Share-based Compensation

3 Months Ended

Mar. 31, 2023

Share-Based Payment Arrangement [Abstract]

Centessa Pharmaceuticals plc Stock Option and Incentive Plan

In January 2021, the Company’s board of directors approved the 2021 Stock Option and Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the granting of ordinary shares, incentive stock options, non-qualified stock options, restricted share awards, restricted stock units and/or share appreciation rights to employees, directors, and other persons, as determined by the Company’s board of directors. The number of shares authorized under the 2021 Plan was increased in May 2021 at the time of the IPO, whereby the total number of shares authorized under the 2021 Plan was 20,026,816. Beginning on January 1, 2022 and each January 1 thereafter, the number of shares reserved and available for issuance under the 2021 Plan shall be cumulatively increased by 5% of the number of shares issued and outstanding on the immediately preceding December 31, or such lesser number as the board of directors may determine. Remaining shares available for future grants as of March 31, 2023 were 8,323,263.

Share-based Compensation Expense

The Company recorded share-based compensation expense in the following expense categories in the unaudited interim consolidated statements of operations and comprehensive loss (amounts in thousands):


	Three Months Ended March 31, 2023		Three Months Ended March 31, 2022
Research and development	$	3,284	$	2,833
General and administrative	3,906		2,885
	$	7,190	$	5,718

Stock Options

The following table summarizes stock option activity for the three months ended March 31, 2023:


	Number of Shares	Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Term
Balance at January 1, 2023	14,688,996	$	7.88	8.5 years
Granted	2,353,800	$	3.82
Exercised	—	$	—
Forfeited	(1,064,316)	$	8.20
Balance at March 31, 2023	15,978,480	$	7.27	8.3 years
Exercisable at March 31, 2023	5,789,750	$	7.82	7.5 years
Vested and expected to vest at March 31, 2023	15,978,480	$	7.27	8.3 years

The weighted-average grant date fair value of options granted was $2.68 per share for the three months ended March 31, 2023. As of March 31, 2023, the total unrecognized compensation expense related to unvested stock option awards was $42.7 million, which the Company expects to recognize over a weighted-average period of 2.6 years.

Based on the trading price of $3.85 per ADS, which is the closing price as of March 31, 2023, the aggregate intrinsic value of options as of March 31, 2023 was $68.5 thousand.

During the three months ended March 31, 2023, the fair value of each option was estimated on the date of grant using the weighted average assumptions in the table below:


Expected term	6.07 years
Expected stock price volatility	78.7	%
Risk-free interest rate	3.5	%
Expected dividend yield	0	%

The Company uses the Black-Scholes option pricing model to value its stock option awards. The expected life of the stock options is estimated using the “simplified method,” as the Company has limited historical information from which to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock option grants. The simplified method is the midpoint between the vesting period and the contractual term of the option. For share price volatility, the Company uses comparable public companies as a basis for its expected volatility to calculate the fair value of option grants. The risk-free rate is based on the U.S. Treasury yield curve commensurate with the expected life of the option. Forfeitures of stock options are recognized in the period the forfeiture occurs.

Restricted Share Awards and Units

In connection with the acquisition of the Centessa Subsidiaries, the Company issued 379,905 ordinary shares subject to future vesting under its Restricted Stock Awards program. For the period subsequent to the acquisition through March 31, 2023, the Company issued an additional 833,897 ordinary shares subject to future vesting to an employee. The fair value of the awards were based upon the estimated fair value of the Company’s ordinary shares at the time of grant.

The Board, following the recommendations of the Company’s Compensation Committee, grants service-based restricted stock unit awards under the Company’s Stock Incentive Plan to certain executive officers and employees of the Company to encourage employee retention. Periodic grants are made at fair market value, representing the NASDAQ market close quoted price on the day of the grant.

The following table summarizes ordinary share activity related to the restricted stock programs for the three months ended March 31, 2023:


	Restricted Stock Awards			Restricted Stock Units
	Number of Shares		Weighted-Average Grant Date Fair Value Per Share	Number of Shares		Weighted-Average Grant Date Fair Value Per Share
Unvested at January 1, 2023	599,421			1,804,760
Granted	—		n/a	1,427,225		$	3.85
Vested	(117,798)			(214,495)
Forfeited	—			(287,120)
Unvested at March 31, 2023	481,623			2,730,370

Unrecognized compensation expense at March 31, 2023 (in thousands)	$	9,058		$	12,152
Expected weighted average recognition period	2.2 years			2.6 years

Employee Share Purchase Plan

In January 2021, the Company’s board of directors approved the 2021 Employee Share Purchase Plan (the “ESPP”). The initial number of shares reserved for issuance under the 2021 ESPP was 860,000. On January 1, 2022 and each January 1 thereafter, the number of shares reserved and available for issuance under the ESPP shall be cumulatively increased by a number of shares equal to the lesser of: (i) 1% of the number of Shares issued and outstanding on the immediately preceding

December 31; (ii) two times the initial number of shares reserved or (iii) such number of shares as determined by the board of directors. As of March 31, 2023, no shares have been purchased or issued under the ESPP and remaining shares reserved for the ESPP were 2,708,315.