Note 11 - Equity Incentive Plan

3 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

11. Equity Incentive Plan

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 subsequently amended on June 18, 2019, June 16, 2020 and June 16, 2021. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights (“SARs”), restricted stock awards, 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 SARs 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 were 0.9 million shares available for future grant at March 31, 2022 under the 2017 Plan.

The Anika Therapeutics, Inc. 2021 Inducement Plan (the “Inducement Plan”) was adopted by the Company’s board of directors on November 4, 2021. 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 with the Company. The Inducement Plan provides for the grant of awards under terms substantially similar to the 2017 Plan (as amended). There were 70,591 shares available for future grant at March 31, 2022 under the Inducement Plan.

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 or greater than 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 three 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 March 31,
	2022		2021
Cost of revenue	$	176	$	129
Research and development		367		241
Selling, general and administrative		2,002		1,889
Total stock-based compensation expense	$	2,545	$	2,259

 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 or, in the case of premium options, are granted with an exercise price at 110% of the market price of the Company’s common stock on the date of grant. Options generally vest in equal annual installments over a period of three 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, 2021		1,175,993		$	39.56
Granted		416,197		$	28.37
Exercised		(437	)	$	9.10			$	10
Forfeited and canceled		(47,858	)	$	38.23
Outstanding as of March 31, 2022		1,543,895		$	36.59		8.6	$	9
Vested, March 31, 2022		485,869		$	41.89		7.5	$	9
Vested or expected to vest, March 31, 2022		1,543,895		$	36.59		8.6	$	9

The aggregate intrinsic value of options exercised for the three-month period ended March 31, 2021 was immaterial.

The Company granted 416,197 stock options during the three-month ended March 31, 2022, of which 382,201 shares were premium-priced options.

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 where the expected volatility assumption is evaluated over 6.3 years. 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. There were 104,638 TSRs as of March 31, 2022.

 The assumptions used in the Black-Scholes pricing model for options granted during the three months ended March 31, 2022 and 2021, along with the weighted-average grant-date fair values, were as follows:

	Three Months Ended March 31,
	2022								2021
Risk free interest rate		1.3	%		-		1.9	%		0.3	%		-		0.6	%
Expected volatility		53.8	%		-		54.6	%		54.8	%		-		55.4	%
Expected life (years)					4.5								4.0
Expected dividend yield					0.0	%							0.0	%
Fair value per option				$	11.37							$	13.90

As of March 31, 2022, there was $11.8 million of unrecognized compensation cost related to unvested stock options. This expense is expected to be recognized over a weighted average period of 2.1 years.

Restricted Stock Units

RSUs generally vest in equal annual installments over a three-year period. 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 RSUs based on the closing price of its common stock on the date of grant.

RSU activity for the three-month period ended March 31, 2022 was as follows:

	Number of Shares			Weighted Average Fair Value
Outstanding as of December 31, 2021		412,658		$	36.33
Granted		420,452		$	25.75
Vested		(87,953	)	$	35.19
Forfeited and cancelled		(32,376	)	$	35.27
Outstanding as of March 31, 2022		712,781		$	30.28

The weighted-average grant-date fair value per share of RSUs granted was $34.07 for the three-month ended March 31, 2021. The total fair value of RSUs vested was $3.3 million and $2.1 million for the three months period ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, there was $18.4 million of unrecognized compensation cost related to time-based RSUs, which was expected to be recognized over a weighted-average period of 2.4 years.

Performance Stock Units

PSU activity for the three-month ended March 31, 2022 was as follows:

	Number of Shares			Weighted Average Fair Value
Outstanding as of December 31, 2021		158,297		$	37.44
Performance factor adjustment		2,125		$	32.53
Vested		(19,125	)	$	32.53
Forfeited and cancelled		(23,400	)	$	41.86
Outstanding as of March 31, 2022		117,897		$	34.98

The total fair value of PSUs vested was $0.6 million for the three-month period ended March 31, 2022. As of March 31, 2022, none of the milestones related to the outstanding PSUs were expected to be achieved.

Employee Stock Purchase Plan

On March 17, 2021, the Company adopted the 2021 Employee Stock Purchase Plan (“ESPP”). The ESPP is authorized to issue up to 200,000 shares of common stock to participating employees. Employees that participate in the Company’s ESPP may purchase up to a maximum of 800 shares per six-month offering period or $25,000 worth of common stock per calendar year by authorizing payroll deductions of up to 10% of their base salary. The purchase price for each share purchased is 85% of the lower of the fair market value of the common stock on the first or last day of the offering period. The Company uses the Black-Scholes pricing model to determine the fair value of shares purchased under the ESPP. The calculation of the fair value of shares purchased is affected by the stock price on the grant date, the expected volatility of the Company’s stock over the expected term and the risk-free interest rate. The estimated fair value of shares purchased under the ESPP were based on the following assumptions:

	2022
Risk-free interest rate		0.06	%
Expected stock price volatility		32.58	%
Expected life of options (in years)		0.5
Expected dividend yield		0.0	%