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Note 11 - Equity Incentive Plan

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Text Block]

11.

Equity Incentive Plan

The Anika Therapeutics, Inc. 2017 Omnibus Incentive Plan (the “2017 Plan”) was approved by the Company’s stockholders on June 13, 2017 and amended on June 16, 2020 and June 16, 2021 and provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), performance restricted stock units (“PSUs”), restricted stock units (“RSUs”), total shareholder return options (“TSRs”) and performance options that may be settled in cash, stock, or other property. In accordance with the 2017 Plan approved by the Company’s stockholders, including the amendments thereto, each share award other than stock options or SAR’s will reduce the number of total shares available for grant by two shares. Subject to adjustment for specified types of changes in the Company’s capitalization, no more than 4.6 million shares of common stock may be issued under the 2017 Plan. There are 1.9 million shares available for future grant at September 30, 2021.

The Company may satisfy the awards upon exercise, or upon fulfillment of the vesting requirements for other equity-based awards, with either newly issued shares or shares reacquired by the Company. Stock-based awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. Awards contain service conditions or service and performance conditions, and they generally become exercisable ratably over one to four years with a maximum contractual term of ten years.

The Company presents the expenses related to stock-based compensation awards in the same expense line items as cash compensation paid to each of its employees as follows (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Cost of revenue	$	142	$	202	$	485	$	564
Research and development		360		206		1,003		558
Selling, general and administrative		2,361		1,512		6,431		2,832
Total stock-based compensation expense	$	2,863	$	1,920	$	7,919	$	3,954

Stock Options

Stock options are granted to purchase common shares at prices that are equal to the fair market value of the shares on the date the options are granted. Options generally vest in equal annual installments over a period of three to four years and expire 10 years after the date of grant. The grant-date fair value of options is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The following summarizes the activity under the Company’s stock option plans:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2020		896,819		$	41.50
Granted		493,628		$	37.67
Exercised		(27,851	)	$	34.62			$	234
Forfeited and canceled		(177,604	)	$	44.32
Outstanding as of September 30, 2021		1,184,992		$	39.65		8.5	$	4,654
Vested, September 30, 2021		304,172		$	44.01		7.3	$	812
Vested and expected to vest, September 30, 2021		1,184,992		$	39.65		8.5	$	4,654

Of the 493,628 stock options granted during the nine-month period ended September 30, 2021, 314,541 shares were premium-priced options which were granted with an exercise price at 110% of the market price of the Company’s common stock on the date of grant.

The Company uses the Black-Scholes pricing model to determine the fair value of options granted. The calculation of the fair value of stock options is affected by the stock price on the grant date, the expected volatility of the Company’s common stock over the expected term of the award, the expected life of the award, the risk-free interest rate and the dividend yield. The Company estimates the fair value of TSRs using Monte-Carlo simulation model. The actual number of TSR options that may be earned ranges from 0% to 150% of the target number, depending on the total shareholder return of the Company relative to the peer group over the vesting period of 2.7 years.

The assumptions used in the Black-Scholes pricing model for options granted during the nine months ended September 30, 2021 and 2020, along with the weighted-average grant-date fair values, were as follows:

	Nine Months Ended September 30,
	2021		2020
Risk-free interest rate		0.30% – 0.68%		0.21% – 1.59%
Expected life of options (in years)		4.0 – 6.3		4.0 – 6.3
Dividend yield		-%		-%
Expected stock price volatility		54.80% –56.06%		46.48% –52.99%

As of September 30, 2021, there was $10.0 million of unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted average period of 1.9 years.

Restricted Stock Units

RSUs generally vest in equal annual installments over a three or four year periods. The grant-date fair value of RSUs is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Company determines the fair value of restricted stock units based on the closing price of its common stock on the date of grant.

RSU activity is as follows:

	Number of Shares			Weighted Average Fair Value
Outstanding as of December 31, 2020		233,239		$	37.50
Granted		308,243			35.42
Vested		(90,013	)		37.63
Forfeited and cancelled		(48,624	)		35.69
Outstanding as of September 30, 2021		402,845		$	36.10

As of September 30, 2021, there was $11.3 million of unrecognized compensation cost related to time-based RSUs, which is expected to be recognized over a weighted-average period of 2.1 years.

Performance Stock Units

PSUs generally vest over a three or four year periods from the grant date and include both a service and performance component. The PSUs granted to employees contained performance conditions with business and financial targets. The business target, amounting to 40% of the total performance conditions, will be measured based on achievement in the 2020-2022 fiscal years, while the financial targets, amounting to 60% of the total performance conditions, will ultimately be measured with respect to the Company’s operating results in the 2020-2022 fiscal years.

PSU activity is as follows:

	Number of Shares			Weighted Average Fair Value
Outstanding as of December 31, 2020		178,297		$	35.93
Granted		-			-
Vested		-			-
Forfeited and cancelled		(18,500	)		37.02
Outstanding as of September 30, 2021		159,797		$	35.80

As of September 30, 2021, there was $0.1 million of unrecognized compensation cost related to PSUs, which is expected to be recognized over a weighted-average period of 0.4 years.

On November 4, 2021, the Anika Therapeutics, Inc. 2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors. The Inducement Plan reserves 125,000 shares of common stock for issuance pursuant to equity-based awards granted under the Inducement Plan. Such awards may be granted only to an individual who was not previously the Company’s employee or director, or who is returning to employment following a bona fide period of non-employment with the Company, in each case as an inducement material to the individual’s entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The Inducement Plan provides for the grant of awards under terms substantially similar to the 2017 Plan (as amended).