Medivation 10-K 2011
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Amendment No. 1)
For the Fiscal Year Ended December 31, 2010
For the Transition period from to .
Commission file number: 001-32836
(Exact name of Registrant as specified in its charter)
201 Spear Street, 3rd Floor
San Francisco, California 94105
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code: (415) 543-3470
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ¨ NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ¨ NO x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ¨ NO ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.). YES ¨ NO x
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $255,902,344 as of June 30, 2010, based upon the closing sale price on The NASDAQ Global Market reported on June 30, 2010. Excludes an aggregate of 5,620,600 shares of the registrants common stock held by officers, directors and affiliated stockholders. For purposes of determining whether a stockholder was an affiliate of the registrant at June 30, 2010, the registrant assumed that a stockholder was an affiliate of the registrant at June 30, 2010 if such stockholder (i) beneficially owned 10% or more of the registrants common stock, as determined based on public filings, and/or (ii) was an executive officer or director or was affiliated with an executive officer or director of the registrant at June 30, 2010. Exclusion of such shares should not be construed to indicate that any such person possesses the power, direct or indirect, to direct or cause the direction of the management or policies of the registrant or that such person is controlled by or under common control with the registrant.
There were 34,695,728 shares of Registrants Common Stock, par value $0.01 per share, issued and outstanding as of March 9, 2011.
DOCUMENTS INCORPORATED BY REFERENCE
2010 ANNUAL REPORT ON FORM 10-K
AMENDMENT NO. 1
TABLE OF CONTENTS
We are filing this Amendment No. 1 to Annual Report on Form 10-K/A, or the Amendment, to amend our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, as filed with the U.S. Securities and Exchange Commission, or the SEC, on March 16, 2011, or the 10-K. The principal purpose of this Amendment is to include in Part III the information that was to be incorporated by reference to the Proxy Statement for our 2011 Annual Meeting of Stockholders. This Amendment hereby amends Part III, Items 10 through 14, and Part IV, Item 15 of the 10-K. In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, new certifications by our principal executive officer and principal financial officer are filed as exhibits to this Amendment.
No attempt has been made in this Amendment to modify or update the other disclosures presented in the 10-K. This Amendment does not reflect events occurring after the filing of the 10-K (i.e., occurring after March 16, 2011) or modify or update those disclosures that may be affected by subsequent events. Such subsequent matters are addressed in subsequent reports filed with the SEC. Accordingly, this Amendment should be read in conjunction with the 10-K and our other filings with the SEC.
DIRECTORS OF THE REGISTRANT
The following includes a brief biography of each member of our Board of Directors, or the Board, including their respective ages as of April 29, 2011. The brief biographies below also include information regarding the specific experience, qualifications, attributes or skills that led our Board to determine that the applicable director should serve as a member of our Board as of the date of this report.
Daniel D. Adams. Mr. Adams has served as a member of our Board since 2005. Mr. Adams is a member of the Audit Committee of the Board, or the Audit Committee, the Compensation Committee of the Board, or the Compensation Committee, and the Nominating and Corporate Governance Committee of the Board, or the Nominating and Corporate Governance Committee. Mr. Adams has been the Executive Chairman of Protein Sciences Corporation, a biopharmaceutical service company, since 2010, Chairman of its board of directors since April 2009 and President and Chief Executive Officer since July 1996. Mr. Adams also was a co-founder and the first Chief Executive Officer of Biogen, and the founder of Advanced Genetic Sciences, Inc., Plant Genetic Systems and Allerx, Inc. Mr. Adams holds a B.A. degree in Chemistry from Cornell University and a J.D. magna cum laude from New York University School of Law. Mr. Adams brings to the Board considerable industry, executive management and financial experience as a prior founder and Chief Executive Officer of multiple life sciences companies.
Gregory H. Bailey, M.D. Dr. Bailey has served as a member of our Board since 2005. Dr. Bailey is a member of our Compensation Committee and our Audit Committee. Since January 2007, Dr. Bailey has been the managing partner of Palantir Group, Inc., a biotech merchant bank. From April 2006 to December 2008, Dr. Bailey was on the board of directors of Opexa Therapeutics, Inc., or Opexa, a publicly held cellular therapy company. From May 2004 until January 2007, Dr. Bailey was managing director at MDB Capital Group LLC, an investment banking firm. Prior to that, Dr. Bailey was a life science analyst at Participating Capital, an investment banking firm, since 1995. Dr. Bailey holds an M.D. from the University of Western Ontario. Dr. Bailey brings to the Board his substantial experience in the capital markets, particularly relating to life sciences companies.
Kim D. Blickenstaff. Mr. Blickenstaff has served as a member of our Board since 2005 and as the Chairman of our Board since 2007. Mr. Blickenstaff is a member of our Audit Committee, our Compensation Committee and our Nominating and Corporate Governance Committee. Mr. Blickenstaff has been President and Chief Executive Officer of Tandem Diabetes Care, a privately held company focusing on improved insulin infusion therapy, since September 2007. From 1988 until August 2007, Mr. Blickenstaff served as Chairman and Chief Executive Officer of Biosite Incorporated, a provider of medical diagnostic products. Mr. Blickenstaff was a director of SenoRx, Inc., a public company that is focused on developing improved breast cancer biopsy and treatment devices from 2002 to 2010, and was a member of its compensation committee. Mr. Blickenstaff was formerly a certified public accountant and has more than 10 years of experience overseeing the preparation of financial statements. Mr. Blickenstaff received a B.A. from Loyola University, Chicago and an M.B.A. from the Graduate School of Business, Loyola University, Chicago. We recruited Mr. Blickenstaff to the Board based on his substantial experience as a founder and chief executive officer of life sciences companies, as well as his financial and accounting skills and experience.
David T. Hung, M.D. Dr. Hung has been our President and Chief Executive Officer, as well as a member of our Board, since December 2004. Previously, Dr. Hung served as the President and Chief Executive Officer, and member of the board of directors, of Medivation Neurology, Inc. from its inception in September 2003 through December 2004, when it became our wholly owned subsidiary by merger. Dr. Hung continues to serve as its President and Chief Executive Officer and as a member of its board of directors. From 1998 until 2001, Dr. Hung was employed by ProDuct Health, Inc., a privately held medical device company, as Chief Scientific Officer (1998-1999) and as President and Chief Executive Officer (1999-2001). Dr. Hung served as a consultant to Cytyc Corporation from 2001 until 2002 to assist with transitional matters related to Cytyc Corporations acquisition of ProDuct Health, Inc. Dr. Hung is a director and member of the compensation committee of Opexa. Dr. Hung received an M.D. from the University of California, San Francisco, School of Medicine, and an A.B. in Biology from Harvard College. Dr. Hung is a co-founder of Medivation, has served as our President and Chief Executive Officer since inception, and is responsible for our overall corporate strategy and selection of our product development candidates. Dr. Hung also brings to the Board his experience as a practicing physician and molecular biologist.
