Stock-Based Compensation

6 Months Ended

Jun. 30, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 5. Stock-Based Compensation

     We currently grant stock-based awards under three equity incentive plans. As of June 30, 2011, we had 2,370,621 shares authorized to be granted under the three plans. Under these plans we may grant various types of equity awards to our employees, directors and consultants, at prices determined by our Board of Directors, including incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, and performance-based shares. Incentive stock options may only be granted to employees under these plans with a grant price not less than the fair market value of the stock on the date of grant.

We also use these plans to grant shares to employees for the employer match of employee 401(k) plan contributions. Share numbers and exercise prices have been adjusted for the 1-for-10 reverse stock split effected in July 2011.

     Our stock-based compensation expense for the three and six months ended June 30 was as follows:

	Three months ended						Six months ended
	June 30,						June 30,
	2011			2010			2011			2010
Research and development expense	$	522,958		$	613,330		$	961,001		$	1,159,938
Selling, general and administrative expense		491,305			490,212			987,726			962,576
Total employee stock-based compensation expense and effect on net loss	$	1,014,263		$	1,103,542		$	1,948,727		$	2,122,514
Effect on basic and diluted net loss per share	$	(0.07	)	$	(0.09	)	$	(0.14	)	$	(0.18	)

     As of June 30, 2011, we had approximately $4,316,000 of total unrecognized compensation expense related to unvested awards of stock options and restricted stock units granted under our various equity incentive plans that we expect to recognize over a weighted-average vesting period of 2.3 years.

Stock Options

     Generally, stock options granted to employees have a maximum term of ten years, and vest over a four year period from the date of grant; 25% vest at the end of one year, and 75% vest monthly over the remaining three-year service period. We may grant options with different vesting terms from time to time. Upon employee termination of service, any unexercised vested option will be forfeited three months following termination or the expiration of the option, whichever is earlier. Unvested options are forfeited on termination.

     A summary of our stock option activity for the three months ended June 30, 2011 is as follows:

				Weighted-average
	Number of options			exercise price ($)
Balance at March 31, 2011		1,050,529			20.00
Granted		3,750			7.30
Exercised		(1,340	)		1.10
Cancelled		(56,476	)		15.50
Outstanding options at June 30, 2011		996,463			20.10

     A summary of changes in unvested options for the three months ended June 30, 2011 is as follows:

						Weighted-average
				Weighted-average		grant
	Number of options			exercise price ($)		date fair value ($)
Unvested options at March 31, 2011		302,901			12.50		10.00
Granted		3,750			7.30		5.30
Vested		(65,558	)		12.90		10.20
Cancelled		(44,587	)		13.40		10.20
Unvested options at June 30, 2011		196,506			12.10		9.70

     The estimated fair value of options vested was approximately $669,000 in the three months ended June 30, 2011.

Restricted Stock Units

     We have granted restricted stock units (RSUs) to certain employees which entitle the holders to receive shares of our common stock upon vesting of the RSUs. The fair value of restricted stock units granted are based upon the market price of the underlying common stock as if it were vested and issued on the date of grant.

     A summary of changes in unvested restricted stock units for the three months ended June 30, 2011 is as follows:

				Weighted-average grant
	Number of RSUs			date fair value ($)
Unvested restricted stock units at March 31, 2011		427,931			12.00
Granted(1)		2,500			7.20
Vested		(125,644	)		11.60
Cancelled		(10,280	)		12.20
Balance unvested at June 30, 2011		294,507			11.40

(1) These restricted stock units vest and convert into shares of our common stock after one year from the date of grant.

     Stock Appreciation Rights

     In July 2006, we granted cash-settled Stock Appreciation Rights (SARs) to certain employees that give the holder the right, upon exercise, to the difference between the price per share of our common stock at the time of exercise and the exercise price of the SARs.

     The SARs have a maximum term of ten years with an exercise price of $20.00, which is equal to the market price of our common stock at the date of grant. The SARs vest 25% on the first anniversary of the grant date and 75% vest monthly over the remaining three-year service period. All of the outstanding SARs as of June 30, 2011 are fully vested. Compensation expense is based on the fair value of SARs which is calculated using the Black-Scholes option pricing model. The stock-based compensation expense and liability are re-measured at each reporting date through the earlier date of settlement or forfeiture of the SARs.

     A summary of the changes in SARs for the three months ended June 30, 2011 is as follows:

	Number of SARs
Outstanding at March 31, 2011		135,409
Granted		—
Exercised		—
Forfeited and expired		—
Outstanding SARs at June 30, 2011		135,409
SARs exercisable at June 30, 2011		135,409

     For the three months ended June 30, 2011, we re-measured the liability related to the SARs and reduced compensation expense by approximately $71,000. For the same period in 2010, we reduced compensation expense by approximately $148,000.

     The compensation expense recognized for the three months ended June 30, 2011 may not be representative of compensation expense for future periods and its resulting effect on net loss and net loss per share attributable to common stockholders, due to changes in the fair value calculation which is dependent on the stock price, volatility, interest and forfeiture rates, additional grants and subsequent periods of vesting. We will continue to recognize compensation cost each period, which will be the change in fair value from the previous period through the earlier date of settlement or forfeiture of the SARs.