Stock-Based Compensation

3 Months Ended

Mar. 31, 2022

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Stock Option Activity

A summary of the Company’s stock option activity under the 2012 Stock Plan (as amended and restated), or the 2012 Plan, and the 2018 Incentive Award Plan, or the 2018 Plan, and related information is as follows:

		Options Outstanding
	Shares Available for Grant	Shares Subject to Options Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
	(unaudited)
						(in thousands)
Balance as of January 1, 2022	5,231,624	2,624,974	$	29.17	6.5	$	193,014
2018 Plan annual increase(1)	3,689,000	—
Granted	(7,252)	7,252	62.10
Exercised	—	(105,218)	5.94
Canceled	13,268	(17,502)	74.71
Restricted stock units granted	(128,855)	—	—
Restricted stock units canceled	97,859	—	—
Performance-based restricted stock units canceled	29,514	—	—
Balance as of March 31, 2022	8,925,158	2,509,506	$	29.92	6.3	$	115,462
Vested and Exercisable as of March 31, 2022		1,957,910	$	12.56	5.6	$	109,604

(1)Effective as of January 1, 2022, an additional 3,689,000 shares of common stock became available for issuance under the 2018 Plan, as a result of the operation of an automatic annual increase provision therein.

Aggregate intrinsic value represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options. The total intrinsic value of the options exercised was $7.3 million and $38.3 million for the three months ended March 31, 2022, and 2021, respectively.

The weighted-average grant date fair value of options granted was $36.32 and $101.21 per share for the three months ended March 31, 2022, and 2021, respectively.

Future stock-based compensation for unvested options as of March 31, 2022 was $27.9 million, which is expected to be recognized over a weighted-average period of 2.9 years.

Restricted Stock Units

A summary of the Company’s restricted stock unit activity excluding the performance-based and market-based restricted stock units under the 2012 Plan and the 2018 Plan and related information is as follows:

	Restricted Stock Units Outstanding	Weighted-Average Grant Date Fair Value
	(unaudited)
Balance as of January 1, 2022	1,498,553	$	109.72
Granted	128,855	62.10
Vested and released	(23,171)	105.58
Canceled	(97,859)	108.53
Balance as of March 31, 2022	1,506,378	$	105.78

Future stock-based compensation for unvested restricted stock units as of March 31, 2022 was $130.1 million, which is expected to be recognized over a weighted-average period of 3.0 years.

Performance-based Restricted Stock Units

Since November 2020, the Compensation Committee of the Board of Directors started to approve, and the Company started to grant performance-based restricted stock units, or PSUs, under the 2018 Plan. The PSUs granted to employees consist of financial and operational metrics to be met over a performance period of 4 years and an additional service period requirement of six months after the performance metrics are met. The PSUs granted to a consultant consistent of operational metrics to be met over a performance period of 4 years. The PSUs are expected to be expensed over a period of approximately 4 years to 4.5 years subject to meeting the respective performance metrics and service requirements. As of March 31, 2022, a significant portion of these PSUs are not expected to achieve the related performance metrics, and therefore, no stock-based compensation expense was recorded for the PSUs that were not probable to vest.

A summary of the Company’s performance-based restricted stock unit activity under the 2018 Plan and related information is as follows:

	Performance-based Restricted Stock Units Outstanding	Weighted-Average Grant Date Fair Value
	(unaudited)
Balance as of January 1, 2022	374,596	$	116.58
Canceled	(29,514)	113.40
Balance as of March 31, 2022	345,082	$	116.86

Stock-based compensation recorded for the PSUs was $0.3 million and $0.3 million for the three months ended March 31, 2022, and 2021, respectively. Future stock-based compensation for unvested PSUs that are probable to vest as of March 31, 2022 was $3.5 million, which is expected to be recognized over a weighted-average period of 2.9 years.

