Stock-Based Compensation

12 Months Ended

Dec. 31, 2021

Stock-Based Compensation

Stock-Based Compensation

7. Stock-Based Compensation

In March 2021, the Company’s board of directors adopted the Company’s 2021 Equity Incentive Plan (2021 Plan), which is the successor to the 2014 Equity Incentive Plan (2014 Plan). A total of 2,187,524 new shares of common stock were approved to be initially reserved for issuance under the 2021 Plan, which includes 117,639 shares reserved and available for issuance pursuant to the grant of new awards under the 2014 Plan as of the effectiveness of the 2021 Plan and will include any shares subject to stock awards granted under the 2014 Plan that, after the date the 2021 Plan became effective, are forfeited or otherwise become available under the 2014 Plan. Under the 2021 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, and other awards to individuals who are then employees, officers, directors or consultants of the Company, and employees and consultants of the Company’s affiliates. As of December 31, 2021, there were 760,267 shares available for future grant under the 2021 Plan.

Under the 2014 Plan, certain employees may be granted the ability to early exercise their options. The shares of common stock issued pursuant to the early exercise of unvested stock options are restricted and continue to vest over the requisite service period after issuance. The Company has the option to repurchase any unvested shares at the original purchase price upon any voluntary or involuntary termination. The shares purchased by the employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be outstanding until those shares vest. As of December 31, 2021, 2,447 shares subject to stock options have been early exercised, which vested in January 2022. Cash received in exchange for early exercises of stock options has been recorded as a liability for the early exercise of stock options and were transferred into common stock and additional paid-in capital as the shares vested. As of December 31, 2021, such liability for early exercises of stock options was immaterial.

In October 2021, the Company granted inducement awards, in accordance with Nasdaq Listing Rule 5635(c)(4) (Inducement Awards), in the aggregate amount of 210,000 shares, which included options to purchase 180,000 shares and performance-based restricted stock units (PSUs) of 30,000 shares.

Shares Reserved for Future Issuance

As of December 31, 2021, the Company had reserved shares of its common stock for future issuance as follows:

	Shares
	Reserved
Common stock options outstanding and unvested restricted stock units	4,515,143
Available for future grants under the 2021 Equity Incentive Plan	970,267
Available for future grants under the 2021 Employee Stock Purchase Plan	234,434
Total shares of common stock reserved	5,719,844

Stock Options

The Company estimates stock awards fair value on the date of grant using the Black-Scholes valuation, with the vesting being subject to service requirements. The Company accounts for forfeitures when they occur.

The following table summarizes stock options as of December 31, 2021, and changes during the year ended December 31, 2021 (in thousands, except share and per share data):

			Weighted-	Weighted-Average
	Options		Average Exercise	Remaining		Aggregate
	Outstanding	Price		Contractual Term		Intrinsic Value
Outstanding at December 31, 2020	935,478	$	2.56	7.7
Granted	3,537,885	$	6.03
Exercised	(238,515)	$	2.13
Forfeited/Expired	(19,205)	$	4.54
Outstanding at December 31, 2021	4,215,643	$	5.49	8.5	$	13,530
Vested at December 31, 2021	1,179,617	$	3.84	7.1	$	5,553
Exercisable at December 31, 2021	2,695,756	$	4.50	7.9	$	8,089

Options exercisable at December 31, 2021 include vested options and options eligible for early exercise. All outstanding options as of December 31, 2021 are expected to vest.

Unrecognized stock-based expense at December 31, 2021 was $11.4 million, which is expected to be recognized over a weighted-average vesting term of 3.0 years.

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

	Year Ended
	December 31,
	2021		2020
Risk-free interest rate	0.88	%	1.00	%
Expected volatility	78.3	%	71.7	%
Expected term (in years)	6.0		5.8
Expected dividend yield	—	%	—	%

Risk-free interest rate. The Company bases the risk-free interest rate assumption on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

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.

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, which is an average of the contractual term of the option and its vesting period.

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.

Performance-Based Restricted Stock Units

In December 2021, the Company granted 169,500 PSUs to employees pursuant to the 2021 Plan and 30,000 PSUs Inducement Awards. The PSUs vest based on the Company achieving certain regulatory milestones and are subject to the employee’s continued employment with the Company through the achievement date. The fair value of the awards was based on the value of the Company’s common stock at the date of the award and expense recognition is based on the probability of achieving the performance metric. The Company concluded that achievement of the performance conditions was not probable as of December 31, 2021, and therefore no compensation expense was recognized for the year ended December 31, 2021 in connection with the PSU awards. Compensation cost is adjusted in future periods for subsequent changes in the expected outcome of the performance related conditions.

Market-Based Awards

Restricted Stock Units

In December 2021, the Company granted 100,000 market-based restricted stock units (MRSUs) to an employee pursuant to the 2021 Plan. The MRSUs vest based on the Company’s closing stock price trading above $20 per share for 30 consecutive trading days subject to the employee’s continued employment with the Company through the date of achievement. The share price of the Company’s common stock on the date of issuance of the MRSUs was $6.69 per share. The fair value was $0.4 million based on Monte Carlo simulation model on the grant date. Compensation expense is recognized over the derived service period of 3 years. During the year ended December 31, 2021, the Company recognized $8 thousand of stock-based compensation expense in connection with the MRSUs. As of December 31, 2021, there was $0.4 million of unrecognized compensation expense related to this MRSU.

Performance Award

In November 2020, the Company hired a new chief executive officer who is entitled to receive a Performance Awards in the amount of $7.5 million, payable in cash, common stock or a combination of cash and common stock, at the election of the Company, in the event that (i) the Company’s market value exceeds $750 million utilizing the volume-weighted average of the closing sale price of its common stock on the Nasdaq Stock Market or other principal exchange for each of the 30 trading days immediately prior to the measurement date, or (ii) the fair market value of the net proceeds available for distribution to the Company’s stockholders in connection with a change in control as defined in the Company’s severance benefit plan, as determined in good faith by its board of directors, exceeds $750 million. The Company has determined that the Performance Award is subject to ASC Topic 718, Compensation – Stock Compensation and includes both market and performance conditions. Since the IPO, neither of the events have yet been satisfied. The Company estimated the fair value of the Performance Award at each reporting period using the Monte Carlo simulation (Note 3), which is recognized as compensation cost over the derived service period. During the year ended December 31, 2021, the Company recorded a stock-based compensation expense of $0.4 million.

Employee Stock Purchase Plan

In March 2021, the Company’s board of directors adopted the Company’s 2021 ESPP, which became effective immediately prior to the execution of the underwriting agreement in connection with the Company’s IPO. A total of 243,058 shares of common stock were approved to be initially reserved for issuance under the ESPP. As of December 31, 2021, 8,624 shares have been issued under the ESPP.

In September 2021, the Company’s board of directors adopted the Company’s 2021 UK Sharesave Sub-plan (SAYE). An allocation of 25,875 shares of common stock from the ESPP was approved and reserved for issuance under the SAYE. No shares have been issued under the SAYE through December 31, 2021.

The stock-based compensation expense related to the ESPP and SAYE for the year ended December 31, 2021 was immaterial.

The following table summarizes stock compensation expense, including expense associated with award modifications that accelerated the recognition of expense for unvested options, reflected in the consolidated statements of operations (in thousands):

	Year Ended
	December 31,
	2021		2020
Research and development	$	1,036	$	165
General and administrative		2,855		228
Total	$	3,891	$	393