Share-based compensation

12 Months Ended

Dec. 31, 2023

Share-based compensation

Share-based compensation

13. Share-based compensation

On September 18, 2020, the Company adopted the 2020 Equity Incentive Plan, or the 2020 Plan, which supersedes all prior equity incentive plans. Under the 2020 Plan, the number of shares of common stock reserved for issuance under the 2020 Plan will automatically increase on January 1 of each year, beginning on January 1, 2021 and continuing through and including January 1, 2030, by 4% of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Company’s Board of Directors. On January 1, 2023, the number of shares available for future issuance under the 2020 Plan increased by 485,153 shares. Through a board resolution related to the Merger, the number of shares available for future issuance under the 2020 Plan increased by 2,955,280 shares on September 29, 2023. As of December 31, 2023, there were 3,320,601 shares available for future issuance under the 2020 Plan. On January 1, 2024, the number of shares available for future issuance under the 2020 Plan increased by 1,730,071.

The Company also adopted the 2020 Employee Stock Purchase Plan, or the ESPP, on September 18, 2020 which provides for the grant of purchase rights to purchase shares of the Company’s common stock to eligible employees, as defined by the ESPP. The maximum number of shares of common stock that may be issued under the ESPP will not exceed 125,000 shares of common stock, plus the number of shares of common stock that are automatically added on January 1 of each calendar year for a period of up to ten years, commencing on the first January 1 following the year in which an IPO occurs and ending on, and including, January 1, 2030, in an amount equal to the lesser of (i) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, and (ii) 1,000,000 shares of common stock. On January 1, 2023, the number of shares available for future issuance under the ESPP

increased by 121,288 shares. As of December 31, 2023, there were 473,733 shares available under the ESPP. No shares of common stock have been issued under the ESPP as of December 31, 2023. On January 1, 2024, the number of shares available for future issuance under the ESPP increased by 432,518.

The 2020 Plan and the ESPP are administered by the Board of Directors subject to the Board’s right to delegate to a committee. The exercise prices, vesting and other restrictions are determined at the discretion of the Board of Directors. Stock options awarded under the 2020 Plan generally expire 10 years after the grant date unless the Board of Directors sets a shorter term. Vesting periods for awards under the 2020 Plan are determined at the discretion of the Board of Directors. Stock options granted to employees, officers, members of the Board of Directors and consultants of the Company typically vest over one to four years. Certain options provide for accelerated vesting if there is a change in control, as defined in the 2020 Plan.

On October 2, 2023, the Morphimmune Plan was assumed by the Company in conjunction with the Merger (Note 3). There were 929,702 shares available for issuance under the Morphimmune Plan as of December 31, 2023.

Stock Options Granted for New Chief Executive Officer 

On June 28, 2023 and contingent upon completion of the Merger, the Company entered into an employment agreement with Dr. Clay Siegall, the President and CEO of Morphimmune whereby Dr. Siegall was granted 2,137,080 options to purchase shares of the Company’s common stock at an initial exercise price of $5.91 per share, or the inducement grant. The options vest over time during Dr. Siegall’s continued employment, which commenced on October 2, 2023 in connection with the closing of the Merger, to which 25% of the options granted will vest after one year of employment with the Company and the remaining 75% of the options granted will vest monthly over the remaining 36 months following the one year anniversary. Dr. Siegall’s stock option is subject to acceleration if he resigns for “good reason” or the Company terminates his employment without “cause” within a “change of control period” (each as defined in Dr. Siegall’s employment agreement). The estimated grant date fair value of Dr. Siegall’s award was $14.2 million or $6.65 per share. The inducement grant, 2020 Morphimmune Plan, and the 2020 Plan are collectively known as the “Plans”.

Share-based compensation expense recorded as research and development and general and administrative expenses in the consolidated statements of operations and comprehensive loss is as follows (in thousands):

	Year Ended December 31,
In thousands)	2023		2022
General and administrative	$	4,242	$	3,471
Research and development		1,981		1,861
	$	6,223	$	5,332

Unrecognized compensation cost related to unvested options was $22.8 million as of December 31, 2023 and will be recognized over an estimated weighted average period of 1.9 years.

Stock options

The weighted average assumptions used in the Black-Scholes option-pricing model for stock options granted were:

	Year ended December 31,
	2023			2022
Expected volatility		92.1	%		85.6	%
Risk-free interest rate		4.6	%		2.7	%
Expected term (in years)		5.6			6.0
Expected dividend yield		—			—
Fair value of common stock	$	7.92		$	3.63

A summary of option activity under the Plans during the year ended December 31, 2023 is as follows:

				Weighted
		Weighted		average
		average		remaining
	Number of	exercise price		contractual
	shares	per share		term (years)
Outstanding at January 1, 2023	2,519,405		9.60
Replacement options issued at asset acquisition	2,472,563		1.29
Granted	4,007,552		6.42
Forfeited	(314,319)		6.67
Expired	(55,670)		16.59
Exercised	(651,240)		1.57
Outstanding at December 31, 2023	7,978,291		6.15	8.62
Exercisable at December 31, 2023	3,151,799		5.86	7.54

The weighted-average grant date fair value per share of stock options granted during the years ended December 31, 2023 and 2022 was $6.09 and $2.65, respectively. The weighted-average grant date fair value per share of the replacement awards issued to Morphimmune stockholders on October 2, 2023 was $7.55. The aggregate intrinsic value for options exercised during the years ended December 31, 2023 and December 31, 2022 was $5.9 million and $0.2 million, respectively. The aggregate intrinsic value for options exercisable at December 31, 2023 was $21.9 million. The aggregate intrinsic value of stock options outstanding at December 31, 2023 was $45.4 million.

Accelerated Vesting Due to Termination

Effective October 2, 2023, in accordance with the Merger, the former CEO’s employment with the Company was terminated. Based on the terms of his severance agreement, any options that were scheduled to vest through October 2, 2025 were accelerated to vest at termination with an exercise window of 3-months after termination. The Company accounted for the change in vesting terms as an improbable-to-probable modification of his stock options and recognized $0.7 million of expense in relation to this modification.