Market-based Restricted Stock Units

In May 2020, the Board of Directors approved and granted 1,695,574 market-based restricted stock units, or MSUs, under the 2018 Plan to each of the Company's Co-Chief Executive Officers, which is subject to the achievement of market-based share price goals established by the Board of Directors. The MSUs consist of three separate tranches and the vesting of each tranche is subject to the Company's common stock closing price being maintained at or above a predetermined share price goal for a period of 30 consecutive calendar days. The share price goal can be met any time during the seven-year performance period from the date of grant. Upon vesting, the MSUs must be held for a period of six to twelve months depending on the time of vesting within the seven-year performance period. The vesting of the MSUs can also be triggered upon a change in control event and achievement of a certain change in

control price goal, or when there is a qualifying termination or in the event of death or disability. The following table presents additional information relating to each MSU award:

Tranche	Price Goal	Number of RSUs
Tranche 1	$120 per share	565,192
Tranche 2	$150 per share	565,191
Tranche 3	$200 per share	565,191

The grant date fair values of the MSUs were determined using a Monte Carlo valuation model for each tranche. The related stock-based compensation expense for each tranche is recognized based on an accelerated attribution method over the estimated derived service period. If the related share price goal is achieved earlier than its expected derived service period, the stock-based compensation expense will be recognized as a cumulative catch-up expense from the grant date to that point in time in achieving the share price goal. The derived service period is the median duration of the successful stock price paths to meet the price goal for each tranche as simulated in the Monte Carlo valuation model. The Monte Carlo valuation model uses assumptions such as volatility, risk-free interest rate, cost of equity and dividend estimated for the performance period of the MSU. The weighted-average grant date fair value of the MSUs was $67.00 per share and the weighted-average derived service period was estimated to be in the range of 0.83 – 2.07 years.

On January 1, 2021, Tranche 1 of the MSUs became vested because it had met both service requirement and market-based performance metrics as the predetermined share price goal of $120 per share was achieved for a period of 30 consecutive calendar days. As of March 31, 2022 and December 31, 2021, 2,260,764 shares of market-based restricted stock units, with a weighted-average grant date fair value of $65.20 per share, were outstanding under the 2018 Plan. No MSUs were granted, vested or canceled during the three months ended March 31, 2022.

Stock-based compensation for the MSUs was $8.5 million and $43.9 million, for the three months ended March 31, 2022, and 2021, respectively, which was recorded in general and administrative expenses on the Company's condensed consolidated statement of operations. Future stock-based compensation for unvested MSUs as of March 31, 2022 was $7.6 million, which is expected to be recognized over a weighted-average period of 0.2 years. In the event of a change in control, a qualifying termination, death, disability or the share price goal occurring earlier than the estimated derived service period, the stock-based compensation relating to these MSUs could be accelerated. Any MSUs that remain unvested at the end of the seven-year performance period will automatically be forfeited and terminated without further consideration.

AMEA 2020 Equity Incentive Plan

In August 2020, the board of directors of the Joint Venture approved its 2020 Equity Incentive Plan, or the AMEA 2020 Plan, under which the Joint Venture may grant equity incentive awards such as stock options, restricted stock, restricted stock units, stock appreciation rights and cash-based awards to its employees and non-employees. Stock options granted may be either incentive stock options or nonstatutory stock options. Incentive stock options may be granted only to employees of the Joint Venture or its affiliates. Nonstatutory stock options may be granted to employees, directors and non-employee consultants. Stock options may be granted at an exercise price of not less than the fair market value of the Joint Venture's common stock on the date of grant, determined by the board of directors of the Joint Venture. Options generally vest over 4 years and expire as determined by the board of directors of the Joint Venture, provided that the term of options may not exceed 10 years from the date of grant. For individuals holding more than 10% of the total combined voting power of all classes of stock of the Joint Venture, the exercise price of an option will not be less than 110% of the fair market value of the Joint Venture's common stock on the date of grant, and the term of the option will not exceed 5 years. A total of 4,595,555 shares of the Joint

Venture's Class B common stock are initially reserved for issuance under the AMEA 2020 Plan, and the number of shares may be increased in accordance with the terms of the AMEA 2020 Plan.

A summary of the Joint Venture's stock option activity under the AMEA 2020 Plan and related information is as follows:

		Options Outstanding
	Shares Available for Grant	Shares Subject to Options Outstanding	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
	(unaudited)
						(in thousands)
Balance as of January 1, 2022	340,928	3,652,219	$	0.58	8.8	$	—
Exercised	—	(582,020)	0.58
Canceled	74,999	(74,999)	0.58
Balance as of March 31, 2022	415,927	2,995,200	$	0.58	8.6	$	—
Vested and Exercisable as of March 31, 2022		1,809,430	$	0.58	8.4	$	—

No stock options were granted under the AMEA 2020 Plan for the three months ended March 31, 2022. The weighted-average grant date fair value of options granted under the AMEA 2020 Plan was $0.33 per share for the three months ended March 31, 2021. Future stock-based compensation for unvested options as of March 31, 2022 was $0.3 million, which is expected to be recognized over a weighted-average period of 2.4 years.