W. Anthony Vernon. Mr. Vernon has served as a member of our Board since 2006. Mr. Vernon is a member of our Compensation Committee and our Nominating and Corporate Governance Committee. He has served at Kraft Foods, Inc., a publicly held food company, as Executive Vice President and President, Kraft Foods of North America since 2009, where he leads Krafts $24 billion business in the United States and Canada. From 2006 to 2009, Mr. Vernon was the Healthcare Industry Partner at Ripplewood Holdings, Inc., a private equity firm. Mr. Vernon had previously led a number of Johnson & Johnsons largest franchises during a 24-year career at Johnson & Johnson, a public company engaged in the research and development, manufacture and sale of products in the health care field. From 2004 until 2005, Mr. Vernon was employed as Company Group Chairman of Depuy Inc., an orthopedics company which is a subsidiary of Johnson & Johnson. From 2001 until 2004, Mr. Vernon served as President and Chief Executive Officer of Centocor, Inc., a biomedicines company which is a division of Johnson & Johnson. He has also served as President of McNeil Consumer Products and Nutritionals, Worldwide President of The Johnson & Johnson-Merck Joint Venture and as a member of Johnson & Johnsons Group Operating Committees for Consumer Healthcare and Nutritionals, Biopharmaceuticals, and Medical Devices and Diagnostics. He is also a director of several consumer, biotech and medical device companies, including NovoCure Ltd. and Zeo, Inc., and was formerly a director of Uluru Inc., a public specialty pharmaceutical company, from August 2007 to December 2009. Mr. Vernon also serves as a director of the Philadelphia Youth Organization, a non-profit foundation. Mr. Vernon received a B.A. from Lawrence University and an M.B.A. from the Northwestern University Kellogg Graduate School of Management. We recruited Mr. Vernon to the Board based on his substantial executive management, commercialization, business development and financial experience at a large, multinational pharmaceutical company.
There are no family relationships between any of our directors or executive officers.
EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and certain other information concerning our executive officers as of April 29, 2011 is set forth below:
David T. Hung, M.D. Biographical information regarding Dr. Hung is set forth under Directors of the Registrant above.
C. Patrick Machado. Mr. Machado has been our Chief Business Officer since December 2009 and our Chief Financial Officer since December 2004. Previously, Mr. Machado served as the Senior Vice President and Chief Financial Officer, and a member of the Board of Directors, of Medivation Neurology, Inc. from its inception in September 2003 through December 2004, when it became our wholly owned subsidiary by merger. From 1998 until 2001, Mr. Machado was employed by ProDuct Health, Inc., a privately held medical device company, as Vice President, Chief Financial Officer and General Counsel (1998-2000) and as Senior Vice President and Chief Financial Officer (2000-2001). From 2001 until 2002, Mr. Machado served as a consultant to Cytyc Corporation to assist with transitional matters related to Cytyc Corporations acquisition of ProDuct Health, Inc. Mr. Machado received a J.D. from Harvard Law School and a B.A. and B.S. in German and Economics, respectively, from Santa Clara University.
Lynn Seely, M.D. Dr. Seely joined us as our Chief Medical Officer in March 2005. She was promoted to Senior Vice President and Chief Medical Officer in January 2009. From September 2002 to March 2005, Dr. Seely served as Vice President of Clinical Development at Anesiva, Inc., formerly Corgentech Inc., a biomedical company. From 1996 through 2000, Dr. Seely served as an Associate Director of Clinical Development at Chiron Corporation, a biotechnology company. Dr. Seely served as Vice President of Clinical Development at ProDuct Health, Inc., a privately held medical device company, from 2000 to 2001. Dr. Seely subsequently served as Vice President of Clinical Development for Cytyc Health Corporation, a medical device company and subsidiary of Cytyc Corporation, a medical device company, from 2001 to 2002, where she assisted with transitional matters related to Cytyc Corporations acquisition of ProDuct Health, Inc. Dr. Seely received an M.D. from the University of Oklahoma College of Medicine and completed her residency in internal medicine at Yale-New Haven Hospital.
Rohan Palekar. Mr. Palekar joined us as our Chief Commercial Officer in January 2008, following a 16-year commercial career at the Johnson & Johnson family of companies in positions of increasing seniority. From 2005 to December 2007, Mr. Palekar served as Vice President, Sales and MarketingDermatology for Centocor, Inc., where he led the sales and marketing group for Remicade®, a multi-billion dollar anti-TNF antibody. From 2001 to 2005, Mr. Palekar was Worldwide Vice President, Global Biologics Strategic Marketing for Centocor, where he managed a portfolio of more than ten molecules targeting a broad range of indications. Mr. Palekar also served as a member of the Johnson & Johnson Pharmaceuticals Group Marketing Excellence Steering Committee. Mr. Palekar earned a Bachelor of Commerce and a Bachelor of General Laws from the University of Bombay and a Master of Business Administration from the Amos Tuck School of Business Administration at Dartmouth College.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of Medivation. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2010, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with.
CERTAIN CORPORATE GOVERNANCE MATTERS
CODE OF ETHICS
We have adopted a written code of business conduct and ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons serving similar functions. The code of business conduct and ethics is available on our website at www.medivation.com. If we make any substantive amendments to our code of business conduct and ethics or grant to any of our directors or executive officers any waiver, including any implicit waiver, from a provision of our code of business conduct and ethics, we will disclose the nature of the waiver or amendment on our website or in a Current Report on Form 8-K.
No material changes have been made to the procedures by which security holders may recommend nominees to our Board.
We have a standing Audit Committee that is currently composed of three directors (Mr. Adams, Dr. Bailey and Mr. Blickenstaff). On June 16, 2010, Mr. Vernon resigned as a member of the Audit Committee. Our Board has determined that all members of the Audit Committee are independent (as independence is currently defined in Rule 5605(c)(2)(A)(i) and (ii) of the listing standards of the NASDAQ Stock Market LLC, or NASDAQ). Our Board has also determined that each of Messrs. Adams and Blickenstaff qualifies as an audit committee financial expert, as defined in applicable SEC rules. Our Board made a qualitative assessment of each Audit Committee members level of knowledge and experience based on a number of factors, including his formal education and experiences as described in their biographies included herein.
COMPENSATION DISCUSSION AND ANALYSIS
Our compensation discussion and analysis discusses the total compensation for our Chief Executive Officer, our Chief Business and Financial Officer, and our other executive officers. Our compensation discussion and analysis describes our overall executive compensation philosophy, objectives and practices, as well as the Compensation Committees decisions and determinations regarding executive compensation for 2010 and 2011.
The Compensation Committee believes that our executive compensation program is appropriately designed to achieve its objectives, reasonable in light of the executive compensation programs of our peer group companies and responsible in that it both encourages our executive officers to work for meaningful stockholder returns and reflects a pay-for-performance philosophy, without encouraging our executives to assume excessive risks.
The highlights of our executive compensation program for 2010 include:
Compensation Philosophy and Objectives; Elements of Compensation
The goals of our executive compensation program are to align our executive officers compensation with our business objectives and the interests of our stockholders, to incentivize and reward our executive officers for our success, and to reflect the teamwork philosophy of our executive management team. Specifically, we have created an executive compensation program that combines short- and long-term components, cash and equity, and fixed and contingent payments, in the proportions that we believe are the most appropriate to incentivize and reward our executive officers for achieving our objectives. Our executive compensation program is also intended to make us competitive in the San Francisco Bay Area, and in the pharmaceutical and biotechnology industries, where there is significant competition for talented employees, and to be fair relative to other professionals within our organization. We believe that we must provide competitive compensation packages to attract and retain executive officers and to help our executive management function as a stable team over the longer term.
As discussed in further detail below, our executive compensation program consists of the following three principal components:
We set our compensation largely by benchmarking to the compensation paid by peer companies. For our executive officers, the group of peer companies used in executive officer compensation determinations made prior to the fourth quarter of 2010 were publicly traded life sciences companies similar to Medivation in terms of market capitalization and competition for talent. The peer company group used in the determination of our executive officer compensation is reviewed annually by our Compensation Committee, with guidance from our compensation consultant, and revised as necessary to ensure that the group continues to properly reflect the market in which we compete for talented executives. In this regard, in the fourth quarter of 2010, the Compensation Committee revised the criteria for selecting peer group companies by including publicly traded life sciences companies at development stages similar to our development stage in addition to publicly traded life sciences companies similar to Medivation in terms of market capitalization. For employees other than executive officers, peer group data is obtained from publicly available databases, primarily those provided by the Radford Surveys + Consulting.
