Quarterly report pursuant to Section 13 or 15(d)

Share-Based Compensation

v2.3.0.15
Share-Based Compensation
 9 Months Ended
Sep. 30, 2011
Share-Based Compensation Note [Abstract]  
Share-Based Compensation
8.  Share-Based Compensation

In December of 2010, the Board of Directors of the Company approved a company-wide grant of share options under the Company's 2010 Long Term Incentive and Share Award Plan (“LTIP”) and, in the first quarter of 2011, the options for 1,430,840 shares became effective. 1,040,220 of these options were granted subject to shareholder approval of an increase in the number of shares available under the LTIP. On May 26, 2011, shareholder approval was obtained at the Company's annual general meeting of shareholders. A cumulative adjustment of $1.3 million was recorded in the second quarter of 2011 to reflect the share-based compensation expense that would have been recorded from the conditional grant date to the shareholder approval date. The adjustment was based on the fair value of these options at the date of shareholder approval and calculated using the closing share price and expected term on that date. The remaining assumptions included in the calculation were the same assumptions used for the second quarter option grants. A portion of the 2011 annual options granted include immediate vesting terms with the remainder of the options vesting monthly over two years for employees and one year for directors.

On August 31, 2011, the Company announced that Steven B. Engle resigned as Chief Executive Officer, President and Chairman of the Board of the Company. In the third quarter of 2011, the Company incurred a share-based compensation charge of approximately $0.7 million, related to Mr. Engle's resignation.

As of September 30, 2011, the Company had approximately 4,598,775 common shares reserved for future issuance under its share option plans and Employee Share Purchase Plan (“ESPP”).

The following table shows total share-based compensation expense included in the condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010 (in thousands):

   
Three Months Ended September 30,
    
Nine Months Ended September 30,
  
   
2011
    
2010
    
2011
    
2010
  
Research and development
   $ 458     $ 742     $ 2,404     $ 1,829  
Selling, general and administrative
     1,084       920       3,194       1,914  
Total share-based compensation expense
   $ 1,542     $ 1,662     $ 5,598     $ 3,743  
 
The valuation of share-based compensation awards is determined at the date of grant using the Black-Scholes Model. This model requires inputs such as the expected term of the option, expected volatility and risk-free interest rate. Further, the forfeiture rate also affects the amount of aggregate compensation. These inputs are subjective and generally require significant analysis and judgment to develop. While estimates of the expected term, volatility and forfeiture rate are derived primarily from the Company's historical data, the risk-free rate is based on the yield available on United States Treasury zero-coupon issues. The fair value of share-based awards was estimated based on the following weighted average assumptions for the three and nine months ended September 30, 2011 and 2010:

   
Three Months Ended September 30,
    
Nine Months Ended September 30,
  
   
2011
    
2010
    
2011
    
2010
  
Dividend yield
     0 %     0 %     0 %     0 %
Expected volatility
     89 %     79 %     87 %     79 %
Risk-free interest rate
     0.96 %     1.27 %     1.86 %     1.67 %
Expected term
  
5.6 years
    
5.6 years
    
5.3 years
    
5.3 years
  
 
Share option activity for the nine months ended September 30, 2011 was as follows:

   
Options
    
Weighted
Average
Exercise Price
    
Weighted
Average
Remaining
Contractual
Life (in years)
    
Aggregate
Intrinsic Value
(in thousands)
  
Options outstanding at December 31, 2010
     2,331,450     $ 25.36       7.71     $ 99  
Granted
     1,811,840       5.23                  
Forfeited, expired or cancelled
     (134,204 )     37.35                  
Options outstanding at September 30, 2011
     4,009,086     $ 15.86       7.90     $ -  
Options exercisable at September 30, 2011
     2,500,259     $ 21.58       7.27     $ -