Stock Option Plans

12 Months Ended

Dec. 31, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

In 2007, the Company established its 2007 Stock Option Plan which provided for the granting of stock options to employees, directors and consultants of the Company. In connection with its acquisition of NeuroCo in December 2018, the Company also assumed NeuroCo’s 2015 Equity Incentive Plan. In March 2019, the Company's Board of Directors approved the termination of the 2007 Stock Option Plan and the NeuroCo 2015 Equity Incentive Plan and the adoption of the 2019 Equity Incentive Plan, or the 2019 Plan, which became effective immediately prior to the Company's IPO. The 2019 Plan provides for the grant of ISOs to employees and for the grant of NSOs, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to employees, directors and consultants. A total of 2,317,000 shares of common stock were initially reserved for issuance pursuant to the 2019 Plan. In addition, the shares reserved for issuance under the 2019 Plan will also include shares reserved but not issued under the 2007 Stock Option Plan, plus any share awards granted under the 2007 Stock Option Plan that expire or terminate without having been exercised in full or that are forfeited or repurchased. In addition, the number of shares available for issuance under the 2019 Plan will also include an annual increase on the first day of each fiscal year beginning in fiscal 2020, equal to the lesser of (i) 3,000,000 shares; (ii) 4.0% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year; or (iii) an amount as determined by the Board of Directors. As of December 31, 2019, the Company has reserved 2,366,251 shares of common stock for issuance under the 2019 Plan.

The exercise price of ISOs and NSOs shall not be less than 100% and 85% of the estimated fair value of the shares on the date of grant, respectively, as determined by the Board of Directors. The exercise price of ISOs and NSOs granted to a 10% stockholder shall not be less than 110% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors. To date, options have a term of ten years and generally vest over 4 years from date of grant.

Activity under the Company’s 2007 Stock Option Plan, NeuroCo 2015 Equity Incentive Plan and 2019 Plan is set forth below:


		Options Outstanding
	Shares Available for Grant	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in thousands)





Balances, December 31, 2017	328,290	4,308,890	$	3.09	7.81	$	5,073
Authorized	223,664
Options granted	(629,716)	629,716	$	6.51
Options exercised	—	(438,578)	$	1.50
Options cancelled	135,651	(135,651)	$	1.56
Balances, December 31, 2018	57,889	4,364,377	$	3.79	7.36	$	33,132
Authorized	2,317,000
Options granted	(848,023)	848,023	$	22.77
Options exercised	—	(873,786)	$	1.77
Options cancelled	27,824	(27,824)	$	8.71
Balances December 31, 2019	1,554,690	4,310,790	$	7.91	7.27	$	140,234
Vested and exercisable at December 31, 2019		2,514,891	$	4.27	6.38	$	90,854
Vested and expected to vest at December 31, 2019		4,310,790	$	7.91	7.27	$	140,234

The aggregate intrinsic value of options exercised during the years ended December 31, 2019 and 2018 was $24,867,000 and $787,000, respectively. The aggregate intrinsic value was calculated as the difference between the exercise prices of the underlying options and the estimated fair value of the common stock on the date of exercise. The weighted-average grant date fair value of options granted during the years ended December 31, 2019 and 2018 was $10.17 and $2.93 per share, respectively. The total fair value of options vested during the years ended December 31, 2019 and 2018 was $2,221,000 and $569,000, respectively, based on the grant date fair value.

The following table summarizes information about stock options outstanding and vested as of December 31, 2019:


	Options Outstanding							Options Vested
Exercise Price	Options Outstanding	Weighted Average Remaining Contractual Term (in Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$1.35 - $3.16	2,072,765	5.86	$	1.84	1,770,060	$	1.71
$4.73 - $8.27	919,355	8.23	$	5.81	383,077	$	5.72
$11.29 - $20.00	1,192,804	8.73	$	16.63	352,383	$	14.46
$36.47 - $48.53	125,866	9.69	$	40.50	9,371	$	45.57
	4,310,790	7.27	$	7.91	2,514,891	$	4.27

2019 Employee Stock Purchase Plan

In March 2019, the Company's Board of Directors adopted the 2019 Employee Stock Purchase Plan, or the 2019 ESPP, under which eligible employees are permitted to purchase common stock at a discount through payroll deductions. A total of 434,000 shares of common stock are reserved for issuance and will be increased on the first day of each fiscal year, beginning in 2020, by an amount equal to the lesser of (i) 1,200,000 shares (ii) 1.0% of the outstanding shares of common stock as of the last day of the immediately preceding fiscal year; or (iii) an amount as determined by the Board of Directors. The price of the common stock purchased will be the lower of 85% of the fair market value of the common stock at the beginning of an offering period or at the end of a purchase period. The 2019 ESPP was effective upon adoption by the Company's Board of Directors but was not in use until the completion of the Company's IPO in April 2019. The 2019 ESPP is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended.

As of December 31, 2019, 61,648 shares of common stock have been issued to employees participating in the 2019 ESPP and 372,352 shares were available for future issuance under the 2019 ESPP.

Stock-Based Compensation

The Company estimated the fair value of stock options using the Black–Scholes option pricing model. The fair value of employee and nonemployee stock options is being amortized on a straight–line basis over the requisite service period of the awards. The fair value of employee and nonemployee stock options was estimated using the following assumptions for the years ended December 31, 2019 and 2018:


	Year Ended December 31,
	2019	2018
Expected term (in years)	5.00 - 6.25	5.00 - 6.25
Expected volatility	42.4% - 42.9%	38.0% - 38.8%
Risk-free interest rate	1.47% - 2.54%	2.68% - 2.98%
Dividend yield	—%	—%

Prior to completion of the Company's IPO, the fair value of common stock was determined by the Company’s Board of Directors, who considered, among other things, contemporaneous valuations of the Company’s common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by the American Institute of Certified Public Accountants Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. For stock options granted after the completion of the IPO, the fair value of the underlying common stock is based on the closing price of the Company's common stock on The NASDAQ Global Market on the date of grant. The expected term of stock options represents the weighted-average period the stock options are expected to remain outstanding. The Company does not have sufficient historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term of options and has opted to use the “simplified method,” whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option. The expected stock price volatility assumption was determined by examining the historical volatilities for industry peers, as the Company does not have sufficient trading history for the Company’s common stock. The Company will continue to analyze the historical stock price volatility and expected term assumption as more historical data for the Company’s common stock becomes available. The risk-free interest rate assumption is based on the U.S. Treasury instruments whose term was consistent with the expected term of the Company’s stock options. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts.

Effective January 1, 2018, the Company made an accounting policy election to account for forfeitures as they occur.

The fair value of the shares to be issued under the Company’s 2019 ESPP was estimated using the Black-Scholes valuation model with the following assumptions for the year ended December 31, 2019:


						Year Ended December 31,
						2019
Expected term (in years)						0.50 - 0.63
Expected volatility						44.4% - 47.8%
Risk-free interest rate						1.58% - 2.45%
Dividend yield						—%

Total stock-based compensation expense relating to the Company’s stock options and 2019 ESPP during the years ended December 31, 2019 and 2018, is as follows (in thousands):


	Year Ended December 31,
	2019		2018
Cost of goods sold	$	179	$	51
Research and development expenses	426		256
Selling, general and administrative expenses	2,372		604
	$	2,977	$	911

As of December 31, 2019, there was total unrecognized compensation costs of $8,539,000 related to stock options, which are expected to be recognized over a period of approximately 3.04 years and $219,000 related to the 2019 ESPP, which the Company will recognize over 0.39 years.