Our Compensation Committee has determined that it is appropriate to set compensation for our employees, including our executive officers, at levels that approximate the 75th percentile of the applicable peer group. The Compensation Committee determined that targeting our compensation at the 75th percentile is appropriate for the following reasons: (1) the nature of our business requires a highly skilled employee group with educational backgrounds and experience that are in short supply; (2) we are competing for this limited pool of highly skilled employees with many other pharmaceutical and biotechnology companies, many of which are much larger and more established than we are; and (3) given our business model of identifying early stage technologies and developing them quickly and cost-effectively, we expect our employees to perform at very high levels and in a very lean and efficient manner.
We target each employees compensation in the aggregate (base salary, target bonus award opportunity and level of equity awards) to the 75th percentile of the applicable peer group. We do not benchmark any of the individual elements of compensation to peer group levels for purposes of our compensation determinations, but rather benchmark based on total compensation. Historically, based on our early stage of development and limited cash resources, the cash component of our compensation packages (base salary and bonus) was typically below the 75th percentile of our peer group, while the equity component was typically above the 75th percentile. As we have grown and become more financially secure, we have shifted value away from the equity portion and towards the cash portion of our compensation, while continuing to target the 75th percentile in the aggregate. While increased executive base salaries are a component of the shift, we have also increased executive target bonus levels (most recently for 2009) under our annual bonus program to ensure that a significant portion of overall cash compensation is performance based.
Process for Setting Executive Officer Compensation
The Compensation Committee reviews and oversees our compensation policies, plans and programs and reviews and determines the compensation to be paid to our executive officers and other senior management. In making its executive compensation determinations, the Compensation Committee considers recommendations from our Chief Executive Officer. While our Chief Executive Officer discusses his recommendations with the Compensation Committee, he does not participate in determining his own compensation. In making his recommendations, our Chief Executive Officer receives input from our human resources department and has access to various third party compensation surveys and compensation data. This information is also available to our Compensation Committee. Our other executive officers also participate in Compensation Committee meetings, but not in the portions of any meetings during which decisions are made regarding executive officer compensation. As described below, for the purposes of determining 2009 equity awards and setting 2010 base salaries and bonus opportunity (which were set in the fourth quarter of 2009), our Compensation Committee received competitive compensation data from Lapis Group, Inc., a compensation consulting firm engaged by Medivation. Lapis Group also provided competitive compensation data and input to the Compensation Committee for purposes of determining 2010 equity awards and setting 2011 base salaries and bonus opportunity (which were set in the fourth quarter of 2010). Lapis Group met with our executive officers for purposes of gathering information on compensation proposals that management intended to recommend to the Compensation Committee, but developed its recommendations regarding specific compensation levels independently of our executive officers and provided its recommendations directly to the Compensation Committee. The Chief Executive Officer was not present during Lapis Groups presentation to the Compensation Committee regarding his compensation, and none of the other executive officers were present during Lapis Groups presentation to the Compensation Committee regarding the compensation of any executive officer.
Our Compensation Committee generally holds a minimum of one scheduled meeting during the year. Discussions regarding executive officer compensation typically occur during the fourth quarter of the calendar year. Generally, in the fourth quarter of each year, the Compensation Committee reviews, modifies and approves recommendations made by management, based in part on input from a compensation consultant engaged by Medivation, for the following years adjustments to base salaries, if any, adjustments to the annual incentive bonus program, if any, and adjustments to our equity award guidelines, if any. In addition, at this meeting, the Compensation Committee determines the size of the total bonus pool under our annual incentive bonus program, which is based primarily on our Compensation Committees determination of our success in achieving our corporate objectives for the year, reviews executive officer performance and contributions to the achievement of our corporate objectives, and approves any adjustments to the following years base salaries, bonus payments under the annual incentive bonus program, and annual equity awards for each named executive officer.
Our Compensation Committee operates pursuant to a charter that further outlines the specific authority, duties and responsibilities of our Compensation Committee. The charter is periodically reviewed and revised by our Compensation Committee and our Board and is available on our website.
Peer Group Companies
For executive officer compensation decisions made in the fourth quarter of 2009 (changes in base salaries for 2010, bonus opportunity for 2010, and equity awards for 2009), the Compensation Committee reviewed peer group companies based on the criteria noted above and Medivations then-current circumstances, and determined that the following peer group of companies would be used for benchmarking purposes:
For executive officer compensation decisions made in the fourth quarter of 2010 (changes in base salaries for 2011, bonus opportunity for 2011, and equity awards for 2010), the Compensation Committee reviewed peer group companies based on the criteria noted above and Medivations then-current circumstances, and determined that the following peer group of companies would be used for benchmarking purposes:
Lapis Group gathers data on the compensation practices of the companies in our peer group through searches of publicly available information, including SEC filings. Peer group data was gathered with respect to base salary, bonus targets and equity awards.
Executive Compensation Program
Medivations executive compensation program currently consists of three principal components: base salary, annual bonuses (if approved by our Compensation Committee) and long-term equity compensation. Medivation also offers to its executive officers certain cash severance and change in control benefits, which were negotiated with our executive officers in 2009. Finally, Medivation offers to its executive officers participation (with all other eligible employees) in our 401(k) plan and other benefits generally available to all employees. Each component of compensation is evaluated based on the factors discussed below.
Base salary is the primary fixed compensation element in our executive pay program which is intended to attract and retain executive officers capable of fulfilling our strategic business objectives. Our Compensation Committee believes that base salaries should reflect the job responsibilities, experience and skill level of the executive, and pay level (as determined by reference to total compensation) comparable to similar positions at companies in our peer group, as well as internal pay equity with respect to the rest of the executive team.
Annual Incentive Bonus Program
Our annual incentive bonus program is an at-risk, contingent compensation arrangement designed to reward our executive officers (as well as all our employees) for the achievement of key operational goals that we believe will provide the foundation for creating longer-term stockholder value. Each year, our Compensation Committee approves target bonus levels, expressed as a percentage of base salary, for each of our employees, including our executive officers. Target bonus levels for our executive officers are determined with reference to the peer group companies, and those for our other employees are determined with reference to publicly available databases, in each case with the objective of targeting total compensation at the 75th percentile of the applicable peer group. Bonus payments are not guaranteed, but are payable only at the discretion of our Compensation Committee.
Our Compensation Committee also approves annually, generally in the fourth quarter of each year, corporate performance objectives for the ensuing year. Corporate objectives approved by our Compensation Committee have generally focused on the achievement of specified pre-clinical and clinical development objectives, regulatory goals, business development and financing objectives, and satisfactory audit results. The historical practice of our Compensation Committee has been to set aggressive corporate objectives beyond those that could reasonably be expected to be obtained given the high level of risk inherent in the drug development industry.
Our Compensation Committee determines annually, generally in the fourth quarter of each year, whether to pay bonuses for that year. If it determines that payment of bonuses is appropriate, the Compensation Committee also determines, in its discretion, the specific bonuses payable to our executive officers, and the bonus pool available for payment to our other employees. In setting the bonus payment and bonus pool levels, the primary criterion is the extent to which the pre-defined corporate objectives for that year have been achieved. The actual bonus payable in any given year, if any, may be more or less than the target, depending primarily on the achievement of our corporate objectives. In setting bonus payments for executive officers, the Compensation Committee may also consider as a secondary factor its general, subjective assessment of the executive officers
performance during the year and the executive officers contributions to the achievement of our corporate objectives for the year. In this regard, although our non-executive employees are assigned pre-defined individual performance objectives, our executive officers are not, reflecting the Compensation Committees determination that each of our executive officers is responsible for achieving all of our corporate objectives for the year. Non-executive employees, on the other hand, generally have relatively less ability to impact achievement of our corporate objectives. In considering bonuses for executive officers other than the Chief Executive Officer, the Compensation Committee may also consider the input of the Chief Executive Officer on the performance of the applicable executive officer.
