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Stock-Based Compensation
6 Months Ended
Jun. 30, 2022
Stock-Based Compensation  
Stock-Based Compensation

10. Stock-Based Compensation

Equity Incentive Plans

In September 2021, the Company adopted the Theseus Pharmaceuticals, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), which replaced the 2018 Stock Incentive Plan (the “2018 Plan”) and allows for the issuance of stock options, restricted stock awards, restricted stock units (“RSUs”), and other types of equity awards. No further awards were made under the 2018 Plan as of the effective date of the 2021 Plan. Any options or awards outstanding under the 2018 Plan are governed by their existing terms. As of June 30, 2022 and December 31, 2021, the number of shares of common stock reserved for issuance were 9,089,833 and 9,094,083 shares, respectively. Of those shares reserved for issuance, there were 1,945,040 and 3,930,440 shares available for future grant under the 2021 Plan as of June 30, 2022 and December 31, 2021, respectively.

The 2021 Plan is administered by the Board (or its compensation committee), and the exercise prices, vesting and other restrictions for the awards are determined at the discretion of the Board, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the common stock on the date of grant. Stock options awarded under the 2021 Plan expire ten years after the grant date unless the Board sets a shorter term. The expected term of stock options granted to employees and non-employees has

been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. Stock options granted to employees and nonemployees typically vest over four years. Shares of restricted stock awards granted to employees, officers, members of the Board, advisors, and consultants of the Company typically vest over five years. Certain executives who are option holders are able to early exercise stock option awards prior to full satisfaction of the vesting conditions. If and when this occurs, the executive receives restricted common stock upon exercise of the option, and the shares remain subject to the Company’s right of repurchase until the remaining vesting terms are met. During the year ended December 31, 2021, options to purchase 345,930 shares of common stock were exercised early. As of June 30, 2022 and December 31, 2021, the Company recognized $1.0 million and $1.4 million, respectively, as a liability related to the early exercise. The amount of remaining unvested shares related to the early exercise as of June 30, 2022 and December 31, 2021 were 245,035 and 345,930, respectively. There were no additional early exercises of options during the six months ended June 30, 2022.

Employee Stock Purchase Plan

The 2021 Employee Stock Purchase Plan (the “ESPP”) permits eligible employees who elect to participate in an offering under the ESPP to have up to 15% of their eligible earnings withheld, subject to certain limitations, to purchase shares of common stock pursuant to the ESPP. The price of common stock purchased under the ESPP is equal to 85% of the lower of the fair market value of the common stock at the commencement date of each offering period or the relevant date of purchase. The ESPP is implemented through a series of offering periods of up to 27 months, which may consist of one or more purchase periods. A total of 400,000 shares of common stock were initially reserved for issuance under the ESPP.

Stock Option Valuation

The assumptions that the Company used in Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted are as follows:

    

FOR THE SIX MONTHS ENDED

    

FOR THE YEAR ENDED

JUNE 30, 2022

DECEMBER 31, 2021

Risk-free interest rate

 

1.60% - 3.25%

1.07%

Expected term (in years)

 

5.5 - 6.08

5.2 - 6.1

Expected volatility

 

78.00% - 81.65%

75.58% - 83.56%

Expected dividend yield

 

0%

0%

A summary of option activity under the 2021 Plan during the six months ended June 30, 2022 is as follows (in thousands except share, per share data and contractual terms):

    

    

WEIGHTED-AVERAGE

    

WEIGHTED-AVERAGE

    

PER-SHARE

REMAINING

AGGREGATE

SHARES

EXERCISE PRICE

CONTRACTUAL TERM

INTRINSIC VALUE

Outstanding as of December 31, 2021

5,163,643

$

4.31

 

9.29

$

44,463

Granted

2,019,200

 

10.63

 

  

 

  

Forfeited

(69,700)

10.41

Outstanding as of June 30, 2022

7,113,143

$

6.05

 

9.04

 

13,000

Options vested and exercisable as of June 30, 2022

1,416,211

$

2.23

 

8.66

$

4,839

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

The weighted-average per share grant date fair value of options granted during the six months ended June 30, 2022 and 2021 was $7.29 and $4.25, respectively. As of June 30, 2022, there was $30.6 million of unrecognized stock-based compensation expense related to unvested stock options. The unrecognized stock-based compensation expense is estimated to be recognized over a period of 2.9 years as of June 30, 2022.

Restricted Stock Units

The Company issues RSUs that generally vest over a four-year period with 25% of the RSUs vesting one year from the vesting commencement date, and the remainder vesting quarterly thereafter over the following 36 months. Any unvested shares underlying an RSU will be forfeited upon termination of services. The fair value of an RSU is equal to the fair market value price of the Company’s common stock on the date of grant.

A summary of RSU activity during the six months ended June 30, 2022 is as follows:

    

    

WEIGHTED-AVERAGE

PER-SHARE GRANT-DATE

SHARES

FAIR VALUE

Unvested shares at December 31, 2021

 

$

Granted

 

35,900

 

11.21

Forfeited

(4,250)

Unvested shares at June 30, 2022

 

31,650

$

11.21

As of June 30, 2022, there was $0.2 million of unrecognized stock-based compensation expense related to unvested RSUs. The unrecognized stock-based compensation expense is estimated to be recognized over a period of 3.7 years as of June 30, 2022.

Shares of Restricted Common Stock

The Company issued shares of restricted common stock to its founders in May 2018, which vest monthly over five years through 2023. At issuance, these shares also contained certain performance-based vesting criteria which were associated with the milestone events applicable to the formerly outstanding shares of Series A preferred stock, two of which were achieved in 2020. In December 2020 in conjunction with the termination of the Series A preferred stock purchase agreement, the final performance-based vesting criteria was waived, leaving only service-based vesting criteria remaining for the founders’ shares through the end of the requisite service period, as of June 30, 2022. As noted above, certain executives who are option holders are able to early exercise stock option awards prior to full satisfaction of the vesting conditions. If and when such

exercise occurs, the executive receives shares of restricted common stock. Early exercise shares are included in the table below.

A summary of restricted common stock activity during the six months ended June 30, 2022 is as follows:

    

    

WEIGHTED-AVERAGE

PER-SHARE GRANT-DATE

SHARES

FAIR VALUE

Unvested shares at December 31, 2021

 

830,046

$

2.85

Vesting of restricted common stock

 

(271,757)

 

1.63

Unvested shares at June 30, 2022

 

558,289

$

2.95

As of June 30, 2022, there was $1.6 million of unrecognized stock-based compensation expense related to unvested restricted common stock. The unrecognized stock-based compensation expense is estimated to be recognized over a period of 1.7 years as of June 30, 2022.

Stock-based Compensation Expense

Total stock-based compensation expense recorded as research and development and general and administrative expenses, respectively, for employees, directors and non-employees during the three and six months ended June 30, 2022 and 2021 was as follows (in thousands):

THREE MONTHS ENDED JUNE 30, 

SIX MONTHS ENDED JUNE 30, 

    

2022

    

2021

    

2022

    

2021

Research and development

$

1,278

$

455

$

2,286

$

894

General and administrative

1,240

481

2,276

590

$

2,518

$

936

$

4,562

$

1,484