In January 2015, the Company adopted the Metacrine, Inc. 2015 Equity Incentive Plan (as amended, the “2015 Plan”), which provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock unit awards, and stock appreciation rights to its employees, members of its board of directors, and consultants. In August 2020, the Company’s Board of Directors approved the 2020 Equity Incentive Plan (the “2020 Plan”), which is the successor and continuation of the 2015 Plan. No additional awards may be granted under the 2015 Plan and all outstanding awards under the 2015 Plan remain subject to the terms of the 2015 Plan. As of September 30, 2020, there were 2,759,799 shares authorized and available for issuance under the 2020 Plan.

Recipients of incentive stock options are eligible to purchase shares of the Company’s common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant. The maximum term of options granted under the 2015 and 2020 Plans (or collectively, the “Equity Plans”) is ten years and, in general, the options issued under the Equity Plans vest over a four-year period from the vesting commencement date. The 2015 Plan allows for early exercise of stock options, which may be subject to repurchase by the Company at the lower of (i) the fair market value at the repurchase date or (ii) the original exercise price. The early exercise of stock options is not permitted under the 2020 Plan.

A summary of the Company’s unvested shares and unvested stock liability is as follows (in thousands, except share data):

	Number of Unvested Shares			Unvested Stock Liability
Balance at December 31, 2019		197,549			109
Repurchased shares		(4,269	)		(2	)
Vested shares		(145,360	)		(73	)
Balance at September 30, 2020		47,920		$	34

A summary of the Company’s stock option activity is as follows (in thousands, except share and per share data):

	Number of Outstanding Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (In Years)		Aggregate Intrinsic Value
Balance at December 31, 2019		1,684,630		$	2.47		8.73	$	911
Granted		1,812,016		$	7.20
Cancelled		(109,835	)	$	5.14
Exercised		(54,266	)	$	1.27
Balance at September 30, 2020		3,332,545		$	4.98		8.85	$	17,525
Vested and expected to vest at September 30, 2020		3,332,545		$	4.98		8.85	$	17,525

The weighted average grant date fair value per share of option grants for the nine months ended September 30, 2020 and 2019 (excluding the impact of the modifications described below) was $8.41 and $2.09, respectively. The total intrinsic value of stock options exercised during the nine months ended September 30, 2020 and 2019 was $0.5 million and $49 thousand, respectively.

The assumptions used in the Black-Scholes option pricing model to determine the fair value of stock option grants were as follows:

	Nine Months Ended September 30,
	2020			2019
Risk-free interest rate	0.4% – 0.7%			1.8% –1.9%
Expected volatility	82.4% – 94.8%			72.6% – 81.0%
Expected term (in years)	5.8 – 10.0			5.1 – 6.1
Expected dividend yield		0.0	%		0.0	%

Risk-free interest rate. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for zero coupon U.S. Treasury notes with maturities similar to the expected term of the awards.

Expected volatility. Since the Company recently completed its IPO and does not have sufficient trading history for its common stock, the expected volatility assumption is based on volatilities of a peer group of similar companies whose share prices are publicly available. The peer group was developed based on companies in the biotechnology industry. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Expected term. The expected term represents the period of time that options are expected to be outstanding. Because the Company does not have historical exercise behavior, it determines the expected life assumption using the simplified method, for employees, which is an average of the contractual term of the option and its vesting period. The expected term for nonemployee options is equal to the contractual term.

Expected dividend yield. The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends and, therefore, used an expected dividend yield of zero.

In September 2020, the Company’s Board of Directors and stockholders adopted and approved the 2020 Employee Stock Purchase Plan (the “ESPP”). The ESPP permits eligible employees, who elect to participate in an offering under the ESPP, to contribute up to 15% of their eligible gross compensation towards the purchase of shares of common stock. Eligible employees can purchase up to 20,000 shares of common stock on a given purchase date. The price at which stock is purchased under the ESPP is equal to 85% of the fair market value of the Company’s common stock on the commencement date of each offering period or the relevant purchase date, whichever is lower. Offerings under the ESPP are approximately two years in duration and consist of four purchase periods that are approximately six months in duration. The ESPP is considered a compensatory plan as defined by the authoritative guidance for stock-based compensation. Stock-based compensation expense attributable to the ESPP was immaterial for the three and nine months ended September 30, 2020. As of September 30, 2020, there were 405,000 shares of common stock available for future issuance under the ESPP.

Stock-based compensation expense recognized for all equity awards has been reported in the unaudited condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Research and development	$	342	$	211	$	839	$	620
General and administrative		1,449		273		2,312		822
	$	1,791	$	484	$	3,151	$	1,442

As of September 30, 2020, unrecognized stock-based compensation cost was $16.3 million, which is expected to be recognized over a remaining weighted average period of approximately 3.0 years.

In June 2020, the Company entered into a separation and consulting agreement in connection with the resignation of Dr. Song as the Company’s President and Chief Executive Officer. Under the terms of the separation and consulting agreement, Dr. Song will receive $0.1 million in cash compensation, was provided the potential of an extended period of time to exercise vested stock options if certain conditions are met, and will continue to vest while he provides limited but substantive consulting services to the Company through December 31, 2020. The benefit received in connection with the potential extended exercise period and continued vesting as originally scheduled were considered modifications to the original terms of the equity Dr. Song maintains. These modifications resulted in incremental fair value of $1.1 million, substantially all of which will be recognized on a straight-line basis through December 31, 2020.

	September 30,		December 31,
	2020		2019
Conversion of preferred stock		—		16,685,014
Common stock warrant		23,122		—
Preferred stock warrant		—		23,122
Common stock options outstanding		3,332,545		1,684,630
Shares available for issuance under the 2020 Plan		2,759,799		616,423
		6,115,466		19,009,189