The Compensation Committee has not determined whether it would attempt to recover bonuses from our executive officers if the performance objectives that led to the bonus determination were to be restated, or found not to have been met to the extent originally believed by the Compensation Committee. However, as a public company, if we are required to restate our financial results due to our material noncompliance with any financial reporting requirements under the federal securities laws, as a result of misconduct, our Chief Executive Officer and Chief Financial Officer may be legally required to reimburse us for any bonus or other incentive-based or equity-based compensation they receive in accordance with the provisions of Section 304 of the Sarbanes-Oxley Act of 2002. In addition, we will comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and will adopt a compensation recovery policy once the SEC adopts final regulations on the subject.
We have not historically paid any significant signing or promotion bonuses to our executive officers, other than a $110,000 signing bonus paid to Mr. Palekar in January 2008. We also have not guaranteed bonuses to our executive officers.
Equity compensation represents the largest at-risk component of our executive officer compensation program. We believe this is appropriate to align the interests of our executive officers with those of our stockholders to achieve and sustain long-term stock price growth. We believe that one of the most effective ways to accomplish this objective is to provide executive officers with a substantial economic interest in the long-term appreciation of our common stock through the grant of equity awards. In addition, the Compensation Committee believes that if our officers own shares of our common stock with values that are significant to them, they will have an incentive to act to maximize long-term stockholder value instead of short-term gain.
Our Compensation Committee approves (or recommends to the Board for approval) all equity grants to our named executive officers. The Compensation Committee generally approves (or recommends to the Board for approval) grants of equity compensation so that when target long-term incentive compensation is added to target total cash compensation, the target total cash and equity compensation is at or around the 75th percentile of our peer group companies. Equity grants to our named executive officers also reflect the Compensation Committees view that the level of equity awards should generally be consistent among our executive officer group, while at the same time recognizing the importance of our Chief Executive Officers role as compared to our other executive officers.
We have historically granted only stock options to our named executive officers, but as described below, we started granting a combination of stock options and RSUs to our executive officers in 2010. We grant options at exercise prices equal to the closing price of our common stock on the NASDAQ Global Market on the date of grant, which is either the 15th or the last day of the month. We do not coordinate grants of options to executive officers so that they are made before an announcement of favorable information, or after an announcement of unfavorable information. We have not repriced options, which would require stockholder approval under our Amended and Restated 2004 Equity Incentive Award Plan, or the 2004 Plan, or replaced any options when our stock price has declined after the grant date. Our practice has been to grant stock options for all employees on the earlier of the 15th day of the month or the last day of the month following a Board meeting after their first day of employment, or the effective date of a promotion that carries an option grant with it, and to approve annual equity grants for the year at the last Compensation Committee and full Board meeting of the year (typically in the fourth quarter). Our Compensation Committee and our Board selected the date of the last Compensation Committee and Board meeting of each year as the date to approve the years annual equity grants because it coincides with our Compensation Committees and Boards review of performance during the year and the
approval of other named executive officer compensation decisions (e.g., base salary increases and bonus payments). Further, our Compensation Committee and our Board believe that the timing of these meetings provide adequate time for our Compensation Committee and Board to ask questions of the Chief Executive Officer regarding his recommendations for the other executive officers and to carefully deliberate the Chief Executive Officers compensation arrangements.
Our standard practice is to grant options to executive officers (as well as other employees) that vest ratably over a four-year period (the first one-fourth vest one year from the grant date and one-forty-eighth each month thereafter until fully vested). We believe this vesting schedule is appropriate and encourages retention of our executive officers as individuals must remain employed for one year before they can potentially realize any value and remain with us a total of four years to realize the maximum value of any individual grant. This vesting schedule is typical of our peer companies.
In 2010, we began granting a combination of stock options and RSUs to our executive officers, in part because RSUs use fewer shares than stock options, resulting in less dilution and a lower number of shares from our employee equity award pool, and in part because the Compensation Committee determined that companies in our peer group were increasingly granting full value awards such as RSUs and, therefore, RSUs would need to be part of a competitive compensation package to attract and retain highly qualified executives. In this regard, while both stock options and RSUs enable our executive officers to benefit, like stockholders, from any increases in the value of our stock, stock options deliver future value only if the value of our stock increases above the exercise price. In contrast, RSUs deliver fully paid shares of our stock upon vesting, so they retain some retention value even if our stock price declines or stays flat after the RSU is granted. Each RSU represents a right to receive one share of our common stock following vesting and vests based on continued service over a three-year period, which RSU vesting schedule is typical of our peer companies.
Severance and Change of Control Benefits
In early 2009, we entered into change of control or severance benefits agreements with our executive officers providing for certain cash severance and change of control benefits, the terms of which are described in more detail under the heading Executive CompensationPotential Payments Upon Termination or Change in Control. The Compensation Committee believes that these severance and change of control benefits agreements are an important element of our executive compensation and retention program. With respect to change of control benefits, we provide cash severance compensation if an executive officer is terminated in connection with a change of control transaction to further promote the ability of our executive officers to act in the best interests of our stockholders, despite the possibility of their termination as a result of the transaction. In the case of our Chief Commercial Officer, Mr. Palekar, we provide cash severance benefits in the event that he is terminated separate from a change of control. This provision resulted from negotiations with Mr. Palekar leading to his joining Medivation in January 2008. Under our 2004 Plan, in the event of a change of control, the vesting of all equity awards accelerates and all such awards become fully exercisable and/or payable as applicable, and all forfeiture restrictions on such equity awards lapse, immediately prior to the change of control. The acceleration of equity vesting on a change in control is a common practice, designed to ensure that ongoing employees receive the benefit of the transaction by having the opportunity to realize value from their equity awards at the time of the transaction constituting the change of control. This single-trigger vesting acceleration approach recognizes that a change of control often causes significant disruption or change in employment relationships and thus treats all Medivation employees the same regardless of their employment status after the transaction. The Compensation Committee believes that, given the risks associated with the biopharmaceutical industry and the increasing frequency of acquisitions in the industry, severance and change of control protection is necessary to attract and retain qualified executives.
Benefits and Perquisites
We offer health care coverage and life insurance to our employees, including our executive officers. Depending upon the level of health care coverage that each employee elects, they may receive cash payments on a monthly basis equal to the difference between the maximum family coverage and the coverage that they elect to have. For 2010, Drs. Hung and Seely each elected to have no coverage under our health care coverage
and instead each received cash payments from Medivation in the aggregate amount of $14,520. Based on the level of health care coverage elected by Mr. Machado, he received cash payments from Medivation in the aggregate amount of $5,615. Mr. Palekar did not receive health care cash payments from Medivation in 2010.
We maintain a tax-qualified 401(k) Plan, which provides for broad-based employee participation. Under the 401(k) Plan, all employees are eligible to contribute up to the maximum amount allowed by applicable Internal Revenue Service restrictions. Beginning in fiscal year 2009, we provided a discretionary company match for all employee contributions, including those of our executive officers, on a dollar-for-dollar basis for the first 3% of wages or bonuses contributed by the employee in any calendar year and $0.50 per dollar contributed on the next 2% of wages or bonuses contributed by the employee in such calendar year. Medivation does not provide defined benefit pension plans or defined contribution retirement plans to its executives or other employees other than the 401(k) Plan. For 2010, we provided a discretionary company match of $9,800 for each of Drs. Hung and Seely and Messrs. Machado and Palekar.
