Stock-Based Compensation Plans

12 Months Ended

Dec. 31, 2022

Stock-Based Compensation Plans [Abstract]

9. Stock-Based Compensation Plans

In March 2019, the Company's Board of Directors [and stockholders] approved the 2019 Equity Incentive Plan, or 2019 Plan, effective immediately prior to the Company’s IPO. The 2019 Plan replaced the prior 2007 Stock Option Plan, or 2007 Plan, and the NeuroCo 2015 Equity Incentive Plan, which the Company assumed in connection with its acquisition of NeuroCo in December 2018, with respect to future grants. 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 also include shares reserved but not issued under the prior 2007 Plan, plus any share awards granted under the 2007 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 also include an annual increase on the first day of each fiscal year, 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, 2022, the Company has reserved 6,417,317 shares of common stock for issuance under the 2019 Plan.

A summary of the shares available for issuance under the 2019 Plan is as follows:


	Number of Shares
Balances, December 31, 2019		1,554,690
Authorized		1,250,210
Granted/Awarded		(1,079,883)
Cancelled		65,670
Balances, December 31, 2020		1,790,687
Authorized		1,369,985
Granted/Awarded		(847,080)
Cancelled		163,620
Balances, December 31, 2021		2,477,212
Authorized		1,399,235
Allowance for Performance Stock Units for overperformance		(207,468)
Granted/Awarded		(1,600,996)
Cancelled		141,089
Balances, December 31, 2022		2,209,072

The exercise price of ISOs and NSOs shall not be less than 100% and 85%, respectively, of the estimated fair value of the shares on the date of grant 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 four years from the date of grant.

Stock option activity under the 2019 Plan, the 2007 Plan, and the NeuroCo 2015 Equity Incentive Plan, or the Plans, is set forth below:


	Options Outstanding
	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in thousands)
Balances, December 31, 2019	4,310,790	$	7.91	7.27	$	140,234
Options granted	1,010,843	$	40.67
Options exercised	(1,018,779)	$	3.42
Options cancelled	(65,026)	$	23.32
Balances, December 31, 2020	4,237,828	$	16.56	7.38	$	197,407
Options granted	323,057	$	53.94
Options exercised	(643,507)	$	7.49
Options cancelled	(136,439)	$	40.30
Balances, December 31, 2021	3,780,939	$	20.45	6.71	$	91,900
Options granted	587,015	$	37.69
Options exercised	(453,199)	$	7.42
Options cancelled	(74,897)	$	41.16
Balances, December 31, 2022	3,839,858	$	24.22	6.41	$	112,755
Vested and exercisable at December 31, 2022	2,894,714	$	18.82	5.76	$	100,024
Vested and expected to vest at December 31, 2022	3,839,858	$	24.22	6.41	$	112,755

The aggregate intrinsic value of options exercised during the years ended December 31, 2022, 2021 and 2020 was $17,575,000, $29,355,000 and $47,861,000, 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, 2022, 2021 and 2020 was $37.69, $23.83 and $18.22 per share, respectively. The total fair value of options vested during the years ended December 31, 2022, 2021 and 2020 was $9,816,000, $9,076,000 and $5,138,000, respectively, based on the grant date fair value.

The following table summarizes information about stock options outstanding and vested as of December 31, 2022:


	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
$1.38 - $3.16	583,253	3.76	$	2.18	583,253	$	2.18
$4.73 - $7.10	503,468	5.16	$	5.75	503,468	$	5.75
$8.27 - $12.41	475,911	5.07	$	11.76	475,522	$	11.76
$20.00 - $30.00	581,673	6.26	$	20.00	532,068	$	20.00
$30.93 - $46.55	1,142,735	8.17	$	35.20	508,451	$	34.43
$47.20 - $70.80	552,818	8.02	$	56.73	291,952	$	56.74
	3,839,858	6.41	$	24.22	2,894,714	$	18.82

Restricted Stock Units and Performance Stock Units

In March 2020, the Company began granting restricted stock units, or RSUs, under the 2019 Plan. RSUs generally vest and are settled in shares of common stock over four years in annual equal increments. The total grant date fair value of awards granted during the year ended December 31, 2022 and 2021 was $30,486,000 and $28,110,000, respectively. The total fair value of awards vested during the year ended December 31, 2022 and 2021 was $6,135,000 and $1,893,000, respectively. No awards vested during the year ended December 31, 2020. The fair value of RSUs is based on the closing price of the Company’s common stock on the date of grant.

