Quarterly report pursuant to Section 13 or 15(d)

Stock Based Compensation

Stock Based Compensation

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement [Abstract]

2016 Equity Incentive Plan

On April 5, 2016, the Company’s board of directors adopted the 2016 Equity Incentive Plan (the “2016 Plan”) as the successor to the 2015 Omnibus Plan (the “2015 Plan”). The 2016 Plan was approved by the Company’s stockholders and became effective on May 18, 2016 (the “2016 Plan Effective Date”). Upon the 2016 Plan Effective Date, the 2016 Plan reserved and authorized up to 600,000 additional shares of common stock for issuance, as well as 464,476 unallocated shares remaining available for grant of new awards under the 2015 Plan. An Amended and Restated 2016 Equity Incentive Plan (the “2016 Amended Plan”) was approved by the Company’s stockholders in May 2018, which increased the share reserve by an additional 1.4 million shares. A Second Amended and Restated 2016 Equity Incentive Plan (the “2016 Second Amended Plan”) was approved by the Company’s stockholders in August 2019, which increased the share reserve by an additional 850,000 shares. A Third Amended and Restated Equity Incentive Plan (the “2016 Third Amended Plan”) was approved by the Company’s stockholders in June 2020 which increased the share reserve by an additional 2,014,400 shares. During the term of the 2016 Third Amended Plan, the share reserve will automatically increase on the first trading day in January of each calendar year ending on (and including) January 1, 2026, by an amount equal to 4% of the total number of outstanding shares of common stock of the Company on the last trading day in December of the prior calendar year. As of September 30, 2021, there were 1,748,433 shares available for future issuance under the 2016 Third Amended Plan.

Option grants expire after ten years. Employee options typically vest over three or four years. Employees typically receive a new hire option grant, as well as an annual grant in the first or second quarter of each year. Options granted to directors typically vest either immediately or over a period of one or three years. Directors may elect to receive stock options in lieu of board compensation, which vest immediately. For stock options granted to employees and non-employee directors, the estimated grant date fair market value of the Company’s stock-based awards is amortized ratably over the individuals’ service periods, which is the period in which the awards vest. Stock-based compensation expense includes expense related to stock options, restricted stock units and employee stock purchase plan shares. The amount of stock-based compensation expense recognized for the three and nine months ended September 30, 2021 and 2020 was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Research and development	$	480	$	384	$	1,244	$	1,156
General and administrative	1,171		972		4,720		3,959
Sales and marketing	107		92		316		234
Total stock-based compensation	$	1,758	$	1,448	$	6,280	$	5,349

In June 2021, the Company’s former Chairman of the Board resigned from the Board. The Company and the former Chairman subsequently entered into an agreement for him to serve as a strategic advisor to the Board and the Company, including serving on the Company’s Scientific Advisory Board, for a period of at least one year. As consideration for these services, the Company modified his outstanding stock option awards to allow them to continue to vest during the term during which he serves as a strategic advisor. Additionally, any option award previously granted was amended to extend the exercisability period. As a result of the modification, the Company recognized $1.4 million of compensation cost, $1.0 million of which related to options with market-based vesting conditions (which were fully vested prior to the modification) and $0.4 million of which related to options with service-based vesting conditions in the second quarter of 2021. This expense was recognized in general and administrative expenses. At September 30, 2021, there was $0.2 million of unrecognized compensation cost related to the modification of service-based options that will be recognized over a weighted-average period of 0.7 years.

Stock options with service-based vesting conditions

The Company has granted awards that contain service-based vesting conditions. The compensation cost for these options is recognized on a straight-line basis over the vesting periods. A summary of option activity for the nine months ended September 30, 2021 is as follows:


	Options Outstanding
	Number of shares	Weighted average exercise price per share		Weighted average grant date fair value per share		Weighted average remaining contractual term (in years)
Balance at December 31, 2020	8,830,674	$	3.95	$	2.36	7.7
Granted	5,017,690	$	3.24	$	2.17
Exercised	(580,617)	$	2.70	$	1.74
Forfeited	(439,341)	$	3.55	$	2.27
Expired	(354,994)	$	4.53	$	2.69
Balance at September 30, 2021	12,473,412	$	3.72	$	2.30	8.4

Exercisable at September 30, 2021	4,437,524	$	4.20	$	2.41	7.4

In March 2021, the Company granted its newly appointed Chief Financial Officer options with service-based vesting conditions to purchase 0.5 million shares of common stock as an inducement option grant, pursuant to NASDAQ Listing Rule 5635(c)(4). In January 2021, the Company granted 2.7 million options with service-based vesting conditions to its employees as part of its annual stock option award.