We also offer a number of other benefits to our executive officers pursuant to benefit programs that provide for broad-based employee participation. These benefits programs include medical, dental and vision insurance, long-term and short-term disability insurance, life and accidental death and dismemberment insurance, health and dependent care flexible spending accounts, educational assistance, employee assistance and certain other benefits.
The 401(k) Plan and other generally available benefit programs allow us to remain competitive for employee talent, and we believe that the availability of the benefit programs generally enhances employee productivity and loyalty to Medivation. The main objectives of our benefits programs are to give our employees access to quality healthcare, financial protection from unforeseen events, assistance in achieving financial retirement goals, enhanced health and productivity and to provide support for global workforce mobility, in full compliance with applicable legal requirements. These generally available benefits typically do not specifically factor into decisions regarding an individual executives total compensation or equity award package.
From time to time, we may offer certain perquisites and benefits to our executive officers not offered to the general employee population, such as the relocation, temporary housing and related tax reimbursement and gross-up benefits that we provided to our Chief Commercial Officer, Mr. Palekar, as described under 2010 Compensation for the Named Executive OfficersCompensation Arrangements for Rohan Palekar below. The Compensation Committee believes that the provision of these benefits to Mr. Palekar was necessary and reasonable for securing the employment of a highly-qualified executive officer of Mr. Palekars caliber.
Tax and Accounting Considerations
We believe it is in our best interest, to the extent practical, to have executive officer compensation be fully deductible under Section 162(m). Section 162(m) of the Internal Revenue Code, or the Code, generally provides that a publicly held company may not deduct compensation paid to certain of its top executive officers to the extent that such compensation exceeds $1 million per officer in a calendar year. Compensation that is performance-based compensation within the meaning of the Code does not count toward the $1 million deduction limit. We have taken steps so that awards may be granted under our equity compensation program in a manner that complies with the Section 162(m) requirements. Our Compensation Committee nevertheless retains the discretion to provide compensation that potentially may not be fully deductible to reward performance and/or enhance retention.
In accordance with generally accepted accounting principles, stock-based compensation cost is measured at the grant date, based on the estimated fair value of the awards, and is recognized as an expense ratably over the requisite employee service period (which is generally the vesting period of the award). Accounting rules also require us to record cash compensation as an expense at the time the obligation is incurred.
2010 Compensation for the Named Executive Officers
The Compensation Committee determined 2010 base salaries for the named executive officers in the fourth quarter of 2009. In setting these base salaries, the Compensation Committee relied primarily on data from the peer group companies listed above and input from Lapis Group. The specific salaries set for each executive officer were chosen primarily to target that officers total compensation to the 75th percentile of the peer group of companies approved by the Compensation Committee for that performance cycle. This benchmarking process produced 15% increases in the base salaries of each of the named executive officers. Dr. Seelys salary increase was adjusted from the 15% level as a result of the Compensation Committees subjective assessment of the key role Dr. Seely played in Medivation meeting all of its 2009 corporate performance objectives. Mr. Machados salary increase was adjusted from the 15% level as a result of the Compensation Committees subjective assessment of Mr. Machados performance in 2009 unrelated to the achievement of 2009 corporate performance objectives. The adjustments to Dr. Seelys and Mr. Machados salary increase levels from the 15% level were not formulaic and were not the result of an effort to quantify their respective performance levels in 2009; rather, the adjustments simply reflected the Compensation Committees general, subjective assessment of their respective individual performance and contribution levels in 2009. The following table shows base salaries for 2009 and 2010 for the named executive officers, and the percentage increase in base salaries from 2009 to 2010:
The Compensation Committee made its 2010 bonus award decision in the fourth quarter of 2010. Target bonus levels for 2010, which were determined by the Compensation Committee in the fourth quarter of 2009 and expressed as a percentage of base salary, were 65% for the Chief Executive Officer and 50% for each of the other named executive officers, which target bonus percentages were determined based on the benchmarking process described above.
In making bonus award decisions for any given year, the Compensation Committee considers primarily the extent to which the pre-defined corporate performance objectives for that year have been achieved. In making this assessment, the Compensation Committee considers the extent to which the corporate objectives were achieved, and the relative importance of the objectives that were achieved as compared to any objectives that were not achieved. Because the corporate objectives are generally stretch goals and vary in terms of relative importance to Medivation, the Compensation Committees determination of the percentage of the target bonus that should be paid in any given year is not formulaic and has not historically been based on a specific weighting given to the various corporate objectives. Accordingly, the percentage of the target bonus paid in any given year may be either greater or less than the percentage of the total corporate objectives for that year that were actually achieved, particularly since the Compensation Committee may also consider as a secondary factor its general, subjective assessment of the executive officers performance during the year and the executive officers contributions to the achievement of the corporate objectives for the year. For 2010, the corporate performance objectives set by the Compensation Committee were to:
Although we met certain of our corporate performance objectives in 2010, we did not meet all of them. As noted above, because the Compensation Committees determination of the bonus that should be paid in any given year is not formulaic and has not historically been based on specific weightings given to the corporate objectives, the actual bonuses paid in any given year may be either greater or less than the percentage of the total corporate objectives for that year that were actually achieved. In this regard, given our failure to file an NDA with the FDA for dimebon following the negative results from the CONNECTION study, management recommended that there be no bonuses paid to any of our executive officers for 2010 performance, which recommendation was accepted by the Compensation Committee.
In December 2010, we granted stock options and RSUs to our named executive officers under our 2004 Plan. The Compensation Committees determination to grant equity awards to our executive officers maintained its philosophy of aligning executive officer interests with those of our stockholders to achieve and sustain long-term stock price growth. We believe that one of the most effective ways to accomplish this objective is to provide executive officers with a substantial economic interest in the long-term appreciation of our common stock through the grant of equity awards.
In determining the number of shares subject to the stock options and RSUs granted to our named executive officers in 2010, the Compensation Committee relied first on peer group compensation data to target equity awards at a level that would result in total compensation (base salary, target bonus opportunity and level of equity awards) for our named executive officers at or around the 75th percentile of our peer group. As described above, equity compensation has historically represented the largest component of our executive compensation program, in part to conserve our cash, and our equity awards in 2010 reflected this philosophy. However, the Compensation Committee determined that, on the basis of the peer group data it considered, reductions from the total equity values awarded to our executive officers in 2009 were necessary to bring their 2010 total target compensation in line with the Compensation Committees compensation philosophy of targeting total compensation at the 75th percentile of our peer group. Following the Compensation Committees benchmarking determinations, the Compensation Committee then determined the mix of equity awards between options and RSUs by choosing to deliver the value of the equity awards 50% in stock options and 50% in RSUs, and, in order to balance the greater per-share value of the RSUs (as opposed to options), the Compensation Committee awarded fewer RSUs than it would grant shares under a stock option award by using a 1-to-3 ratio of RSUs to option shares. The Compensation Committees determination with respect to the number of shares subject to options and RSUs granted to our named executive officers in 2010 is set forth below, which determination also reflects the Compensation Committees view that the level of equity awards should be generally consistent among our named executive officers other than our Chief Executive Officer given the importance of his role as compared to our other executive officers:
Each of the options granted to our named executive officers in 2010 vests as to one-fourth of the shares subject to the option on the first anniversary of the date of grant, and the remaining three-fourths of the shares vest monthly over three years thereafter. The RSUs granted to our named executive officers in 2010 vest as to one-third of the shares on each of the first, second and third anniversaries of the date of grant. The exercise price of the options is equal to the fair market value of our common stock as determined in accordance with the 2004 Plan on the date of grant.
The Compensation Committee believes that the above equity awards, taken together with the named executive officers prior equity positions, are consistent with providing each named executive officer with an ongoing equity position in our company that is competitive with similarly situated executive officers at companies included in our peer group and that fosters an ownership culture focused on our long-term performance.
