Stock Incentive Plans

12 Months Ended

Dec. 31, 2022

Stock Incentive Plans

Stock Incentive Plans

9.   Stock Incentive Plans

Prior to the Company’s initial public offering in June 2015 (the “IPO”), the Company granted awards to eligible participants under its 2008 Equity Incentive Plan. In May 2015, the Company’s board of directors adopted and, in June 2015, the Company’s stockholders approved the 2015 Stock Incentive Plan, as amended and amended and restated since the IPO (“2015 Plan”), which became effective immediately prior to the effectiveness of the IPO. Subsequent to the IPO, no option grants have been awarded to eligible participants under the 2008 Equity Incentive Plan.

The 2015 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock-based awards. The Company’s employees, officers, directors and consultants and advisors are eligible to receive awards under the 2015 Plan.

Terms of stock option agreements, including vesting requirements, are determined by the Company’s board of directors, subject to the provisions of the applicable stock incentive plan. Options granted by the Company generally vest ratably over four years, with a one-year cliff, and options are exercisable from the date of grant for a period of ten years.

On February 17, 2022, the Company’s Board of Directors adopted the 2022 Inducement Stock Incentive Plan (the “Inducement Plan”). The Inducement Plan provides for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards with respect to an aggregate of 300,000 shares of the Company’s common stock. Awards under the Inducement Plan may only be granted to persons who (a) were not previously an employee or director of the Company or (b) are commencing employment with the Company following a bona fide period of non-employment, in either case as an inducement material to the individual’s entering into employment with the Company and in accordance with the requirements of Nasdaq Stock Market Rule 5635(c)(4). As of December 31, 2022, 221,000 options have been granted under the Inducement Plan, which are included in the table below.

A summary of the Company’s stock option activity and related information for employees and non-employees follows:

				Weighted
		Weighted-		Average	Aggregate
		Average		Remaining	Intrinsic
		Exercise		Contractual	Value
	Shares	Price		Term (years)	(in thousands)
Outstanding at December 31, 2021	1,346,733	$	22.25	9.02	$	168
Granted	991,981	$	6.06
Exercised	(27,333)	$	3.03
Cancelled or forfeited	(56,818)	$	17.12
Expired	(1,132)	$	137.57
Outstanding at December 31, 2022	2,253,431	$	15.43	8.57	$	9,733
Vested and exercisable at December 31, 2022	615,382	$	28.74	7.79	$	705
Vested and expected to vest at December 31, 2022	2,253,431	$	15.43	8.57	$	9,733

The total intrinsic value of options exercised in the years ended December 31, 2022 and 2021 was $210 thousand and $45 thousand, respectively. The weighted-average grant date fair value of options granted to employees and non-employees for the years ended December 31, 2022 and 2021 was $3.82 and $9.82, respectively.

At December 31, 2022, the total unrecognized compensation expense related to unvested stock option awards was $9.6 million. The Company expects to recognize that cost over a weighted-average period of approximately 2.4 years.

Stock-Based Compensation Expense

The fair value of stock options granted to employees and non-employees was estimated using the Black-Scholes option-pricing model based on the following assumptions:

	Year Ended December 31,
	2022	2021
Weighted-average expected volatility	65.60%-70.22	69.28-71.32%
Expected term (in years)	5.5-6.25	5-6.25
Risk-free interest rate	1.48%-4.17%	0.42-1.36%
Expected dividend yield	0%	0%

Volatility

Due to the lack of company-specific historical and implied volatility data of its common stock, the Company does not have relevant historical data to support its expected volatility. As such, the Company has used a weighted average of expected volatility based on the volatilities of a representative group of publicly traded biopharmaceutical companies. For purposes of identifying representative companies, the Company considered characteristics such as number of product candidates in early stages of product development, area of therapeutic focus, and length of trading history. The expected volatility was determined using an average of the historical volatilities of the representative group of companies for a period equal to the expected term of the option grant. The Company intends to continue to consistently apply this process using the same representative companies until a sufficient amount of historical information regarding the volatility of the Company’s own share price becomes available or until circumstances change, such that the identified entities are no longer representative companies. In the latter case, more suitable, similar entities whose share prices are publicly available would be utilized in the calculation.

Expected Term

The Company uses the “simplified method” to estimate the expected term of stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the contractual term (ten years) and the vesting term (generally four years) of the Company’s stock options, taking into consideration multiple vesting tranches. The Company utilizes this method due to lack of historical exercise data and the plain-vanilla nature of the Company’s share-based awards.

Risk-Free Rate

The risk-free rate was based on the yield curve of United States Treasury securities with periods commensurate with the expected term of the options being valued.