Stock-Based Compensation Plans

6 Months Ended

Jun. 30, 2022

Share-Based Payment Arrangement [Abstract]

2021 Employee Stock Purchase Plan

On April 25, 2021, the Company adopted the 2021 Employee Stock Purchase Plan ("ESPP"), which was approved by stockholder vote at the 2021 Annual Meeting of Stockholders held on June 10, 2021. The ESPP provides eligible employees of the Company with an opportunity to purchase common stock of the Company through accumulated payroll deductions, which are included in other current liabilities until they are used to purchase Company shares. Eligible employees participating in the bi-annual offering period can choose to have up to the lesser of 15% of their annual base earnings or the IRS annual share purchase limit of $25,000 in aggregate market value to purchase shares of the Company’s common stock. The purchase price of the stock is the lesser of (i) 85% of the closing market price on the date of purchase and (ii) the closing market price at the beginning of the bi-annual offering period. The maximum number of shares reserved for delivery under the plan is 200,000 shares.

The Company issued 24,612 shares under the ESPP for the three and six months ended June 30, 2022 and 37,370 shares life to date. The Company recognized $25,000 and $53,000 of expense related to the ESPP during the three and six months ended June 30, 2022.

Stock Option Programs

In July 2019, the Company’s stockholders approved the 2019 Omnibus Equity Incentive Plan (the “2019 Plan”) which was adopted by the Board with an effective date of June 14, 2019. The 2019 Plan allows for the grant of equity awards to employees, consultants and non-employee directors. An initial maximum of 1,500,000 shares of the Company’s common stock were available for grant under the 2019 Plan. The 2019 Plan includes an evergreen provision that allows for the annual addition of up to 4% of the Company’s fully-diluted outstanding stock, with a maximum allowable increase of 4,900,000 shares over the term of the 2019 Plan. In accordance with this provision, the shares available for grant were increased in 2020 through 2022 by a total of 2,481,195 shares. The 2019 Plan is currently administered by the Board, or, at the discretion of the Board, by a committee of the Board, which determines the exercise prices, vesting schedules and other restrictions of awards under the 2019 Plan at its discretion. Options to purchase stock may not have an exercise price that is less than the fair market value of underlying shares on the date of grant, and may not have a term greater than ten years. Incentive stock options granted to employees typically vest over four years. Non-statutory options granted to employees, officers, members of the Board, advisors, and consultants of the Company typically vest over three or four years.

Shares that are expired, terminated, surrendered or canceled under the 2019 Plan without having been fully exercised will be available for future awards.

Movements during the year

The following table summarizes stock option activity for the six months ended June 30, 2022 and 2021, respectively, for the 2019 Plan:


	Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of January 1, 2022	2,157,460	$	13.54
Granted	1,702,513	$	9.29
Exercised	(852)	$	5.67	—
Forfeited or expired	(145,873)	$	11.88
Outstanding as of June 30, 2022	3,713,248	$	11.66	8.86	$	23,870
Options vested and expected to vest as of June 30, 2022	3,713,248	$	11.66	8.86	$	23,870
Options exercisable as of June 30, 2022	1,127,085	$	13.83	8.00	$	—


	Options	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of January 1, 2021	1,117,160	$	12.96
Granted	961,059	$	15.27
Exercised	—	$	—
Forfeited or expired	(13,380)	$	12.11
Outstanding as of June 30, 2021	2,064,839	$	14.04	9.16	$	411,563
Options vested and expected to vest as of June 30, 2021	2,064,839	$	14.04	9.16	$	411,563
Options exercisable as of June 30, 2021	462,022	$	13.59	8.65	$	227,848

Measurement

The weighted-average assumptions used in the BSM option pricing model to determine the fair value of the employee and non-employee stock option grants relating to the 2019 Plan were as follows:

Risk-Free Interest Rate

The risk-free rate assumption is based on U.S. Treasury instruments with maturities similar to the expected term of the stock options.

Expected Dividend Yield

The Company has not issued any dividends and does not expect to issue dividends over the life of the options. As a result, the Company has estimated the dividend yield to be zero.

Expected Volatility

Due to the Company’s limited operating history and a lack of company specific historical and implied volatility data, the Company estimates expected volatility based on the historical volatility of its own stock combined with a group of comparable companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards.

Expected Term

The expected term of options is estimated considering the vesting period at the grant date, the life of the option and the average length of time similar grants have remained outstanding in the past.

The weighted-average grant date fair value of stock options granted under the 2019 Plan during the six months ended June 30, 2022 and 2021 was $7.25 and $11.36, respectively. The following are the underlying assumptions used in the Black-Scholes option pricing model to determine the fair value of stock options granted to employees and to non-employees under this stock plan:


	Six Months Ended June 30,
	2022	2021
Risk-free interest rate	1.95%	0.88%
Expected dividend yield	0%	0%
Expected volatility	97.9%	92.3%
Expected term of options (years)	6.00	5.94

Stock-Based Compensation Expense

Total stock-based compensation expense for all stock awards recognized in the accompanying unaudited condensed consolidated statements of operations is as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
		2022		2021		2022		2021
Research and development		$	765,000	$	492,000	$	1,561,000	$	823,000
General and administrative		1,297,000		1,015,000		2,570,000		2,263,000
Total		$	2,062,000	$	1,507,000	$	4,131,000	$	3,086,000

As of June 30, 2022, there was $19.4 million in total unrecognized compensation expense relating to the 2019 Plan to be recognized over a weighted average period of 3.06 years.

Summary of Equity Incentive Plans Assumed from Vital Therapies

Upon completion of the Transaction with Vital Therapies ("Vital") on April 12, 2019, Vital’s 2012 Stock Option Plan (the “2012 Plan”), Vital’s 2014 Equity Incentive Plan (the “2014 Plan”) and Vital’s 2017 Inducement Equity Incentive Plan (the “Inducement Plan”), were assumed by the Company. All awards granted under these plans have either been forfeited or expired.

There remain 43,311 shares available for grant under the 2014 Plan as of June 30, 2022.

In September 2017, Vital’s board of directors approved the Inducement Plan, which was amended and restated in November 2017. Under the Inducement Plan 46,250 shares of Vital’s common stock were reserved to be used exclusively for non-qualified grants to individuals who were not previously employees or directors as an inducement material to a grantee's entry into employment within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules.

No expense was recorded for the plans assumed from Vital during the three and six months ended June 30, 2022 and 2021, respectively.