Compensation Arrangements for Rohan Palekar
In January 2008, the Board approved the hiring of Rohan Palekar as our Chief Commercial Officer effective January 14, 2008. Mr. Palekars compensation package, which was negotiated as part of his employment offer, was based on comparative market data for chief commercial officers and the compensation history of Mr. Palekar. The package was intended to be consistent with our overall compensation philosophy, in particular, maintaining a larger component of overall compensation for Medivations highest level executive officers at risk. In addition, the Compensation Committee determined that Mr. Palekars compensation should be consistent with the other named executive officers (other than our Chief Executive Officer). As part of his initial compensation arrangements, the Compensation Committee approved, among other things, a signing bonus of $110,000, a restricted stock award of 30,000 shares of our common stock and an initial stock option to purchase 300,000 shares of our common stock exercisable at an exercise price of $15.71 per share, which was equal to the closing price of our common stock on the NASDAQ Global Market on the date of grant. The continued vesting of the restricted stock grant and option are subject to Mr. Palekars continuous employment with Medivation. The restricted shares vest over three years, with one-third of the shares vesting on the first anniversary of the grant date and the remaining two-thirds vesting in 24 equal monthly installments thereafter. The initial stock option vests in accordance with our standard employee vesting schedule and described under Equity Awards above. In addition, we agreed for the first three years of employment to supplement Mr. Palekars base salary with an additional annual cost of living allowance of $42,000 for the first 12 months of employment, $28,000 for the second 12 months of employment and $14,000 for the third 12 months of employment. We also paid out of pocket costs totaling $126,594 in 2008 for Mr. Palekar to relocate to the San Francisco Bay Area, including: (1) the real estate commission and closing costs on the sale of his prior home, (2) closing costs on the purchase of his home in the San Francisco Bay Area, (3) moving, transportation, travel and storage costs, and (4) a 90-day temporary housing allowance. We also agreed to provide tax reimbursement and gross-up payments to Mr. Palekar related to these relocation payments, and paid Mr. Palekar $38,962 in tax reimbursement and gross-up payments. Mr. Palekar also has a severance agreement with us that is more expansive than our other named executive officers, as described under Executive CompensationPotential Payments Upon Termination or Change in ControlSeverance Benefits Agreement with Rohan Palekar below.
2011 Compensation for the Named Executive Officers
Base Salary and Annual Incentive Bonus Program
In the fourth quarter of 2010, our Compensation Committee reviewed and updated the peer group of companies to be used for our compensation benchmarking purposes, pursuant to the methodology described above and based on our then-current market capitalization and our development stage. The Compensation Committee, with input from Lapis Group, evaluated the 2010 base salaries and target bonus opportunities of our named executive officers and found them to approximate the 75th percentile of our peer group. The Compensation Committee determined that maintaining current target bonus opportunities and implementing a modest salary increase for the executive officers for 2011 would achieve 2011 total cash market competitiveness. In addition, the Compensation Committee considered its decision not to award cash bonuses
to the executive officers for 2010 performance, but it did not take any action to offset this reduction in executive officer 2010 actual compensation for purposes of determining 2011 total cash compensation. Accordingly, the Compensation Committee increased 2011 base salaries for our named executive officers to the levels described below, and left the target bonus opportunities for our named executive officers at the same percentage of base salary as applied in 2010. 2011 bonuses, if any, will be determined by our Compensation Committee in the fourth quarter of 2011.
Our 2011 annual performance bonus payments, if any, will be based primarily on the achievement of the corporate performance goals approved by the Compensation Committee in December 2010. As was the case with our 2010 corporate objectives, our 2011 corporate objectives relate to pre-defined key operational metrics, including clinical development and regulatory goals related to MDV3100 and dimebon, among others, as well as preclinical and intellectual property related goals. For the 2011 bonus award determinations, the Compensation Committee determined to set pre-established weightings for the 2011 corporate objectives, which the Compensation Committee had not historically done, in order to add greater objectivity to the process of determining bonus awards.
2011 Executive Equity Compensation
The Compensation Committee reviews our equity compensation program, including a comparison against companies in our revised peer group and our philosophy with regard to granting equity awards in the fourth quarter of the year. Accordingly, the Compensation Committee has not determined equity awards for 2011.
2011 Executive Compensation Summary
In December 2010, the Compensation Committee and our Board approved 2011 base salaries and 2011 annual incentive target bonus percentages for the named executive officers. Salary increases were made effective as of January 1, 2011. These decisions were based on the executive compensation philosophy principles discussed earlier in this discussion, including the peer company data and the advice of Lapis Group, our compensation consultant. The following table summarizes our approved 2011 salaries and bonus targets:
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal years ended December 31, 2010, 2009 and 2008, compensation awarded to or paid to, or earned by, our Chief Executive Officer, Chief Financial Officer and our two other executive officers at December 31, 2010. We refer to these executive officers as the named executive officers.
SUMMARY COMPENSATION TABLE FOR FISCAL 2010
GRANTS OF PLAN-BASED AWARDS
The following table shows for the fiscal year ended December 31, 2010, certain information regarding grants of plan-based awards to the named executive officers:
GRANTS OF PLAN-BASED AWARDS IN FISCAL 2010
COMPENSATION PLANS AND ARRANGEMENTS
Base salary is the primary fixed compensation element in our executive compensation program. For more information regarding the base salaries we offer to our named executive officers, including with respect to determinations of the base salaries of our named executive officers for 2010, please see Compensation Discussion and AnalysisExecutive Compensation ProgramBase Salary and Compensation Discussion and Analysis2010 Compensation for the Named Executive OfficersBase Salaries.
Annual Bonus Plans
We maintain an annual incentive bonus program designed to reward our executive officers (as well as all our employees) for the achievement of our corporate objectives for the prior year. For more information on our annual incentive bonus program, please see Compensation Discussion and AnalysisExecutive Compensation ProgramAnnual Incentive Bonus Program and Compensation Discussion and Analysis2010 Compensation for the Named Executive OfficersBonus Awards.
We currently grant stock option awards and RSUs to executive officers under our 2004 Plan. Our standard practice is to grant options to executive officers (as well as other employees) under the 2004 Plan that vest ratably over a four-year period (the first 1/4th vest one year from the grant date and 1/48th each month thereafter until fully vested). Each of the stock option awards reflected in the table above titled Grants of Plan-Based Awards in Fiscal 2010 vest according our standard vesting schedule, subject to continued service with Medivation and accelerated vesting as described below, have a 10 year term, and were granted with an exercise price equal to 100% of the fair market value of our common stock on the date of grant.
While we historically granted only stock options to our named executive officers, we started granting a combination of stock options and RSUs to our executive officers in 2010. Each RSU, which was granted under the 2004 Plan, represents a right to receive one share of our common stock. In the event that one or more RSUs vest, we will deliver one share of our common stock for each RSU that has vested. Each of the RSU awards reflected in the table above titled Grants of Plan-Based Awards in Fiscal 2010 vest as to one-third of the shares on each of the first, second and third anniversaries of the date of grant, subject to continued service with Medivation and accelerated vesting as described below.
Certain additional permissible terms of the stock options and RSUs that we grant under the 2004 Plan are as follows:
Cash Severance Benefits
In January 2009, we entered into severance benefits agreements with our executive officers providing for certain cash severance and change of control benefits, the terms of which are described in more detail under the heading Potential Payments Upon Termination or Change in Control.
