9. Share‑based compensation

Employee incentive pool

2019 Share Option Plan

In May 2019, the Company adopted the 2019 Share Option Plan (the “2019 Plan”), which became effective in conjunction with the IPO. In September 2019, the Compensation Committee of the Company’s Board of Directors approved immaterial clarifying amendments to the 2019 Plan which did not have an impact to the consolidated financial statements. The 2019 Plan provides for the grant of options to purchase ordinary shares and other share-based awards to officers, employees, directors and other key persons (including consultants).

The Company has initially reserved 2,470,583 ordinary shares for future issuance under the 2019 Plan. The number of ordinary shares reserved for issuance of the 2019 Plan will automatically increase on the first day of January, commencing on January 1, 2020, in an amount equal to 4% of the total number of ordinary shares outstanding on the last day of the preceding year, or a lesser number of shares determined by the Company’s board of directors, subject to adjustment in the event of a share split, share dividend or other change in capitalization. As of December 31, 2019, there were 872,646 shares available for issuance under the 2019 Plan. The number of shares reserved for issuance under the 2019 Plan was increased by 719,748 shares effective January 1, 2020.

Share options issued under the 2019 Share Option Plan have a 10 year contractual life, and either vest monthly over a three year service period, or over a four‑year service period with 25% of the award vesting on the first anniversary of the commencement date and the balance thereafter in 36 equal monthly installments. The exercise price of share options issued under the 2019 Share Option Plan shall not be less than the fair value of ordinary shares as of the date of grant.

Pre-IPO Share Options and restricted shares

Prior to the IPO, the Company issued share options and ordinary shares, as administered by the board of directors, using standardized share option and share subscription agreements. To the extent such incentives were in the form of share options, the options may have been granted pursuant to a potentially tax-favored Enterprise Management Incentive, or EMI, scheme available to U.K. employees, directors and consultants of the Company. Upon completion of the IPO, shares reserved for future issuance outside of the 2019 Share Option Plan were cancelled.

Options granted, as well as restricted shares granted as employee incentives prior to the IPO, typically vest over a four‑year service period with 25% of the award vesting on the first anniversary of the commencement date and the balance thereafter in 36 equal monthly installments and expire no later than 10 years from the date of grant.

Certain equity awards were issued in 2017 and 2018 for which 20% of the award vests upon the first anniversary of the vesting start date, 60% vests thereafter in 36 equal monthly installments, and 20% vest upon the earlier of the fourth anniversary of the vesting start date, or the achievement of a specified revenue threshold from the Company’s collaboration arrangements.

Options issued to U.K. employees prior to the IPO generally had an exercise price of £0.01 per share. The exercise price for share options granted to U.S. employees, had an exercise price that was not less than the fair value of ordinary shares as determined by the board of directors as of the date of grant. Prior to the IPO, the Company’s board of directors valued the Company’s ordinary shares based on input from management, considering the most recently available valuation of ordinary share performed by an independent third‑party valuation firm as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

Employee Share Purchase Plan (“ESPP”)

In May 2019, the Company adopted the 2019 Employee Stock Purchase Plan (“ESPP”), which became effective in conjunction with the IPO. The Company initially reserved 215,000 ordinary shares for future issuance under this plan. Each offering to the employees to purchase shares under the ESPP will begin on each June 1 and December 1 and will end on the following November 30 and May 31, respectively. On each purchase date, which falls on the last date of each offering period, ESPP participants will purchase ordinary shares at a price per share equal to 85% of the lesser of (1) the fair market value of the shares on the offering date or (2) the fair market value of the shares on the purchase date. The occurrence and duration of offering periods under the ESPP are subject to the determinations of the Company’s compensation committee. As of December 31, 2019, there have been no offering periods to employees under ESPP.