In March 2020, our Chief Executive Officer entered into an amended employment agreement in which his salary in cash was reduced to $35,568 (the “Reduction”), which represents the minimum exempt annual salary. In consideration for the Reduction, on a quarterly basis, the Company grants stock options, which vest immediately, for the purchase of a number of shares of the Company’s common stock with a total value (based on the Black-Scholes valuation methodology) based on a pro rata total annual value of the foregone salary.

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. As of September 30, 2021, the aggregate intrinsic value of options outstanding was $0.2 million. The aggregate intrinsic value of options currently exercisable as of September 30, 2021 was $0.2 million. There were 2,466,684 options that vested during the nine months ended September 30, 2021 with a weighted average exercise price of $3.64 per share. The total grant date fair value of shares which vested during the nine months ended September 30, 2021 was $5.6 million.

The Company recognized stock-based compensation expense of $1.7 million and $5.0 million related to stock options with service-based vesting conditions for the three and nine months ended September 30, 2021, respectively. At September 30, 2021, there was $14.8 million of total unrecognized compensation cost related to unvested service-based vesting condition awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.8 years.

Stock-based compensation assumptions

The following table shows the assumptions used to compute stock-based compensation expense for stock options with service-based vesting conditions granted under the Black-Scholes valuation model for the nine months ended September 30, 2021:


Service-based options
Expected annual dividend yield						—%
Expected stock price volatility						73.0% - 86.5%
Expected term of option (in years)						0.76 - 6.25
Risk-free interest rate						0.07% - 1.23%

Stock options with market-based vesting conditions

The following table summarizes the Company’s market-based option activity for the nine months ended September 30, 2021 (in thousands except, for share amounts):


	Options Outstanding
	Number of shares	Weighted average exercise price per share		Weighted average remaining contractual term (in years)	Aggregate intrinsic value (1)
Balance at December 31, 2020	1,000,000	$	3.29	9.5	$	65
Granted	—	$	—
Balance at September 30, 2021	1,000,000	$	3.29	2.7	$	—

Exercisable at September 30, 2021	1,000,000				$	—

(1) The aggregate intrinsic value in the above table represents the total pre-tax amount that a participant would receive if the option had been exercised on the last day of the respective fiscal period. Options with a market value less than its exercise value are not included in the intrinsic value amount.

Restricted Stock Units

The Company measures the fair value of the restricted stock units using the stock price on the date of the grant. The restricted shares typically vest annually over a four-year period beginning on the first anniversary of the award. The following table summarizes the Company’s restricted stock unit (“RSU”) activity for the nine months ended September 30, 2021:


	RSUs Outstanding
	Number of shares	Weighted average grant date fair value
Unvested RSUs at December 31, 2020	155,833	$	4.91
Vested	(77,917)
Unvested RSUs at September 30, 2021	77,916	$	4.91

Employee Stock Purchase Plan

On April 5, 2016, the Company’s board of directors approved the 2016 Employee Stock Purchase Plan (the “ESPP”). The ESPP was approved by the Company’s stockholders and became effective on May 18, 2016 (the “ESPP Effective Date”).

Under the ESPP, eligible employees can purchase common stock through accumulated payroll deductions at such times as are established by the administrator. The ESPP is administered by the compensation committee of the Company’s board of directors. Under the ESPP, eligible employees may purchase stock at 85% of the lower of the fair market value of a share of the Company’s common stock (i) on the first day of an offering period or (ii) on the purchase date. Eligible employees may contribute up to 15% of their earnings during the offering period. The Company’s board of directors may establish a maximum number of shares of the Company’s common stock that may be purchased by any participant, or all participants in the aggregate, during each offering or offering period. Under the ESPP, a participant may not accrue rights to purchase more than $25,000 of the fair market value of the Company’s common stock for each calendar year in which such right is outstanding.

Upon the ESPP Effective Date, the Company reserved and authorized up to 500,000 shares of common stock for issuance under the ESPP. On January 1 of each calendar year, the aggregate number of shares that may be issued under the ESPP shall automatically increases by a number equal to the lesser of (i) 1% of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding calendar year, and (ii) 500,000 shares of the Company’s common stock, or (iii) a number of shares of the Company’s common stock as determined by the Company’s board of directors or compensation committee. The number of shares were increased by 500,000 on January 1, 2021. As of September 30, 2021, 1,836,622 shares remained available for issuance.

In accordance with the guidance in ASC 718-50, Employee Share Purchase Plans, the ability to purchase shares of the Company’s common stock at the lower of the offering date price or the purchase date price represents an option and, therefore, the ESPP is a compensatory plan under this guidance. Accordingly, stock-based compensation expense is determined based on the option’s grant-date fair value and is recognized over the requisite service period of the option. The Company used the Black-Scholes valuation model and recognized stock-based compensation expense of $81 thousand and $170 thousand for the three and nine months ended September 30, 2021, respectively.