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Stock-Based Compensation

6 Months Ended

Jun. 30, 2020

Note 10 – Stock-Based Compensation

Stock Options

The 2015 Stock Incentive Plan, as amended (“2015 Plan”), was approved at the Company's annual meeting of stockholders in June 2015. Under the 2015 Plan, equity awards may be granted to officers, directors, employees and consultants of and advisors to the Company and any present or future subsidiary.

The 2015 Plan authorizes the issuance of up to 10,900,000 shares of common stock under equity awards granted under the 2015 Plan, which includes an increase of 7,100,000 shares approved for issuance under the 2015 Plan at the Company's 2020 annual meeting of stockholders. All such shares authorized for issuance under the 2015 Plan have been reserved. The 2015 Plan will expire on March 4, 2025.

The Amended and Restated 2005 Stock Incentive Plan (“2005 Plan”) expired in February 2015 and no new awards may be made under such plan, although awards will continue to be outstanding in accordance with their terms.

The 2015 Plan permits and the 2005 Plan permitted the grant of stock options (including incentive stock options), restricted stock, stock appreciation rights and restricted stock units. In addition, under the 2015 Plan, unrestricted stock, stock units and performance awards may be granted. Stock options and stock appreciation rights generally have a maximum term of 10 years and may be or were granted with an exercise price that is no less than 100% of the fair market value of the Company's common stock at the time of grant. Grants of stock options are generally subject to vesting over periods ranging from one to four years.

Stock Options and Stock Appreciation Rights

The following is a summary of stock options and stock appreciation rights activity under the 2015 Plan and 2005 Plan for the six months ended June 30, 2020:


	2015 Plan			2005 Plan
		Weighted-			Weighted-
		Average			Average
	Stock Options	Exercise Price		Stock Options	Exercise Price
Outstanding at January 1, 2020	3,388,701	$	35.64	501,780	$	64.19
Granted	2,820,041	$	22.28	—	$	—
Exercised	(209,959)	$	30.35	(76,856)	$	33.56
Canceled	(32,254)	$	41.18	(22,329)	$	52.26
Outstanding at June 30, 2020	5,966,529	$	29.50	402,595	$	70.71
Shares exercisable at June 30, 2020	953,073	$	85.48	402,595	$	70.71
Shares available for grant at June 30, 2020	3,098,569

In 2019, the Company granted 192,400 stock appreciation rights, with a weighted-average exercise price of $5.95, under the 2015 Plan.

Additionally, in 2019, due to limitations on the equity awards available under the 2015 Plan, the Company granted to certain employees 1,014,200 stock options, with a weighted-average exercise price of $5.95, under the 2015 Plan that were subject to approval of an increase in the number of shares under the 2015 Plan at the Company's 2020 annual meeting of stockholders. Furthermore, in April 2020, due to limitations on the equity awards available under the 2015 Plan, the Company granted to all of its employees collectively 2,501,600 stock options, with a weighted-average exercise price of $19.08, and 326,050 restricted stock units under the 2015 Plan that include a performance requirement related to its NVX-CoV2373 program that were also subject to approval of an increase in the number of shares under the 2015 Plan at the Company's 2020 annual meeting of stockholders. Since the proposal to increase the number of shares under the 2015 Plan was approved at the Company’s 2020 annual meeting of stockholders, as discussed in the “Stock Options” section above, the Company began to record stock-based compensation expense for these awards at that time.

