Accounting for Stock-Based Compensation | 6 Months Ended |
Jun. 30, 2014 |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | ' |
Accounting for Stock-Based Compensation | ' |
10 | | Accounting for Stock-Based Compensation | | | | | | | | | | | | | | |
As of June 30, 2014, the Company had two shareholder-approved, share-based compensation plans: (i) the Amended and Restated 2010 Stock Incentive Plan, or the 2010 Plan, adopted by the Board of Directors in March 2013 and approved by shareholders in May 2013 and (ii) the 2010 Employee Stock Purchase Plan, or the ESPP, adopted by the Board of Directors in April 2010 and approved by shareholders in June 2010. For a complete discussion of the Company’s share-based compensation plans, see Note 4, “Stock Plans and Stock Based Compensation” in the notes to the Company’s consolidated financial statements included in Item 8 of Part II of the Company’s Annual Report. |
During six months ended June 30, 2014, the Company’s board of directors granted options to purchase 1,987,500 shares of the Company’s common stock to officers and employees of the Company under the 2010 Plan. Of this amount, options to purchase 947,500 shares of common stock vest over a four-year period and bear exercise prices that are equal to the closing market price of the Company’s common stock on the NASDAQ Global Market on the grant dates. The remaining options to purchase 1,040,000 shares of common stock were issued to the Company’s officers and will vest in tranches only if the closing sale price of the Company’s common stock is maintained at specified levels for a period of 60 consecutive trading days prior to the third anniversary of the respective grant dates. If the specified market conditions are not achieved prior to the third anniversary of the respective grant dates, any unvested options will be forfeited and shall again be available for grant under the 2010 Plan. |
During the six months ended June 30, 2014, the Company’s board of directors also granted options to its non-employee directors to purchase 235,000 shares of common stock under the 2010 Plan, which will vest monthly over a one-year period. All options granted to non-employee directors during the six months ended June 30, 2014 bear exercise prices that are equal to the closing market price of the Company’s common stock on the NASDAQ Global Market on the grant date. |
Employee and Director Grants |
Vesting Tied to Service Conditions |
In determining the fair value of stock options, the Company generally uses the Black-Scholes option pricing model. As discussed below, for employee stock options with market conditions, the Company uses a Monte Carlo simulation valuation model. The Black-Scholes option pricing model employs the following key assumptions for employee and director options awarded during the six months ended June 30, 2014 and 2013 based on the assumptions noted in the following table: |
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| | Six Months Ended | | | | | | | | | | | | |
June 30, | | | | | | | | | | | | |
| | 2014 | | 2013 | | | | | | | | | | | | |
Expected life (years) – employees | | 6 | | 6 | | | | | | | | | | | | |
Expected life (years) – officers and directors | | 7 | | 7 | | | | | | | | | | | | |
Risk-free interest rate | | 1.85-2.2% | | 1.0-1.6% | | | | | | | | | | | | |
Volatility | | 70-71% | | 70-72% | | | | | | | | | | | | |
Dividends | | None | | None | | | | | | | | | | | | |
The expected volatility is based on the annualized daily historical volatility of the Company’s stock price for a time period consistent with the expected term of each grant. Management believes that the historical volatility of the Company’s stock price best represents the volatility of the stock price. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the respective grant. The Company has not historically paid cash dividends, and does not expect to pay cash dividends in the foreseeable future. |
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The stock price volatility and expected terms utilized in the calculation involve management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes methodology and, ultimately, the expense that will be recognized over the life of the option. GAAP also requires that the Company recognize compensation expense for only the portion of options that are expected to vest. Therefore, management calculated an estimated annual pre-vesting forfeiture rate that is derived from historical employee termination behavior since the inception of the Company, as adjusted. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods. |
The aggregate intrinsic value of employee options outstanding at June 30, 2014 was $1,906,000, of which $1,837,000 related to exercisable options. The weighted average grant-date fair values of stock options granted during the six months ended June 30, 2014 and 2013 were $1.82 and $2.14, respectively. As of June 30, 2014, there was approximately $6,192,000, net of the impact of estimated forfeitures, of unrecognized compensation cost related to unvested employee stock option awards outstanding under the Company’s 2000 Stock Incentive Plan and the Amended and Restated 2010 Plan that is expected to be recognized as expense over a weighted average period of 2.80 years. The intrinsic values of employee stock options exercised during the six months ended June 30, 2014 and 2013 were $105,000 and $1,598,000, respectively. |
Vesting Tied to Market Conditions |
Monte Carlo simulation models were used to value stock options to purchase an aggregate of 1,040,000 shares of common stock granted to the Company’s officers during the six months ended June 30, 2014. Of this amount, options to purchase 640,000 shares of common stock were granted in February 2014 with an exercise price of $3.09 and options to purchase 400,000 shares of common stock were granted in June 2014 with an exercise price of $1.75 per share that contained specific market conditions. The key assumptions used in these Monte Carlo simulation models and resulting valuations are noted in the following table: |
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| | Market Condition | | | Market Condition | | | | | | | | | |
Options Granted | Options Granted | | | | | | | | |
February 18, 2014 | June 2, 2014 | | | | | | | | |
Expected life (years) – officers | | | 6 | | | | 6 | | | | | | | | | |
Risk-free interest rate | | | 1.9 | % | | | 2.1 | % | | | | | | | | |
Volatility | | | 70 | % | | | 65 | % | | | | | | | | |
Dividends | | | None | | | | None | | | | | | | | | |
Number of options granted | | | 640,000 | | | | 400,000 | | | | | | | | | |
Fair value per share | | $ | 1.2 | | | $ | 0.34 | | | | | | | | | |
Based on the above, the Monte Carlo simulation models calculated aggregate fair value of $905,000, excluding forfeitures, related to these grants that will be recognized on a straight-line basis over the estimated vesting periods of the separate tranches. These awards accounted for $108,366 and $156,377 of the employee stock-based compensation expense recorded by the Company for the three and six months ended June 30, 2014. |
Employee Stock-Based Compensation Expense |
The Company recorded $794,255 and $1,482,027 in compensation expense for the three and six months ended June 30, 2014, respectively, and $751,702 and $1,396,027 in compensation expense for the three and six months ended June 30, 2013, respectively, related to employee and director stock option grants. The total fair values of vested stock options for the six months ended June 30, 2014 and 2013 were $1,376,000 and $1,808,000, respectively. |
Non-Employee Grants |
The Company has periodically granted stock options and unrestricted stock awards to consultants for services, pursuant to the Company’s stock plans at the fair market value on the respective dates of grant. Should the Company terminate any of its consulting agreements, the unvested options underlying the agreements would also be cancelled. The Company reversed expense related to non-employee stock options of $110,434 and $54,762, for the three and six months ended June 30, 2014, respectively, and expense of $164,269 and $180,510 for the three and six months ended June 30, 2013, respectively. |
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Total Stock-Based Compensation Expense |
For the three and six months ended June 30, 2014 and 2013, the Company recorded employee and non-employee stock-based compensation expense to the following line items in its Costs and Expenses section of the Consolidated Statements of Operations and Comprehensive Loss, including expense related to its ESPP: |
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| | For the Three Months Ended | | | For the Six Months Ended | |
June 30, | June 30, |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | |
Research and development expenses | | $ | 108,803 | | | $ | 289,640 | | | $ | 300,748 | | | $ | 496,519 | |
General and administrative expenses | | | 575,018 | | | | 626,331 | | | | 1,126,517 | | | | 1,080,018 | |
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Total stock-based compensation expense | | $ | 683,821 | | | $ | 915,971 | | | $ | 1,427,265 | | | $ | 1,576,537 | |
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