For a description of additional benefits we offer to our named executive officers, including health and welfare benefits and participation in our 401(k) Plan, please see Compensation Discussion and AnalysisExecutive Compensation ProgramBenefits and Perquisites. In addition, as described under Compensation Discussion and Analysis2010 Compensation for the Named Executive OfficersCompensation Arrangements for Rohan Palekar, we agreed to provide Mr. Palekar with certain cost of living allowance payments and relocation benefits, and granted Mr. Palekar a restricted stock award under the 2004 Plan in connection with his joining our company in January 2008.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table shows for the fiscal year ended December 31, 2010, certain information regarding outstanding equity awards at fiscal year end for the named executive officers:
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2010
OPTION EXERCISES AND STOCK VESTED
The following table shows for the fiscal year ended December 31, 2010, certain information regarding option exercises and stock vested during the last fiscal year with respect to the named executive officers:
OPTION EXERCISES AND STOCK VESTED IN FISCAL 2010
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
We have entered into severance benefits agreements with each of our named executive officers, and our 2004 Plan provides each named executive officer with certain change of control vesting acceleration and post-termination stock option exercise period benefits. The following is a summary of the terms of the severance benefits agreements and the accelerated vesting and post-termination exercise period provisions of our 2004 Plan.
Change of Control Severance Benefits Agreement with David Hung, M.D. The change of control severance benefits agreement we entered into with Dr. Hung, or the CEO Agreement, provides Dr. Hung with certain severance and change in control benefits. If we terminate Dr. Hung without cause or if Dr. Hung resigns with good reason on or within 12 months following a change of control, then Dr. Hung will be entitled to a lump sum payment equal to 24 months of his base salary then in effect and payments of premiums for continued health insurance coverage under COBRA for up to 24 months, both of which are subject to certain conditions, including Dr. Hungs execution of a binding release of claims, his confirmation in writing that he will be continue to be bound by Medivations confidential information and inventions assignment agreement, and his prompt resignation from the Board if so requested by a majority of the Board. The term of the CEO Agreement currently expires on December 31, 2011, with automatic annual extensions thereafter unless notice of nonrenewal is provided by Medivation before December 31 of the preceding year.
Severance Benefits Agreement with Rohan Palekar. The severance benefits agreement we entered into with Mr. Palekar, or the CCO Agreement, provides Mr. Palekar with certain severance benefits. If we terminate Mr. Palekar without cause or if Mr. Palekar resigns with good reason (and without regard for the occurrence or nonoccurrence of a change of control), then Mr. Palekar will be entitled to a lump sum payment equal to 18 months of his base salary then in effect and payments of premiums for continued health insurance coverage under COBRA for up to 18 months, both of which are subject to certain conditions, including Mr. Palekars execution of a binding release of claims and his confirmation in writing that he will be continue to be bound by Medivations confidential information and inventions assignment agreement. The term of the CCO Agreement currently expires on December 31, 2011, with automatic annual extensions thereafter unless notice of nonrenewal is provided by Medivation before December 31 of the preceding year.
Change of Control Severance Benefits Agreement with Lynn Seely, M.D. and C. Patrick Machado. The change of control severance benefits agreements we entered into with Dr. Seely and Mr. Machado, or the Officer Agreements, provide these named executive officers with certain severance and change in control benefits. If we terminate Dr. Seely or Mr. Machado without cause or if Dr. Seely or Mr. Machado resigns with good reason on or within 12 months following a change of control, then Dr. Seely or Mr. Machado, as applicable, will be entitled to a lump sum payment equal to 18 months of his or her base salary then in effect and payments of premiums for continued health insurance coverage under COBRA for up to 18 months, subject in each case to certain conditions, including the named executive officers execution of a binding release of claims and his or her confirmation in writing that he or she will be continue to be bound by Medivations confidential information and inventions assignment agreement. The term of each Officer Agreement currently expires on December 31, 2011, with automatic annual extensions thereafter unless notice of nonrenewal is provided by Medivation before December 31 of the preceding year.
For purposes of each of the above severance benefits agreements, cause generally includes a material failure by the named executive officer to perform his or her duties or the named executive officers material breach of any agreement with Medivation, in each case after an applicable cure period, or the named executive officers personal dishonesty, breach of fiduciary duty or engagement in willful misconduct. Good reason generally includes Medivation materially reducing the named executive officers base salary or benefits, Medivation materially diminishing the named executive officers authority, duties or responsibilities, or Medivation requiring the named executive officer to be based more than 25 miles from Medivations current executive officers, in each case without the consent of the named executive officer, or a material breach by Medivation of the applicable severance benefits agreement. The definition of change of control for purposes of each of the above severance benefits agreements is the same definition as used in our 2004 Plan, as described below.
Under each of the above severance benefits agreements, in the event that any severance benefits paid pursuant to the applicable agreement or otherwise (including under our 2004 Plan) would constitute a parachute payment within the meaning of Section 280G of the Code and would be subject to the excise tax imposed by Section 4999 of the Code, the applicable named executive officers benefits would be reduced to the extent necessary so that no portion of any payments would be subject to such excise tax. In addition, the
timing of the severance payments provided for under each of the above severance benefits agreements may be deferred for up to six months if these payments would constitute deferred compensation under Section 409A of the Code (in which case, the deferred payments would be made in a lump sum following the end of the deferral period, with the balance being paid thereafter on the original payment schedules described above).
2004 Plan Benefits. In the event of a change of control, as defined in the 2004 Plan, the vesting of all equity awards accelerates and all such awards become fully exercisable and/or payable as applicable, and all forfeiture restrictions on such equity awards lapse, immediately prior to such change of control. Under the 2004 Plan, a change of control generally includes the acquisition by any person or group of 50% or more of our voting securities (subject to certain exceptions), certain incumbent directors ceasing to constitute a majority of our Board, our merger, consolidation, reorganization, sale of assets or other extraordinary corporate transaction unless our outstanding voting securities continue to represent at least a majority of the combined voting power of the surviving corporation, or our liquidation or dissolution. The 2004 Plan, and the forms of option agreements thereunder, also provide for an extended post-termination stock option exercise period in the event of a termination due to death or disability. As a general matter, the vested portion of options granted to our named executive officers will expire 90 days after the named executive officers termination of service. Although the post-termination exercise period generally ends 90 days after the named executive officers termination of service, in termination situations involving the death or disability of the named executive officer, the post-termination exercise period is generally extended to one year following the named executive officers termination of service.
Calculation of Termination and Change of Control Benefits. The table below identifies the potential payments that each of our named executive officers would have received in the event of change of control (with respect to acceleration of stock vesting) or a termination without cause or by the named executive officer for good reason (in general with respect to Mr. Palekar and in connection with a change of control with respect to Drs. Hung and Seely and Mr. Machado). The figures below assume that the change of control or termination each occurred on December 31, 2010. All of the potential payments and benefits listed in the table below are payments or benefits that would have been made pursuant to the terms of the severance benefits agreements described above, and with respect to stock option and restricted stock vesting acceleration, pursuant to the terms of the 2004 Plan. For purposes of the below table, we have assumed that none of the potential payments and benefits would be subject to the excise tax imposed by Section 4999 of the Code and therefore reduced in accordance with the terms of the severance benefits agreements.
Our non-employee directors receive cash compensation and options to purchase shares of our common stock for their services as members of the Board. The following table shows, for the fiscal year ended December 31, 2010, certain information with respect to the compensation of all of our non-employee directors. Dr. Hung, our Chief Executive Officer, receives no additional compensation for his services as director.
DIRECTOR COMPENSATION FOR FISCAL 2010
CASH COMPENSATION ARRANGEMENTS
For the year ended December 31, 2010, each of our non-employee directors received each of the applicable retainers and fees set forth below for serving as a member of the Board, Chairman of the Board or as a committee chair and/or attending Board and committee meetings:
In addition, all of our non-employee directors are reimbursed for out-of-pocket expenses incurred in attending Board and Board committee meeting.
