Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

Stock-Based Compensation

8. Stock-Based Compensation

2018 Stock Option and Incentive Plan

The Magenta Therapeutics, Inc. 2018 Stock Option and Incentive Plan (the “2018 Plan”) provides for the grant of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to employees, directors and consultants. Shares of common stock underlying any awards under the 2018 Plan and the Magenta Therapeutics, Inc. 2016 Stock Option and Grant Plan (the “2016 Plan”) that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without any issuance of stock, expire or are otherwise terminated (other than by exercise) will be available for future awards under the 2018 Plan. As of December 31, 2019, 2,596,626 shares remained available for future grants under the 2018 Plan.

The 2018 Plan provides that the number of shares reserved and available for issuance under the 2018 Plan will automatically increase each January 1, beginning on January 1, 2019, by 4% of the outstanding number of shares of the Company’s common stock on the immediately preceding December 31 or such lesser number of shares as determined by the Company’s compensation committee. This number is subject to adjustment in the event of a stock split, stock dividend or other change in capitalization. The number of shares reserved for issuance under the 2018 Plan was increased by 1,570,421 shares effective January 1, 2020.

2016 Stock Option and Grant Plan

The Company also has outstanding stock options and restricted stock awards under the 2016 Plan, but is no longer granting awards under this plan.

Both the 2016 Plan and the 2018 Plan are administered by the board of directors, or at the discretion of the board of directors, by a committee of the board. The exercise prices, vesting and other restrictions are determined at the discretion of the board of directors, or their committee if so delegated, except that the term of awards may not be greater than ten years. Vesting periods are determined at the discretion of the board of directors. Awards typically vest over three or four years. The exercise price for stock options granted may not be less than the fair value of common stock as of the date of grant. Subsequent to the IPO, the fair value of common stock is based on quoted market prices. Prior to the IPO, the Company’s board of directors valued the Company’s common stock, taking into consideration its most recently available valuation of common stock performed by third parties as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

2019 Employee Stock Purchase Plan

The Magenta Therapeutics, Inc. 2019 Employee Stock Purchase Plan (the “ESPP”) was adopted by the Company on April 18, 2019 and became effective following stockholder approval on June 7, 2019. An aggregate of 166,525 shares were reserved for issuance under the ESPP. In addition, on January 1, 2020 and each January 1 thereafter through January 1, 2029, the number of shares available for issuance shall be cumulatively increased by the lesser of (i) 1% of the number of shares issued and outstanding on the immediately preceding December 31, (ii) 1,000,000 shares and (iii) such number of shares as determined by the compensation committee of the Company’s board of directors. The offering periods begin in December and June of each year, with the initial offering period commencing on December 1, 2019. The purchase price of common stock under the ESPP is equal to 85% of the lower of the fair market value of the common stock on the offering date or the exercise date. As of December 31, 2019, no shares have been issued under the ESPP and 166,525 shares remained available for issuance. The Company recognized less than $0.1 million of stock- based compensation during the year ended December 31, 2019 related to the ESPP. The number of shares reserved for issuance under the ESPP did not increase on January 1, 2020.

Common Stock Option Valuation

The assumptions that the Company used to determine the fair value of options granted were as follows, presented on a weighted average basis:

	Year Ended December 31,
	2019			2018			2017
Risk-free interest rate		2.3	%		2.8	%		2.0	%
Expected term (in years)		6.0			6.2			6.0
Expected volatility		78.5	%		78.4	%		78.1	%
Expected dividend yield		0	%		0	%		0	%

Common Stock Option Activity

The following table summarizes the Company’s option activity since December 31, 2018:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
						(in years)		(in thousands)
Outstanding as of December 31, 2018		3,509,829		$	8.67		9.2	$	526
Granted		1,809,566			8.86
Exercised		(294,310	)		6.87
Forfeited		(336,952	)		8.24
Outstanding as of December 31, 2019		4,688,133		$	8.88		8.6	$	29,634
Options vested and expected to vest as of December 31, 2019		4,688,133		$	8.88		8.6	$	29,634
Options exercisable as of December 31, 2019		1,411,435		$	8.56		8.3	$	9,316

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of options exercised during the years ended December 31, 2019 and 2018 was $2.3 million and less than $0.1 million, respectively. There were no options exercised during the year ended December 31, 2017.

The weighted average grant-date fair value per share of stock options granted during the years ended December 31, 2019, 2018 and 2017 was $6.05, $6.56 and $3.31, respectively.

Restricted Stock Activity

Unvested shares of restricted stock may not be sold or transferred by the holder. These restrictions lapse according to the time-based vesting conditions of each award.

The table below summarizes the Company’s restricted stock activity for grants issued under the 2016 Plan since December 31, 2018:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding as of December 31, 2018		1,022,521		$	1.16
Vested		(773,689	)		1.02
Forfeited		(43,110	)		0.83
Outstanding as of December 31, 2019		205,722		$	1.76

The total fair value of restricted stock vested during the years ended December 31, 2019, 2018 and 2017 was $9.3 million, $9.3 million and $1.9 million, respectively.

Stock-Based Compensation

Stock-based compensation expense was classified in the statements of operations and comprehensive loss as follows (in thousands):

	Year Ended December 31,
	2019		2018		2017
Research and development expenses	$	4,518	$	6,032	$	1,626
General and administrative expenses		5,483		4,671		633
	$	10,001	$	10,703	$	2,259

As of December 31, 2019, total unrecognized compensation cost related to the unvested stock-based awards was $15.7 million, which is expected to be recognized over a weighted average period of 2.3 years.