In 2011, Private Tempest adopted the 2011 Equity Incentive Plan (the “2011 Plan), and in 2017, Private Tempest adopted the 2017 Equity Incentive Plan (the “2017 Plan”), and together with the 2011 Plan, the “Tempest Prior Plans.” The Tempest Prior Plans have been terminated and no additional grants may be made under either plan. All stock awards granted under the Tempest Prior Plans will remain subject to the terms of the applicable prior plan. As a result of the merger with Millendo, the Tempest Prior Plans were assumed by the Company.

The Board of Millendo adopted the 2019 Equity Incentive Plan (the “2019 Plan”) on April 29, 2019, subject to approval by the Company’s stockholders, and became effective with such stockholder approval on June 11, 2019. On June 17, 2022, the Company’s stockholders approved the Amended and Restated 2019 Equity Incentive Plan (the “A&R 2019 Plan”), which amended and restated the 2019 Plan and will be a successor to, and replacement of, the 2019 Plan. The number of shares of the Company's common stock reserved for issuance under the A&R 2019 Plan will automatically increase on January 1st of each year, for a period of 10 years, from January 1, 2020 continuing through January 1, 2029, by 4% of the total number of shares of the Company's common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Board of Directors. On January 1, 2023, the common stock reserved for issuance was increased by 420,742 shares. As of March 31, 2023, a total of 629,388 shares are available for future grant under the A&R 2019 Plan.

The A&R 2019 Plan allows the Company to grant stock awards to employees, directors and consultants of the Company, including incentive stock options (“ISOs”), nonqualified stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards and other stock awards.

The Company measures employee and non-employee stock-based awards at grant date fair value and records compensation expense on a straight-line basis over the vesting period of the award.

The Board of Millendo adopted the 2019 Employee Stock Purchase Plan on April 29, 2019, which became effective upon stockholder approval on June 11, 2019. On June 17, 2022, the Company’s stockholders approved the Amended and Restated 2019 Employee Stock Purchase Plan (the “2019 ESPP”). The 2019 ESPP enables employees to purchase shares of the Company's common stock through offerings of rights to purchase the Company's common stock to all eligible employees.

The 2019 ESPP provides that the number of shares of common stock reserved for issuance under the 2019 ESPP will automatically increase on January 1, 2023 and continuing through (and including) January 1, 2029, by the lesser of 1.5% of the total number of shares of Common Stock outstanding on December 31st of the preceding calendar year, (ii) 500,000 shares of Common Stock, or (iii) such lesser number of shares of Common Stock as determined by the Board of Directors (which may be zero). On January 1, 2023, the common stock reserved for issuance was increased by 157,778 shares.

As of March 31, 2023, 253,097 shares of common stock remained available for future issuance under the 2019 ESPP. During the three months ended March 31, 2023, 41,778 shares of common stock had been issued under the 2019 ESPP.

Options to purchase the Company’s common stock may be granted at a price not less than the fair market value in the case of both NSOs and ISOs, except for an options holder who owns more than 10% of the voting power of all classes of stock of the Company, in which case the exercise price shall be no less than 110% of the fair market value per share on the grant date. Stock options granted under the Plans generally vest over four years and expire no later than ten (10) years from the date of grant. Vested options can be exercised at any time.

Prior to the merger with Millendo, the grant date fair market value of the shares of common stock underlying stock options has historically been determined by the Company’s Board of Directors. Up until the merger, there had been no public market for the Company’s common stock, and therefore the Board of Directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair market value, which included valuations performed by an independent third-party, important developments in the Company’s operations, sales of convertible preferred stock, actual operating results, financial performance, the conditions in the life sciences industry, the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of the Company’s common stock.

The following shows the stock option activities for the three months ended March 31, 2023 and 2022:


	Total Options Outstanding			Weighted-Average Exercise Price
Balance—December 31, 2022		1,553,041		$	6.66
Granted		623,550			1.23
Exercised		—			—
Cancelled and forfeited		(29,180	)		3.59
Balance—March 31, 2023		2,147,411		$	5.13

Balance—December 31, 2021		790,637		$	32.82
Granted		303,125			5.26
Exercised		—			—
Cancelled and forfeited		(17,202	)		7.49
Balance—March 31, 2022		1,076,560			25.75

The following table summarizes information about stock options outstanding at March 31, 2023:


	Shares		Weighted Average Remaining Contractual Life (In Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding		2,147,411		8.73	$	5.13	$	676
Vested and expected to vest		2,147,411		8.73	$	5.13	$	676
Exercisable		558,724		7.47	$	8.39	$	28

During the three months ended March 31, 2023 and 2022, the Company granted employees and non-employees stock options to purchase 623,550 and 303,125 shares of common stock with a weighted-average grant date fair value of $1.03 and $4.37 per share, respectively. As of March 31, 2023 and 2022, total unrecognized compensation costs related to unvested employee stock options were $4,140 and $3,992, respectively. These costs are expected to be recognized over a weighted-average period of approximately 2.5 years and 3.2 years, respectively.

The Company estimated the fair value of stock options using the Black-Scholes option pricing valuation model. The fair value of employee stock options is being amortized on the straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following assumptions for the three months ended March 31, 2023 and 2022:


	2023			2022
Expected term (in years)	6			6
Expected volatility		109	%		68	%
Risk-free interest rate		3.9	%	1.5% - 1.7%
Dividends		—	%		—	%

Expected Term—The expected term of options granted represents the period of time that the options are expected to be outstanding. Due to the lack of historical exercise history, the expected term of the Company’s employee stock options has been determined utilizing the simplified method for awards that qualify as plain-vanilla options.

Expected Volatility—The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as the Company did not have any trading history for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumption as more historical data for the Company’s common stock becomes available.

Risk-Free Interest Rate—The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options.

Dividends—The Company has not paid any cash dividends on common stock since inception and does not anticipate paying any dividends in the foreseeable future. Consequently, an expected dividend yield of zero was used.

The following table summarizes the components of stock-based compensation expense recognized in the Company’s Condensed Consolidated Statement of Operations for the three months ended March 31, 2023:


	Three Months Ended March 31,
	2023		2022
Research and development	$	146	$	102
General and administrative		300		226
Total	$	446	$	328