Share‑based compensation

The Company recorded share‑based compensation expense in the following expense categories of its consolidated statements of operations and comprehensive loss (in thousands):


	Year Ended
	December 31,
	2019		2018		2017
Research and development expenses	$	1,286	$	513	$	241
General and administrative expenses		1,797		510		274
	$	3,083	$	1,023	$	515

Share options

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


				Weighted
		Weighted		Average	Aggregate
	Number of	Average		Contractual	Intrinsic
	Shares	Exercise Price		Term	Value
				(in years)	(in thousands)
Outstanding as of December 31, 2018	863,712	$	1.01	8.75	$	3,292
Granted	2,134,538		12.01	—		—
Exercised	(85,839)		1.67	—		—
Forfeited	(278,065)		4.21	—		—
Outstanding as of December 31, 2019	2,634,346	$	9.57	9.04	$	6,107
Vested and expected to vest as of December 31, 2019	2,634,346	$	9.57	9.04	$	6,107
Options exercisable as of December 31, 2019	647,901	$	6.81	8.49	$	2,868

The weighted average grant‑date fair value of share options granted during the years ended December 31, 2019, 2018 and 2017 was $6.07 per share, $3.73 per share and $1.78 per share, respectively.

For the years ended December 31, 2019, 2018 and 2017, the Company recorded share‑based compensation expense for share options granted of $2.7 million, $0.8 million and $0.4 million, respectively. Expense for non‑employee consultants for the years ended December 31, 2019, 2018 and 2017, was immaterial.

The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s ordinary shares. The aggregate intrinsic value of share options exercised during the years ended December 31, 2019, 2018 and 2017 was $0.6 million, $23,000 and $7,000 respectively.

During the year ended December 31, 2019, 2018 and 2017, the Company granted certain performance based vesting options for the purchase of an aggregate of zero, 70,875 and 678,610 ordinary shares, respectively, for which 20% of the award vests upon the first anniversary of the vesting start date, 60% vests thereafter in 36 equal monthly installments, and 20% on the earlier of the fourth anniversary of the vesting start date, or the achievement of a specified revenue threshold from the Company’s collaboration arrangements. In May 2018, the Company determined that the performance condition became probable of achievement and recorded a cumulative catch‑up to reflect the expense as if the vesting condition was probable of achievement at the time of the grant of the award. The Company recorded expense of $0.1 million, $0.7 million and $0.3 million, during the year ended December 31, 2019, 2018 and 2017, respectively, related to these awards, which includes the acceleration of vesting expense.

The following table presents, on a weighted average basis, the assumptions used in the Black‑Scholes option‑pricing model to determine the fair value of share options granted to employees and directors:




	Year Ended
	December 31,
	2019		2018		2017
Risk-free interest rate	2.1	%	2.7	%	2.0	%
Expected volatility	77.9	%	78.6	%	79.7	%
Expected dividend yield	—		—		—
Expected term (in years)	5.86		6.07		6.07

As of December 31, 2019, total unrecognized compensation expense related to the unvested employee and director share‑based awards was $10.6 million, which is expected to be recognized over a weighted average period of 2.5 years.

Restricted shares

The Company has granted restricted shares with service‑based vesting conditions. Shares of unvested restricted shares may not be sold or transferred by the holder. These restrictions lapse according to the time‑based vesting conditions of each award. These restricted shares are subject to repurchase rights, for aggregate consideration of £1. Accordingly, the Company has recorded the proceeds from the issuance of restricted shares as a liability in the consolidated balance sheets included as a component of accrued expenses and other current liabilities. The restricted share liability is reclassified into shareholders’ (deficit) equity as the restricted shares vest.

The following table summarizes the Company’s restricted ordinary share award activity since December 31, 2018:


		Weighted Average
		Grant-Date
	Shares	Fair Value
Unvested restricted ordinary shares as of December 31, 2018	83,947	$	1.93
Issued	—		—
Forfeited	—		—
Vested	(83,947)		1.93
Unvested restricted ordinary shares as of December 31, 2019	—	$	—

In conjunction with the IPO in May 2019, the board of directors modified the vesting terms to accelerate vesting for all then unvested restricted shares. As a result, the Company recorded $0.2 million of expense upon the modification of the restricted shares during the year ended December 31, 2019.

For the years ended December 31, 2019, 2018 and 2017, the Company recorded share-based compensation of $0.4 million, $0.2 million, and $0.1 million, respectively, for unvested restricted shares granted.

The fair value of employee restricted share awards vested during the years ended December 31, 2019, 2018 and 2017, based on estimated fair values of the ordinary shares underlying the restricted share awards on the day of vesting, was $0.7 million, $0.2 million and $0.1 million, respectively.

As of December 31, 2019, there was no unrecognized compensation cost related to the unvested employee and director restricted share awards.