Stockholders' Equity (Deficit)

12 Months Ended

Jun. 30, 2012

Stockholders Equity Deficit

Stockholders' Equity (Deficit)

Note 7 — Stockholders' Equity (Deficit)

 Common stock

Registered Direct Offerings

In June 2011, we sold approximately 6.4 million shares of our common stock to a group of institutional investors in a registered direct offering at $8.85 per share for net proceeds of approximately $56,039,000.  In June 2010, we sold approximately 8.1 million shares to a group of institutional investors in a registered direct offering at $6.51 per share for net proceeds of approximately $50,800,000.  Our Chairman and CEO, Robert W. Duggan, participated in the 2011 and 2010 offerings in the amounts of $6,000,000 and $7,000,000, respectively.

Rights Offering

On July 17, 2009, we commenced a rights offering pursuant to which holders of our common stock were entitled to purchase additional shares of our common stock at a price of $1.28 per share (the “Rights Offering”).

In the Rights Offering, stockholders of record as of July 15, 2009, were issued, at no charge, one subscription right for each share of common stock then outstanding.  Each right entitled the holder to purchase 0.6808 share of our common stock for $1.28 per share.

Fractional shares were not issued in the Rights Offering. The subscription rights issued pursuant to the Rights Offering expired on July 31, 2009. Stockholders who exercised their rights in full were also permitted an oversubscription right to purchase additional shares of common stock that remained unsubscribed at the expiration of the Rights Offering, subject to the availability of shares and a pro rata allocation of shares among persons exercising the oversubscription right.

As of the close of the Rights Offering on July 31, 2009, the Rights Offering was oversubscribed.  The proration of available over-subscription shares was made in accordance with the Offering Prospectus.  Approximately 22.5 million shares of our common stock were purchased in the Rights Offering for net proceeds (after offering costs of approximately $1,000,000 and the partial settlement of loans from an affiliate of Robert W. Duggan, our Chairman of the Board and Chief Executive Officer, of approximately $6,100,000) of approximately $21,700,000.  Mr. Duggan participated in the Rights Offering for a total of $6,100,000.

 Preferred stock

As amended, our Certificate of Incorporation authorizes 1,000,000 shares of preferred stock, par value $0.0001 per share. The Board of Directors is authorized to issue the preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders.  No preferred stock was outstanding at June 30, 2012 or June 30, 2011.

The ability of our Board of Directors to issue shares of preferred stock without stockholder approval may have certain anti-takeover effects. We are also subject to provisions of the Delaware General Corporation Law, which may make certain business combinations more difficult.

Stock plans

2004 Equity Incentive Award Plan. In December 2004, stockholders approved the 2004 Equity Incentive Award Plan (the “2004 Plan”) as a replacement for both our 1995 Stock Option Plan (the “1995 Plan”) and the 1995 Non-Employee Directors Stock Option Plan.  At June 30, 2011, we had reserved 9,100,000 shares of our common stock for issuance under the plan.  In December 2011, the stockholders approved an increase of 2,000,000 shares available for issuance under the plan. The 2004 Plan provides for the issuance of various types of equity awards, such as incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights and performance shares. The exercise price of all stock options granted under the 2004 Plan may not be less than the fair market value of our common stock on the date of grant and no stock option will be exercisable more than ten years after the date it is granted. Stock options for employees and consultants typically vest over four years. Non-employee Directors receive annual, automatic, non-discretionary grants of nonqualified stock options. Each new non-employee Director receives an option to purchase 15,000 shares as of the date he or she first becomes a Director. This option grant vests in equal annual installments over five years. In addition, on the date of each annual meeting, each individual re-elected as a non-employee Director will receive an automatic option grant to purchase an additional 7,500 shares of common stock, provided such individual has served as a Director for at least six months prior to the date of grant. This option grant vests in equal monthly installments over twelve months following the date of grant.

1995 Stock Option Plan. Our 1995 Plan was adopted by the Board of Directors in August 1995. Options issued under the 1995 Plan were, at the discretion of the plan administrator, either incentive stock options or nonqualified stock options. In December 2003, the stockholders approved amendments to the 1995 Plan (i) such that the exercise price of all stock options were required to be at least equal to the fair value of our common stock on the date of grant and (ii) increased the total number of authorized shares under the plan to 5,345,724 shares of common stock. Generally, shares subject to options under the 1995 Plan vest over a four or five year period and are exercisable for a period of ten years. In December 2004, the remaining shares available for future grant under the 1995 Plan were transferred to the 2004 Plan. Additionally, if options granted under the 1995 Plan expire or otherwise terminate without being exercised, the shares of common stock reserved for such options again become available for future grant under the 2004 Plan.

The following table summarizes our stock option activity (in thousands, except per share amounts):

	Options Outstanding
	Number of Options			Weighted Average Exercise Price per Share
Balance as of June 30, 2009		7,055		$	5.75
Exercised		(1,044	)		1.58
Granted		2,343			5.27
Forfeited or expired		(833	)		15.98
Balance as of June 30, 2010		7,521			5.05
Exercised		(1,987	)		2.87
Granted		1,939			5.86
Forfeited or expired		(1,057	)		12.27
Balance as of June 30, 2011		6,416			4.78
Exercised		(1,217	)		6.26
Granted		1,876			16.31
Forfeited or expired		(1,044	)		8.77
Balance as of June 30, 2012		6,031		$	7.37

The above table excludes 1,699,585 options which comprise the portion of performance options granted during the years ended June 30, 2012,  2011 and 2010 for which the performance criteria had not been established as of June 30, 2012.

