Company granted certain directors 90,000 shares of common stock that were vested upon issuance, of which 60,000 shares may not be sold or transferred until such time as the director leaves the board for any reason, including a change in control. The grant date fair value was $3.93 per share.

The Company recognized share-based compensation expense related to equity awards to employees, directors and consultants of $1.5 million and $1.8 million during the three months ended December 31, 2011 and 2010, respectively and $3.4 million and $4.4 million during the six months ended December 31, 2011 and 2010, respectively.

Stock Options and Warrants

The Company has granted stock options to certain employees and directors under the Employee Share Option Plan (the “Plan”). The Plan is designed to assist in the motivation and retention of employees and to recognize the importance of employees to the long-term performance and success of the Company. The Company has also granted stock options to certain consultants outside of the Plan. The majority of the options to purchase common stock vest on the anniversary of the date of grant, which ranges from one to three years. Additionally, certain stock options vest upon the closing price of the Company’s common stock reaching certain minimum levels, as defined in the agreements. Share-based compensation expense related to options granted to employees is recognized on a straight-line basis over the related vesting term. Share-based compensation expense related to options granted to consultants is recognized ratably over each vesting tranche of the options.

In November 2009, the Company adopted the 2009 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan provides for a maximum of 6,000,000 shares of common stock to be reserved for the issuance of stock options and other stock-based awards. Commencing on January 1, 2012, and on each January 1st thereafter, through January 1, 2019, the share reserve automatically adjusts so that it equals 17.5% of the weighted average number of shares of common stock outstanding reduced by the sum of any shares of common stock issued under the Stock Incentive Plan and any shares of common stock subject to outstanding awards under the Stock Incentive Plan.

In January 2010, the Company issued 1,000,000 options to purchase common stock to a consultant under the Stock Incentive Plan in consideration for various services to be performed for the Company. The options to purchase common stock are exercisable at A$6.33 per share and vest upon the trading price of the Company’s CDIs reaching certain minimum levels on the Australian Securities Exchange, which range from A$1.75 to A$3.22 per share. The options are re-measured each reporting date and as of December 31, 2011 were valued at $0.65 per option, which is being expensed ratably over the vesting period of each tranche, which ranges from 1.8 years to 2.2 years. The options are re-valued on a quarterly basis and marked to market until exercised.

During the six months ended December 31, 2011, the Company granted 610,000 options to purchase common stock to certain employees under the Stock Incentive Plan. The weighted average exercise price of the options was $4.68 per share. The majority of the options will vest upon the meeting of certain performance targets, as defined in the agreements, the achievement of which the Company considers to be probable. The weighted average grant date fair value of the options was $2.08 per share.

The following is a summary of activity related to stock options held by employees and directors during the six months ended December 31, 2011:

		September 30,			September 30,		September 30,		September 30,
	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate  Intrinsic Value
								(in thousands)
Outstanding as of July 1, 2011		4,699,211		$	4.42
Granted		610,000			4.68
Exercised		(12,000	)		2.01
Cancelled		(176,253	)		5.62
Outstanding as of December 31, 2011		5,120,958		$	4.42		4.3	$	2,093
Exercisable as of December 31, 2011		2,277,836		$	2.78		2.2	$	2,061

The following is a summary of activity related to stock options and warrants held by persons other than employees and directors during the six months ended December 31, 2011:

		September 30,			September 30,		September 30,		September 30,
	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate  Intrinsic Value
								(in thousands)
Outstanding as of July 1, 2011		8,126,609		$	8.26
Exercised		(367,910	)		1.71
Outstanding as of December 31, 2011		7,758,699		$	8.57		1.7	$	189
Exercisable as of December 31, 2011		6,758,699		$	8.88		1.5	$	189

The aggregate intrinsic value is defined as the difference between the market value of the Company’s common stock as of the end of the period and the exercise price of the in-the-money stock options. The total intrinsic value of stock options exercised during the three months ended December 31, 2011 and 2010 was $0.3 million and $2.9 million, respectively. The total intrinsic value of stock options exercised during the six months ended December 31, 2011 and 2010 was $1.0 million and $5.4 million, respectively. Of the 3,843,122 non-vested options, 1,000,000 are held by a consultant.

