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SEC Filings

OREXIGEN THERAPEUTICS, INC. filed this Form S-1/A on 04/09/2007
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value method. We adopted SFAS No. 123(R) effective January 1, 2006, prospectively for new equity awards issued subsequent to January 1, 2006.
The adoption of SFAS 123(R) for the year ended December 31, 2006 resulted in the recognition of additional stock-based compensation expense of $834,500. Of this amount, $372,000 is included in research and development expense and $462,500 is included in general and administrative expense for the year ended December 31, 2006.
Under SFAS No. 123(R), we calculate the fair value of stock option grants using the Black-Scholes option-pricing model. The weighted average assumptions used in the Black-Scholes model were 6.2 years for the expected term, 70% for the expected volatility, 4.7% for the risk free rate and 0% for dividend yield for the year ended December 31, 2006. Future expense amounts for any particular quarterly or annual period could be affected by changes in our assumptions.
The weighted average expected option term for 2006 reflects the application of the simplified method set out in SEC Staff Accounting Bulletin, or SAB, No. 107 which was issued in March 2005. The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all option tranches.
Estimated volatility for fiscal 2006 also reflects the application of SAB No. 107 interpretive guidance and, accordingly, incorporates historical volatility of similar public entities.
At December 31, 2006, total unrecognized share-based compensation costs related to non-vested option awards was $11.0 million, of which $8.4 million arose from the adoption of SFAS No. 123(R). This $8.4 million is expected to be recognized over a weighted average period of approximately 3.6 years. The remaining $2.6 million relates to stock awards granted prior to the adoption of SFAS No. 123(R) and is expected to be recognized over a weighted average period of 2.2 years.
As of December 31, 2006, there were outstanding options to purchase 2,297,062 shares of common stock. Of these, options to purchase 503,892 shares were vested with a weighted-average exercise price of $0.60 per share and options to purchase 1,793,170 shares were unvested with a weighted-average exercise price of $1.42 per share. The intrinsic value of outstanding vested and unvested options based on an estimated initial public offering price of $12.00 per share was $24.7 million.
Prior to January 1, 2006, we applied the intrinsic-value-based method of accounting prescribed by APB Opinion No. 25 and related interpretations. Under this method, if the exercise price of the award equaled or exceeded the fair value of the underlying stock on the measurement date, no compensation expense was recognized. The measurement date was the date on which the final number of shares and exercise price were known and was generally the grant date for awards to employees and directors. If the exercise price of the award was below the fair value of the underlying stock on the measurement date, then compensation cost was recorded, using the intrinsic-value method, and was generally recognized in the statements of operations over the vesting period of the award.
However, in connection with the preparation of our financial statements necessary for this offering and based on the preliminary valuation information presented by the underwriters of this offering, we retrospectively reassessed the estimated fair value of our common stock in light of the potential completion of this offering. The valuation methodology that most significantly impacted our reassessment of fair value at September 30, 2006 was our market-based assessment of the valuation of existing comparable small capitalization, recently public biopharmaceutical companies along with the valuation information presented by the underwriters. In determining the reassessed fair value of our common stock during 2006, we established $10.00 as the reassessed fair value at December 31, 2006. We also then reassessed our estimate of fair value for the period from April 1, 2005 to December 31, 2005 and the year ended 2006 based on the nature of our operations and our achievements in executing against our operating plan during 2006 and market trends. Because of the impact that achievement of unique milestones had on our valuation during the various points in