In November 2022, the Company awarded an aggregate of 207,468 performance stock units, or PSUs, under the 2019 Plan to certain executive officers, which PSUs vest at the end of a three year service period, subject to the officer’s continued service to the Company. The total number of shares of common stock to be issued upon vesting and settlement of the PSUs will be determined based on the total stockholder return, or TSR, of the Company’s common stock price relative to a group of Benchmark Companies over a three year performance period and range from 0% to 200% of the target value of shares granted, depending on the Company’s performance against the targeted Benchmark Companies. The total grant date fair value of awards granted during the year ended December 31, 2022 was $16,000,000.

A summary of RSUs and PSUs activity for the years ended December 31, 2022, 2021 and 2020 is as follows:


	Number of RSUs/PSUs		Weighted Average Grant Date Fair Value
Balances, December 31, 2019		—	$	—
Awards granted		69,040	$	46.14
Awards vested		—	$	—
Awards forfeited		(644)	$	44.62
Balances, December 31, 2020		68,396	$	46.16
Awards granted		524,023	$	53.64
Awards vested		(34,964)	$	49.95
Awards forfeited		(27,181)	$	51.99
Balances, December 31, 2021		530,274	$	53.01
Awards granted		1,013,981	$	45.84
Awards vested		(148,239)	$	52.14
Awards forfeited		(66,192)	$	44.38
Balances, December 31, 2022		1,329,824	$	48.07
Expected to vest at December 31, 2022		1,329,824	$	48.07

The shares expected to vest as of December 31, 2022 reflects PSUs awards performance and vesting at 100% of the target value of shares granted.

2019 Employee Stock Purchase Plan

In March 2019, the Company's Board of Directors [and stockholders] adopted the 2019 Employee Stock Purchase Plan, or the 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 were initially reserved for issuance and is increased on the first day of each fiscal year 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. As of December 31, 2022, the Company has reserved 1,438,856 shares of common stock for issuance under the ESPP. 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 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 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, 2022, 266,170 shares of common stock have been issued to employees participating in the ESPP and 1,172,686 shares were available for future issuance under the ESPP.

Stock-Based Compensation

The Company estimated the fair value of stock options using the Black–Scholes option pricing model. The fair value of stock options is being amortized on a straight–line basis over the requisite service period of the awards. The fair value of stock options was estimated using the following assumptions for the years ended December 31, 2022, 2021 and 2020:


	Year Ended December 31,
	2022	2021	2020
Expected term (in years)	5.25 - 6.25	5.25 - 6.25	5.00 - 6.25
Expected volatility	48.2% - 51.4%	45.0% - 50.4%	43.0% - 50.3%
Risk-free interest rate	1.60% - 3.84%	0.41% - 1.08%	0.32% - 1.41%
Dividend yield	—%	—%	—%

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 supplementing its historical stock trading volatility with 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. The Company has elected to recognize forfeitures of share-based payment awards as they occur.

In November 2022, the Company awarded an aggregate of 207,468 PSUs to certain executive officers that vest at the end of a three year service period based on the TSR of the Company’s common stock price relative to a group of Benchmark Companies measured over three performance periods. The Company estimated the fair value of the PSUs using the Monte Carlo simulation model, which is being amortized over the requisite service period of the awards. The fair value of the PSUs was estimated using the following assumptions for the year ended December 31, 2022: Benchmark companies volatility of 59.4%, Company volatility of 60.6%, risk-free interest rate of 4.09%-4.20%, correlation with index of 0.41, and dividend yield of 0%.

The fair value of the shares to be issued under the Company’s ESPP was estimated using the Black-Scholes valuation model with the following assumptions for the years ended December 31, 2022, 2021 and 2020:


	Year Ended December 31,
	2022	2021	2020
Expected term (in years)	0.50	0.50	0.50
Expected volatility	51.6% - 74.5%	46.9% - 51.6%	44.4% - 76.4%
Risk-free interest rate	0.07% - 4.64%	0.03% - 0.10%	0.10% - 1.58%
Dividend yield	—%	—%	—%

The following table summarizes the total stock-based compensation expense included in the statements of operations and comprehensive loss for all periods presented (in thousands):


	Year Ended December 31,
	2022		2021		2020
Cost of goods sold	$	1,138	$	635	$	339
Research and development expenses		5,240		2,909		1,110
Selling, general and administrative expenses		18,645		11,068		5,777
	$	25,023	$	14,612	$	7,226

As of December 31, 2022, there was total unrecognized compensation costs of $16,784,000 related to stock options expected to be recognized over a period of approximately 2.33 years, a total of $53,784,000 of unrecognized compensation costs related to unvested RSUs and PSUs expected to be recognized over a period of approximately 2.83 years and $423,000 of unrecognized compensation costs related to the ESPP, which the Company will recognize over 0.38 years.