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Equity-Based Compensation
9 Months Ended
Sep. 30, 2023
Share-Based Payment Arrangement [Abstract]  
Equity-Based Compensation

11. Equity-Based Compensation

Equity-based compensation expense is classified in the condensed consolidated statements of operations and comprehensive loss as follows:

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

(In thousands)

 

Research and development

 

$

21,235

 

 

$

16,383

 

 

$

60,517

 

 

$

40,736

 

General and administrative

 

 

14,117

 

 

 

8,832

 

 

 

38,490

 

 

 

26,038

 

Total

 

$

35,352

 

 

$

25,215

 

 

$

99,007

 

 

$

66,774

 

Amended and Restated 2015 Stock Option and Incentive Plan

In April 2016, the Company adopted the Amended and Restated 2015 Stock Option and Incentive Plan (the “2015 Plan”). The 2015 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and other stock-based awards. Recipients of incentive stock options and non-qualified stock options are eligible to purchase shares of the Company’s common stock at an exercise price equal to the fair value of such stock on the grant date.

The Company maintains a retirement policy for equity awards granted to all employees (the “Retirement Policy”), which applies to all equity awards granted after July 1, 2022 to employees who meet certain retirement eligibility criteria set forth in the Retirement Policy (the “Retirees”). Pursuant to the terms of the Retirement Policy, upon a Retiree’s eligible retirement: (i) all stock options held by the Retiree will continue to vest following the Retiree’s retirement date according to the original vesting schedule of the option until fully vested and all vested stock options held by such Retiree will remain exercisable until the earlier of the five-year anniversary of the Retiree’s retirement date or the original expiration date of the option, (ii) all unvested time-based RSUs held by the Retiree will vest in full on the Retiree’s retirement date and (iii) all unvested performance-based awards held by the Retiree will remain outstanding following the Retiree’s retirement date and the Retiree will remain eligible to earn a pro-rated portion of such performance-based awards at the end of the performance period based on actual performance during the performance period.

As of September 30, 2023, there were 4,005,307 shares available for future issuance under the 2015 Plan. The number of shares reserved for issuance under the 2015 Plan will be cumulatively increased on each January 1st by four percent of the number of shares of stock issued and outstanding on the immediately preceding December 31st or such lesser number of shares of stock as determined by the board of directors.

Restricted Stock Units

The following table summarizes the Company’s RSU activity for the nine months ended September 30, 2023:

 

 

Number of
Shares

 

 

Weighted
Average Grant
Date Fair Value
per Share

 

Unvested restricted stock units as of December 31, 2022

 

 

1,941,379

 

 

$

70.70

 

Granted

 

 

2,774,271

 

 

 

42.36

 

Vested

 

 

(597,610

)

 

 

68.31

 

Cancelled

 

 

(193,503

)

 

 

49.70

 

Unvested restricted stock units as of September 30, 2023

 

 

3,924,537

 

 

$

52.07

 

In March 2023, the Company granted 2,195,135 RSUs with a service condition to employees as part of their annual grant, which have the potential to vest over a period of three years. The weighted average grant date fair value of these RSUs was $40.75 and the vesting start date for these RSUs was January 1, 2023.

Also in March 2023, 181,743 market-based RSUs were granted to senior executives as part of their annual grant. These RSUs have the potential to vest after a period of three years, with a vesting start date of January 1, 2023, and the number of shares to be delivered will depend on the Company’s Total Shareholder Return (“TSR”), a market condition, over that period relative to a defined group of biotechnology companies. The grant date fair value for these RSUs, calculated using a Monte Carlo valuation model, was $68.55. The following assumptions were used to determine the grant date fair value: risk free interest rate: 4.60%; expected dividend yield: 0.0%; expected volatility: 84.34%; expected term (in years): 2.84.

In March 2022, the Company granted 66,296 performance-based RSUs to certain non-executive employees that would vest upon obtaining certain scientific milestones. There were two separate tranches, each attached to a different set of milestones. The milestone related to the first tranche, made up of 21,878 RSUs, was achieved in the first quarter of 2023 and these RSUs vested. The remaining performance milestones were considered not probable of achievement as of September 30, 2023 and, therefore, no related stock-based compensation was recorded during the period then ending.

All RSUs that are not market-based are measured at fair value based on the quoted price of the Company’s common stock.

The weighted-average grant date fair value of RSUs granted during the three and nine months ended September 30, 2023 was $39.14 and $42.36, respectively. The total fair value of RSUs vested (measured on the date of vesting) for the three and nine months ended September 30, 2023 was $4.2 million and $22.5 million, respectively. The weighted-average grant date fair value of RSUs granted during the three and nine months ended September 30, 2022 was $55.59 and $72.48, respectively. The total fair value of RSUs vested (measured on the date of vesting) for the three and nine months ended September 30, 2022 was $0.1 million and $8.0 million, respectively.

As of September 30, 2023, there was $143.2 million of unrecognized equity-based compensation expense related to RSUs that are expected to vest; these costs are expected to be recognized over a weighted average remaining vesting period of 1.86 years.