Stock-Based Compensation Expense

The following table presents the effect of employee and non-employee related stock-based compensation expense including the Joint Venture:

	Three Months Ended March 31,
	2022		2021
	(unaudited)
	(in thousands)
Cost of precision oncology testing	$	1,164	$	767
Research and development expense	5,343		4,300
Sales and marketing expense	5,525		2,880
General and administrative expense	12,767		47,122
Total stock-based compensation expense	$	24,799	$	55,069

Valuation of Stock Options

The grant date fair value of stock options was estimated using a Black-Scholes option-pricing model with the following weighted-average assumptions including the Joint Venture:

	Three Months Ended March 31,
	2022	2021
	(unaudited)
Expected term (in years)	5.97	6.01 – 6.04
Expected volatility	63.3%	63.6% – 66.4%
Risk-free interest rate	1.9%	0.3% – 0.8%
Expected dividend yield	—%	—%

The determination of the fair value of stock options on the date of grant using a Black-Scholes option-pricing model is affected by the estimated fair value of common stock of the Company and the Joint Venture, as well as assumptions regarding a number of variables that are complex, subjective and generally require significant judgment to determine. The valuation assumptions were determined as follows:

Fair Value of Common Stock

The fair value of the Company’s common stock is determined by the closing price, on the date of grant, of its common stock, which is traded on the Nasdaq Global Select Market. The grant date fair value of the Joint Venture's common stock has been determined by the board of directors of the Joint Venture. The grant date fair value of the Joint Venture’s common stock was determined using valuation methodologies which utilize certain assumptions including probability weighting of events, volatility, time to liquidation, a risk-free interest rate and an assumption for a discount for lack of marketability. In determining the fair value of the Joint Venture’s common stock, the methodologies used to estimate the enterprise value of the Joint Venture were performed using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

Expected Term

The expected term represents the period that the options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term) as the Company has concluded that its stock option exercise history does not provide a reasonable basis upon which to estimate expected term.

Expected Volatility

Prior to the commencement of trading of the Company’s common stock on the Nasdaq Global Select Market on October 4, 2018 in connection with the IPO, there was no active trading market for the Company's common stock. Due to limited historical data for the trading of the Company’s common stock, expected volatility is estimated based on the average volatility for comparable publicly traded peer group companies in the same industry plus the Company's expected volatility for the available periods. The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty.

The Joint Venture derived the expected volatility from the average historical volatility over a period approximately equal to the expected term of comparable publicly traded companies within its peer group that were deemed to be representative of future stock price trends as the Joint Venture does not have any trading history for its common stock. The Joint Venture will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Risk-Free Interest Rate

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

Expected Dividend Yield

The Company and the Joint Venture does not anticipate paying any dividends in the foreseeable future and, therefore, uses an expected dividend yield of zero.

2018 Employee Stock Purchase Plan

In September 2018, the Company’s Board of Directors adopted and its stockholders approved the 2018 Employee Stock Purchase Plan, or the ESPP. A total of 922,250 shares of common stock were initially reserved for issuance under the ESPP. Effective as of January 1, 2020, an additional 942,614 shares of common stock became available for issuance under the ESPP.

Subject to any plan limitations, the ESPP allows eligible employees to contribute, normally through payroll deductions, up to 10% of their earnings for the purchase of the Company’s common stock at a discounted price per share. The price at which common stock is purchased under the ESPP is equal to 85% of the fair market value of the Company’s common stock on the first or last day of the offering period, whichever is lower. The ESPP provides for separate six-month offering periods beginning on May 15 and November 15 of each year.

No ESPP shares were granted or purchased for the three months ended March 31, 2022 and 2021. The total compensation expense related to the ESPP was $1.0 million and $0.8 million for the three months ended March 31, 2022, and 2021, respectively.

The fair value of the stock purchase right granted under the ESPP was estimated on the first day of each offering period using the Black-Scholes option pricing model. The valuation assumptions used were substantially consistent with the assumption used to value stock options with the exception of the expected term which was based on the term of each purchase period.

As of March 31, 2022, the unrecognized stock-based compensation expense related to the ESPP was $0.5 million, which is expected to be recognized over the remaining term of the offering period of 0.1 years.