The fair value of stock options granted under the 2015 Plan was estimated at the date of grant or the date upon which the 2015 Plan was approved by the Company’s stockholders for stock options discussed above using the Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019

Weighted-average Black-Scholes fair value of stock options granted		$77.41		$8.50		$76.99		$23.43
Risk-free interest rate		0.3%-0.6%		1.8%-2.3%		0.3%-1.5%		1.8%-2.6%
Dividend yield		0%		0%		0%		0%
Volatility		116.0%-151.5%		127.3%-128.5%		116.0%-151.5%		111.6%-128.5%
Expected term (in years)		3.9-7.6		4.0		3.9-7.6		4.0-4.5
Expected forfeiture rate		0%		0%		0%		0%

The total aggregate intrinsic value and weighted-average remaining contractual term of stock options and stock appreciation rights outstanding under the 2015 Plan and 2005 Plan as of June 30, 2020 was $357.5 million and 8.5 years, respectively. The total aggregate intrinsic value and weighted-average remaining contractual term of stock options and stock appreciation rights exercisable under the 2015 Plan and 2005 Plan as of June 30, 2020 was $34.1 million and 5.3 years, respectively. The aggregate intrinsic value represents the total intrinsic value (the difference between the Company's closing stock price on the last trading day of the period and the exercise price, multiplied by the number of in-the-money stock options and stock appreciation rights) that would have been received by the holders had all stock option and stock appreciation rights holders exercised their stock options and stock appreciation rights on June 30, 2020. This amount is subject to change based on changes to the closing price of the Company's common stock. The aggregate intrinsic value of stock options and vesting of restricted stock awards for the six months ended June 30, 2020 and 2019 was $7.8 million and $0.1 million, respectively.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan, as amended (the “ESPP”), was approved at the Company's annual meeting of stockholders in June 2013. The ESPP currently authorizes an aggregate of 600,000 shares of common stock to be purchased. The ESPP allows employees to purchase shares of common stock of the Company at each purchase date through payroll deductions of up to a maximum of 15% of their compensation, at 85% of the lesser of the market price of the shares at the time of purchase or the market price on the beginning date of an option period (or, if later, the date during the option period when the employee was first eligible to participate). At June 30, 2020, there were 278,543 shares available for issuance under the ESPP.

The ESPP is considered compensatory for financial reporting purposes. As such, the fair value of ESPP shares was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Range of Black-Scholes fair value of ESPP shares granted		$2.87-$21.80		$9.45-$34.78		$2.57-$35.00		$7.25-$34.78
Risk-free interest rate		1.5%-2.6%		1.3%-2.5%		1.5%-2.6%		1.2%-2.5%
Dividend yield		0%		0%		0%		0%
Volatility		66.6%-150.9%		59.7%-171.6%		66.6%-154.4%		52.2%-171.6%
Expected term (in years)		0.5-2.0		0.5-2.0		0.5-2.0		0.5-2.0
Expected forfeiture rate		0%		0%		0%		0%

Restricted Stock Units

The following is a summary of restricted stock units activity for the six months ended June 30, 2020:


		Per Share
		Weighted-
		Average
	Number of	Grant-Date
	Shares	Fair Value
Outstanding and Unvested at January 1, 2020	1,102,311	$	5.95
Restricted stock units granted	457,204	$	75.97
Restricted stock units vested	(47,563)	$	18.61
Restricted stock units forfeited	(29,425)	$	25.46
Outstanding and Unvested at June 30, 2020	1,482,527	$	26.75

The Company recorded all stock-based compensation expense in the consolidated statements of operations as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Research and development	$	4,098	$	2,444	$	6,005	$	5,624
General and administrative		3,834		2,176		5,892		4,555
Total stock-based compensation expense	$	7,932	$	4,620	$	11,897	$	10,179

As of June 30, 2020, there was approximately $344 million of total unrecognized compensation expense related to unvested stock options, stock appreciation rights, restricted stock units and the ESPP. The increase in unrecognized compensation expense is primarily due to the awards that were subject to approval of an increase in the number of shares under the 2015 Plan at the Company's 2020 annual meeting of stockholders, as discussed in the "Stock Options" section above, and the significant increase in the Company's common stock price in 2020. This unrecognized non-cash compensation expense is expected to be recognized over a weighted-average period of 1.5 years, and will be allocated between research and development and general and administrative expenses accordingly. This estimate does not include the impact of other possible stock-based awards that may be made during future periods and awards that require approval by the stockholders.