Stock Options

The weighted average grant date fair value of options, estimated as of the grant date using the Black-Scholes option pricing model, was $28.92 and $57.23 per option for those options granted during the nine months ended September 30, 2023 and 2022, respectively. There were no options granted during the three months ended September 30, 2023 and 2022. The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during the three and nine months ended September 30, 2023 was $4.8 million and $6.6 million, respectively, and during the three and nine months ended September 30, 2022 was $1.4 million and $41.8 million, respectively. Weighted average assumptions used to apply this pricing model were as follows:

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Risk-free interest rate

 

n/a

 

n/a

 

4.4%

 

1.9%

Expected life of options

 

n/a

 

n/a

 

6.0 years

 

5.9 years

Expected volatility of underlying stock

 

n/a

 

n/a

 

78.7%

 

76.2%

Expected dividend yield

 

n/a

 

n/a

 

0.0%

 

0.0%

Risk-free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with maturities approximately equal to the option’s expected term.

Expected Term. The expected term represents the period that stock option awards are expected to be outstanding. For option grants that are considered to be “plain vanilla,” the Company determines the expected term using the simplified method. The simplified method deems the term to be the average of the time-to-vesting and the contractual life of the options. The Company uses the simplified method because it does not have sufficient historical option exercise data to provide a reasonable basis upon which to estimate the expected term.

Expected Volatility. The expected volatility was derived from a blend of the Company’s historical volatility and an average of the historical stock volatilities of several peer companies within the Company’s industry, both over a period equivalent to the expected term of the stock option grants.

Expected Dividend Yield. The expected dividend yield assumption is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends.

Stock options granted under the 2015 Plan in 2023 generally vest as to one-third on the first anniversary of the original vesting date, with the balance vesting monthly over the remaining two years, unless they contain specific performance-based vesting provisions. The maximum term of stock options granted under the 2015 Plan is ten years.

The Company uses the market closing price of its common stock as reported on the Nasdaq Global Select Market to determine the fair value of the shares of common stock underlying stock options.

The following is a summary of stock option activity for the nine months ended September 30, 2023:

 

 

Number of
Options

 

 

Weighted
Average
Exercise
Price per
Share

 

 

Weighted
Average
Remaining
Contractual
Term

 

 

Aggregate
Intrinsic
Value

 

 

 

 

 

 

 

 

 

(In years)

 

 

(In thousands)

 

Outstanding at December 31, 2022

 

 

5,471,675

 

 

$

49.86

 

 

 

 

 

 

 

Granted

 

 

569,821

 

 

 

41.00

 

 

 

 

 

 

 

Exercised

 

 

(319,847

)

 

 

17.52

 

 

 

 

 

 

 

Forfeited

 

 

(130,474

)

 

 

80.20

 

 

 

 

 

 

 

Outstanding at September 30, 2023

 

 

5,591,175

 

 

$

50.10

 

 

 

6.87

 

 

$

39,821

 

Exercisable at September 30, 2023

 

 

3,846,015

 

 

$

42.52

 

 

 

6.30

 

 

$

36,370

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2023, there was $69.2 million of unrecognized compensation cost related to stock options that have not yet vested; these costs are expected to be recognized over a weighted average remaining vesting period of 1.63 years.

2016 Employee Stock Purchase Plan

In May 2016, the Company adopted the 2016 Employee Stock Purchase Plan (the “2016 Plan”). The 2016 Plan allows eligible employees to purchase shares of the Company’s common stock on the last day of each predetermined six-month offering period at 85% of the lower of the fair market value per share at the beginning or end of the applicable offering period. The 2016 Plan provides for six-month offering periods beginning in January and July of each year.

As of September 30, 2023, there were 1,149,953 shares available for future issuance under the 2016 Plan. The number of shares reserved for issuance under the 2016 Plan will be cumulatively increased on each January 1st by the lesser of a) one percent of the number of shares of common stock issued and outstanding on the immediately preceding December 31st, b) 500,000 shares of common stock, or c) such lesser number of shares of common stock as determined by the board of directors.

During the nine months ended September 30, 2023 and 2022 the Company issued 69,631 and 24,316 shares of common stock under the 2016 Plan, respectively. The weighted-average purchase prices of shares issued under the 2016 Plan were $29.45 and $44.00 per share for the nine-month periods ended September 30, 2023 and 2022, respectively.

The fair value of shares under the 2016 Plan was estimated at the beginning of the offering period using a Black-Scholes option-pricing model with the following assumptions:

 

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

 

2023

 

2022

 

2023

 

2022

Risk-free interest rate

 

5.53%

 

2.52%

 

4.7%-5.53%

 

0.22%-2.52%

Expected term (in years)

 

0.5 years

 

0.5 years

 

0.5 years

 

0.5 years

Expected volatility of underlying stock

 

60.4%

 

95.3%

 

60.4%-69.2%

 

63.6%-95.3%

Expected dividend yield

 

0.0%

 

0.0%

 

0.0%

 

0.0%