The components of share-based compensation recognized in our statements of operations for the years ended June 30, 2012, 2011 and 2010 were as follows (in thousands):

	Year Ended June 30,
	2012		2011		2010
Research and development	$	6,947	$	5,307	$	1,998
General and administrative		2,926		2,511		1,192
Total share-based compensation	$	9,873	$	7,818	$	3,190

There were no capitalized share-based compensation costs at June 30, 2012 or 2011.

The fair value of each stock option is estimated using the Black Scholes option-pricing model. Expected volatility is based on historical volatility data of our stock. The expected term of stock options granted is based on historical data and represents the period of time that stock options are expected to be outstanding.  The expected term for each of the types is calculated for and applied to one group of stock options as we do not expect substantially different exercise or post-vesting termination behavior among our employee population.  The risk-free interest rate is based on a zero-coupon United States Treasury bond whose maturity period equals the expected term of the our options.

	Year Ended June 30,
	2012			2011			2010
Employee stock options:
Expected dividend yield		-	%		-	%		-	%
Expected stock price volatility(1)		88	%		97	%		98	%
Risk free interest rate(1)		1.00	%		1.81	%		2.05	%
Expected life (years)		5.00			5.00			5.00
Non-employee stock options:
Expected dividend yield		-	%		-	%		-	%
Expected stock price volatility		84 – 89	%		85 - 86	%		88 - 90	%
Risk free interest rate		2.00 – 3.89	%		2.52 – 3.51	%		3.20 - 3.89	%
Expected life (years)		8.10 – 10.00			7.00 - 10.00			7.00 - 10.00

(1) Expected stock price volatility and risk free interest rate are presented on a weighted average basis

The weighted average estimated grant date fair value for employee options granted under our stock option plans during the years ended June 30, 2012, 2011 and 2010 was $11.44, $5.25 and $4.55 per share, respectively.

 The total pre-tax intrinsic value of stock options exercised during the years ended June 30, 2012, 2011 and 2010 was $17,316,000, $10,385,000 and $3,990,000, respectively. No income tax benefits were realized in the years ended June 30, 2012, 2011 and 2010.

 Shares reserved for issuance and available for grant under the 2004 Plan were 3,624,636 shares as of June 30, 2012.

As of June 30, 2012, $20,459,000 of total unrecognized compensation costs related to non vested employee options were scheduled to be recognized over a weighted average period of 3.29 years.

A summary of outstanding, exercisable and vested stock options as of June 30, 2012 is as follows:

	Options Outstanding								Exercisable								Exercisable and Vested
Range of Exercise Prices	Number of Shares		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value		Number of Shares		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value		Number of Shares		Weighted Average Exercise Price Per Share		Aggregate Intrinsic Value
$0.75 - $0.86		1,213,670		6.29	$	0.80				1,071,170		6.24	$	0.80				1,036,421	$	0.80
$0.91 - $2.76		1,000,969		5.99	$	1.72				950,969		5.95	$	1.76				828,282	$	1.79
$2.90 - $6.56		983,754		5.15	$	5.10				961,363		5.09	$	5.11				766,183	$	4.96
$6.63 - $7.19		1,160,234		7.42	$	7.04				862,373		7.26	$	7.05				579,274	$	7.03
$7.48 - $11.29		989,902		7.69	$	8.97				775,335		7.34	$	8.57				337,168	$	8.26
$11.31 - $14.99		1,057,030		9.12	$	13.70				342,423		8.56	$	12.99				104,738	$	13.93
$15.02 - $15.63		430,460		9.40	$	15.53				247,282		9.37	$	15.52				39,945	$	15.47
$16.55 - $42.68		894,594		9.81	$	27.35				5,427		9.75	$	28.43				5,427	$	28.43
		7,730,613		7.42	$	9.11	$	351,777,328		5,216,342		6.61	$	5.48	$	256,253,441		3,697,438	$	4.11	$	186,711,729

Employee Stock Purchase Plan. We adopted an Employee Stock Purchase Plan (the “Purchase Plan”) in August 1995. Qualified employees may elect to have a certain percentage of their salary withheld to purchase shares of our common stock under the Purchase Plan. The purchase price per share is equal to 85% of the fair market value of the stock on specified dates. Sales under the Purchase Plan in fiscal 2012, 2011 and 2010 were 184,706, 281,016 and 61,026 shares of common stock at an average price of $5.19, $2.06 and $1.55 per share, respectively. Shares available for future purchase under the Purchase Plan were 451,824 at June 30, 2012.

Compensation cost is estimated using the Black Scholes option-pricing model using the weighted average assumptions noted in the following table.

	Year Ended June 30,
	2012			2011			2010
Expected dividend yield		-	%		-	%		-	%
Stock price volatility		54	%		52	%		105	%
Risk free interest rate		0.15	%		0.21	%		0.53	%
Expected life (years)		1.14			0.63			1.20

The weighted average estimated grant date fair value of purchase awards under our employee stock purchase plan during fiscal 2012, 2011 and 2010 was $6.38, $2.13 and $4.09 per share, respectively.

During fiscal 2010 a modification to our Purchase Plan went into effect that increased both the maximum employee contribution and the limit on the number of shares that could be purchased.  As a result, a 17 of our employees chose to increase their contribution percentage which was accounted for as a modification to the terms of the award and resulted in $306,000 of additional compensation cost during the fiscal year.

As of June 30, 2012, $980,000 of total unrecognized compensation costs related to purchase awards under our employee stock purchase plan were scheduled to be recognized over a weighted average period of 0.87 years.