The Company used the following weighted average assumptions in calculating the fair value of options granted during the six months ended December 31, 2011 and 2010:

		September 30,			September 30,
	Six Months Ended December  31, 2011			Six Months Ended December  31, 2010
Number of stock options granted		610,000			1,228,000
Expected dividend yield		0	%		0	%
Risk-free interest rate		1.38	%		1.51	%
Expected volatility		56	%		59	%
Expected life (in years)		6.0			4.7

Subsequent to the Company’s redomiciliation, the fair value of each stock option was estimated at the grant date using the Black-Scholes option pricing model, with the exception of grants subject to market conditions, which were valued using a Monte Carlo option pricing model. The Company has not historically paid dividends to its stockholders and, as a result, assumed a dividend yield of 0%. The risk free interest rate is based upon the rates of U.S. Treasury bonds with a term equal to the expected term of the option. Due to the Company’s limited Nasdaq trading history, the expected volatility used to value options granted after January 27, 2010 is based upon a blended rate of the historical share price of the Company’s stock on the Australian Securities Exchange and the volatility of peer companies traded on U.S. exchanges operating in the same industry as the Company. The expected term of the options to purchase common stock issued to employees and directors is based upon the simplified method, which is the mid-point between the vesting date of the option and its contractual term unless a reasonable alternate term is estimated by management. The expected term of the options to purchase common stock issued to consultants is based on the contractual term of the awards.

Prior to the Company’s redomiciliation, the fair value of each stock option was estimated at the grant date using the Black-Scholes option pricing model, with the exception of grants subject to market conditions which were valued based on a Barrier option pricing model. The Company has not historically paid dividends to its shareholders and, as a result, assumed a dividend yield of 0%. The risk free interest rate is based upon the rates of Australian bonds with a term equal to the expected term of the option. The expected volatility is based upon the historical share price of the Company’s common stock on the Australian Securities Exchange. The expected term of the stock options to purchase common stock is based upon the outstanding contractual term of the stock option on the date of grant.

Restricted Stock

The Company has granted shares of restricted stock to certain employees and consultants under the Stock Incentive Plan. During the period prior to vesting, the holder of the non-vested restricted stock will have the right to vote and the right to receive all dividends and other distributions declared. All non-vested shares of restricted stock are reflected as outstanding; however, they have been excluded from the calculation of basic earnings per share.

For employees, the fair value of restricted stock is measured on the date of grant using the price of the Company’s common stock on that date. Share-based compensation expense for restricted stock issued to employees is recognized on a straight-line basis over the requisite service period, which is generally the longest vesting period. For restricted stock granted to consultants, the fair value of the awards is re-valued on a quarterly basis and marked to market until vested. Share-based compensation expense for restricted stock issued to consultants is recognized ratably over each vesting tranche.

The Company committed to issue its Chief Executive Officer a total of 1,166,000 shares of restricted stock and 750,000 options to purchase common stock in connection with the execution of his employment agreement dated October 1, 2011. The issuance of the shares of restricted stock and options to purchase common stock were subject to the approval of shareholders, which was obtained on December 1, 2011. For accounting purposes, 273,338 shares of restricted stock were considered granted on December 1, 2011. The remaining 892,662 shares of restricted stock and 750,000 options to purchase common stock were granted on January 3, 2012, when sufficient shares under the Stock Incentive Plan became available for grant. The grant date fair value of the restricted stock on December 1, 2011 was $3.93 per share.

The following is a summary of activity related to restricted stock awards during the six months ended December 31, 2011:

		September 30,			September 30,
	Number of Restricted Stock Awards			Weighted Average Grant  Date Fair Value
Unvested as of July 1, 2011		1,957,000		$	6.19
Granted		400,338			4.05
Vested		(30,000	)		5.50
Unvested as of December 31, 2011		2,327,338		$	5.83