Share-Based Compensation

12 Months Ended

Dec. 31, 2021

Share-Based Compensation

Share-Based Compensation

15. Share-based Compensation

Biostage Amended and Restated Equity Incentive Plan

The Company maintains the Amended and Restated Equity Incentive Plan, or the Plan, for the benefit of certain officers, employees, non-employee directors, and other key persons (including consultants and advisory board members). All options and awards granted under the Plan consist of the Company’s shares of common stock. The Company’s policy is to issue stock available from its registered but unissued stock pool through its transfer agent to satisfy stock option exercises and the vesting of restricted stock units. The vesting period for awards is generally four years and the contractual life is ten years. Canceled and forfeited options and awards are available to be reissued under the Plan.

In June 2020, the Company’s shareholders approved the Plan to, among other things, increase of the number of shares of the Company’s common stock available for issuance pursuant thereto by 3,000,000 shares, which increased the total shares authorized to be issued under the Plan to 5,098,000. There are 2,744,710 shares available for issuance as of December 31, 2021.

Stock option activity under the Plan for the year ended December 31, 2021 was as follows:

		Weighted-average		Weighted-average	Aggregate intrinsic
	Amount	exercise price		contractual life (years)	value (in thousands)
Outstanding at December 31, 2020	1,599,720	$	6.33	5.77	$	—
Granted	1,253,336		2.15
Canceled / forfeited	(520,453)		7.73
Outstanding at December 31, 2021	2,332,603	$	3.93	8.30	$	294
Options exercisable	1,074,760	$	5.48	6.83	$	129
Options vested and expected to vest	2,261,832	$	3.83

The Company’s outstanding stock options include 510,742 performance-based awards that have vesting provisions subject to the achievement of certain business milestones. Total unrecognized compensation expense for the remaining performance-based awards is approximately $1.3 million. No expense has been recognized for these awards as of December 31, 2021 given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes.

Aggregate intrinsic value for outstanding options and exercisable options for the year ended December 31, 2021, was approximately $294,000 based on the Company’s closing stock price of $2.30 per share as of December 31, 2021. As of December 31, 2021, unrecognized compensation cost related to unvested non-performance-based awards amounted to $1.1 million, which will be recognized over a weighted-average period of 1.83 years.

The weighted average assumptions for valuing the Company’s stock options granted were as follows:

	Year Ended December 31,
	2021		2020
Risk-free interest rate	1.21	%	0.68	%
Expected volatility	120.86	%	111.47	%
Expected term (in years)	5.6	years	4.4	years
Expected dividend yield	—	%	—	%

The grant date fair value of stock options is estimated using the Black-Scholes option pricing model that takes into account the fair value of its common stock, the exercise price, the expected life of the option, the expected volatility of its common stock, expected dividends on its common stock, and the risk-free interest rate over the expected life of the option. The risk-free interest rate assumption is based upon observed treasury bill interest rates (risk-free) appropriate for the expected term of the Company’s employee stock options. The computation of expected volatility is based on the historical volatility of the Company’s common stock. The simplified method of estimating expected term was used. The Company has not paid and do not anticipate paying cash dividends on the Company’s shares of common stock; therefore, the expected dividend yield is assumed to be zero.

The weighted average estimated fair value of stock options granted using the Black-Scholes model was $1.84 per share for each of the years ended December 31, 2021 and 2020.

The Company also estimated the fair value of non-employee share options using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee and director options in each of the reporting periods, other than the expected life, which is assumed to be the remaining contractual life of the options.

Share-based compensation expense related to the Plan for the years ended December 31, 2021 and 2020 was allocated as follows:

	Years Ended December 31,
	2021		2020
	(in thousands)
Research and development	$	495	$	311
Selling, general and administrative		485		833
Total stock-based compensation	$	980	$	1,144

In February 2020, as part of the termination agreement with the Company’s former chief executive officer, the Company modified certain options to purchase 236,970 shares of common stock, issued an 80,000 fully vested stock option grant, and accelerated the vesting of 3,300 restricted stock units resulting in $153,000, $70,000, and $4,000, respectively, of share-based compensation for the year ended December 31, 2020.