EQUITY COMPENSATION ARRANGEMENTS
Upon initial election to the Board, each non-employee director receives an initial grant of an option to purchase 60,000 shares of our common stock under the 2004 Plan. Such options are subject to a four-year vesting schedule as follows: one-quarter of the shares subject to the option vest on the first anniversary of the date of grant, and the remainder of the shares subject to the option vest on a monthly basis thereafter over the ensuing three years. In addition to the initial stock option grants, each non-employee director receives an annual grant of an option to purchase 15,000 shares of our common stock at the next available date of grant pursuant to our Stock Option Grant Date Policy, which is the earlier of the 15th day of the month or the last day of the month following the date of the annual meeting of stockholders for the applicable year. These annual option grants are subject to a four-year vesting schedule as follows: one-quarter of the shares subject to the option vest on the first anniversary of the date of grant, and the remainder of the shares subject to the option vest on a monthly basis thereafter over the ensuing three years. All stock options are granted to our directors with an exercise price equal to 100% of the fair market value of our common stock on the date of grant. Other terms of the stock options granted under the 2004 Plan, including provisions providing for the accelerated vesting, are described above under Executive CompensationCompensation Plans and ArrangementsEquity Awards.
PROCESSES AND PROCEDURES FOR DETERMINING DIRECTOR COMPENSATION
The Compensation Committee and the Board periodically consider and determine director compensation with the input of our Chief Executive Officer and outside compensation consultants as they deem appropriate. For example, in June 2007, we engaged J. Thelander Associates, a compensation consulting firm, to conduct a review of our compensation policies for directors as well as to perform a study of director compensation policies at companies comparable to Medivation. As a result of that review and study, the Board adjusted our director compensation program to that as set forth above to better reflect the compensation received by members of the boards of directors of companies comparable to Medivation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, our Compensation Committee consists of Directors Blickenstaff, Adams, Bailey and Vernon. No member of the Compensation Committee is, or was formerly, one of our officers or employees. No interlocking relationship exists between the members of our Board or Compensation Committee and the board of directors or compensation committee of any other company, nor has such an interlocking relationship existed in the past.
COMPENSATION COMMITTEE REPORT(1)
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis (CD&A) contained herein. Based on this review and discussion, the Compensation Committee has recommended to the Board of Directors that the CD&A be included in Medivations Annual Report on Form 10-K for the fiscal year ended December 31, 2010.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides certain information with respect to all of Medivations compensation plans in effect as of December 31, 2010.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership of our common stock as of March 1, 2011 (except as noted) by: (i) each nominee for director; (ii) each of the named executive officers; (iii) all executive officers and directors of Medivation as a group; and (iv) all those known by us to be beneficial owners of more than five percent of our common stock.
Except as indicated by footnote, and subject to applicable community property laws, we believe that each person identified in the table possesses sole voting and investment power with respect to all capital stock shown to be held by that person. The address of each named executive officer and director, unless indicated otherwise by footnote, is c/o Medivation, Inc., 201 Spear Street, 3rd Floor, San Francisco, California 94105.
TRANSACTIONS WITH RELATED PERSONS
PROCEDURES FOR REVIEW OF RELATED-PERSON TRANSACTIONS
We have not yet adopted a written related-person transactions policy. However, our Audit Committee is responsible for reviewing and providing oversight of all related-person transactions on an ongoing basis under the charter of the Audit Committee (as well as under applicable NASDAQ listing standards), and the charter of the Audit Committee requires that all such transactions must be approved by the Audit Committee. For these purposes, related-person transactions are generally those transactions required to be disclosed by us in proxy statements and annual reports that we file with the SEC in which certain categories of enumerated persons (including our executive officers and directors and their immediately family members, as well as our significant stockholders) have a direct or indirect material interest. In approving or rejecting a proposed related-person transaction, the Audit Committee will consider the relevant facts and circumstances available and deemed relevant to the Audit Committee, including but not limited to the risks, costs and benefits to Medivation, the terms of the transaction, the availability of other sources for comparable services or products, and, if applicable, the impact on a directors independence. In the future, the Audit Committee may determine to adopt a formal policy regarding related-person transactions in which event, we will promptly post the policy on our website.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our certificate of incorporation provides for the indemnification of our officers and directors to the fullest extent permitted by the General Corporation Law of the State of Delaware. Our bylaws further provide that our directors and officers shall be indemnified, under the circumstances and to the extent provided therein, for all expenses incurred by a director or officer in any suit or proceeding to which a director or officer is made a party by reason of the fact that he or she is or was a director or officer of Medivation, and shall otherwise be amended to the fullest extent permitted under Delaware law.
INDEPENDENCE OF THE BOARD OF DIRECTORS
As required under the NASDAQ listing standards, a majority of the members of a listed companys board of directors must qualify as independent, as affirmatively determined by the board of directors. Our Board consults with Medivations counsel to ensure that its determinations are consistent with relevant securities and other laws and regulations regarding the definition of independent, including those set forth in pertinent listing standards of NASDAQ, as in effect from time to time.
Consistent with these considerations, after review of all relevant identified transactions or relationships between each director, or any of his or her family members, and Medivation, its senior management and its independent auditors, the Board has affirmatively determined that the following four directors are independent directors within the meaning of the applicable NASDAQ listing standards: Mr. Adams, Dr. Bailey, Mr. Blickenstaff and Mr. Vernon. In making this determination, the Board found that none of the these directors had a material or other disqualifying relationship with us. Dr. Hung, our President and Chief Executive Officer, is not an independent director by virtue of his employment with us. In addition, our Board has determined that each member of the Audit Committee, Compensation Committee and Nominating Committee during 2010 meets the applicable NASDAQ rules and regulations regarding independence and that each member is free of any relationship that would impair his or her individual exercise of independent judgment with regard to Medivation.
PRINCIPAL ACCOUNTING FEES AND SERVICES
In connection with the audit of our 2010 and 2011 financial statements, we entered into an engagement agreement with PricewaterhouseCoopers LLP, which sets forth the terms by which PricewaterhouseCoopers LLP will perform audit and interim services for us. We have agreed not to demand a jury trial in any proceeding arising out of this agreement.
The following table represents aggregate fees billed to Medivation for the fiscal years ended December 31, 2009 and December 31, 2010, by PricewaterhouseCoopers LLP, our independent registered public accounting firm.
All fees described above were pre-approved by the Audit Committee.
PRE-APPROVAL POLICIES AND PROCEDURES
Before any independent registered public accounting firm is engaged by us or our subsidiaries to render audit or non-audit services, the Audit Committee will pre-approve the engagement. The Audit Committees pre-approval of audit and non-audit services will not be required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by the Audit Committee regarding our engagement of the independent registered public accounting firm, provided the policies and procedures are detailed as to the particular service, the Audit Committee is informed of each service provided and such policies and procedures do not include delegation of the Audit Committees responsibilities under the Exchange Act to our management. The Audit Committee may delegate to one or more designated members of the Audit Committee the authority to grant pre-approvals, provided such approvals are presented to the Audit Committee at a subsequent meeting. If the Audit Committee elects to establish pre-approval policies and procedures regarding non-audit services, the Audit Committee must be informed of each non-audit service provided by the independent registered public accounting firm. Audit Committee pre-approval of non-audit services (other than review and attest services) also is not required if such services fall within available exceptions established by the SEC.
The Audit Committee has determined that the rendering of the services other than audit services by PricewaterhouseCoopers LLP is compatible with maintaining the independent registered public accounting firms independence.
(a) The following documents are filed as part of this Amendment No. 1 to Annual Report on Form 10-K/A or as part of the registrants Annual Report on Form 10-K filed with the SEC on March 16, 2011:
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to Annual Report on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 2, 2011