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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
Summary of Plans— Upon completion of the Merger with Arsanis on March 13, 2019, X4’s 2015 Employee, Director and Consultant Equity Incentive Plan, as amended (the “2015 Plan”), Arsanis’ 2017 Equity Incentive Plan (the “2017 Plan”) and Arsanis’ 2017 Employee Stock Purchase Plan (the “ESPP”) were assumed by the Company. In June 2019, the Company adopted the 2019 Inducement Equity Incentive Plan (the “2019 Plan”). These plans are administered by the Board of Directors or, at the discretion of the Board of Directors, by a committee of the Board of Directors. The exercise prices, vesting and other restrictions are determined at the discretion of the Board of Directors, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of the stock option may not be greater than ten years. Incentive stock options granted to employees and restricted stock awards granted to employees, officers, members of the board of directors, advisors, and consultants of the Company typically vest over four years. Non-statutory options granted to employees, officers, members of the Board of Directors, advisors, and consultants of the Company typically vest over three or four years. Shares that are expired, terminated, surrendered or canceled under the Plans without having been fully exercised will be available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.
2015 Employee, Director and Consultant Equity Incentive Plan— In 2015, the Board of Directors and shareholders of X4 adopted the 2015 Plan, which provided for the Company to grant incentive stock options or nonqualified stock options, restricted
stock awards and other stock-based awards to employees, directors and consultants of the Company. Each stock option outstanding under the 2015 Plan at the effective time of the Merger was automatically converted into a stock option exercisable for a number of shares of the Company’s common stock calculated based on the Exchange Ratio and the exercise price per share of such outstanding stock option.
The total number of shares of common stock that may be issued under the 2015 Plan is 969,340 shares, adjusted for the Exchange Ratio and Reverse Stock Split. Shares that are expired, forfeited, canceled or otherwise terminated without having been fully exercised will be available for future grant under the 2015 Plan. As of December 31, 2019, approximately 100,000 shares were available for future issuance under the 2015 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for future grants.
2017 Equity Incentive Plan— In 2017, the Board of Directors and shareholders of Arsanis adopted the 2017 Plan, which provided for the Company to grant incentive stock options, non-qualified options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards. Incentive stock options may be granted only to the Company’s employees, including officers and directors who are also employees. Awards other than incentive stock options may be granted to employees, officers, members of the board of directors, advisors and consultants of the Company. The number of shares of common stock reserved for issuance under this plan will automatically increase on January 1 of each year, through January 1, 2027, in an amount equal to the lowest of 170,915 shares of the Company’s common stock (as adjusted for the Reverse Stock Split), 4.0% of the number of shares of the Company’s common stock outstanding on January 1 of each year and an amount determined by the Company’s Board of Directors. As of December 31, 2019, approximately 20,000 shares were available for future issuance under the 2017 Plan.
Employee Stock Purchase Plan— In 2017, the Board of Directors and shareholders of Arsanis adopted the ESPP, which provides participating employees with the opportunity to purchase shares of the Company’s common stock at defined purchase prices over six-month offering periods. For the twelve months ended December 31, 2019, no shares of common stock were issued under the ESPP.
2019 Inducement Equity Incentive Plan— On June 17, 2019, the Board of Directors approved the adoption of the 2019 Plan, which provides for the Company to grant nonqualified stock options, restricted stock awards and other stock-based awards to new employees of the Company. Awards issued from the 2019 Plan are intended to be material inducements to each employee’s acceptance of employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). The total number of shares of common stock that may be issued under the 2019 Plan is 400,000 shares. Shares that are expired, forfeited, canceled or otherwise terminated without having been fully exercised will be available for future grant under the 2019 Plan. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for future grants. As of December 31, 2019, approximately 250,000 shares were available for future issuance under the 2019 Plan.
Stock Option Valuation— The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees, directors and non- employees:


Year Ended
December 31,



2019

20182017
Risk-free interest rate


2.0 %

2.8 %2.1 %
Expected term (in years)


5.99

5.946.06
Expected volatility


88.5 %

86.0 %77.3 %
Expected dividend yield


0 %

0 %0 %
Stock Options
The following table summarizes the Company’s stock option activity for the twelve months ended December 31, 2019:

Number of
Shares

Weighted
Average
Exercise
Price

Weighted
Average
Contractual
Term (Years)

Aggregate Intrinsic
Value
Outstanding as of December 31, 2018797,931  

$8.29  

8.42

$6,486  
Assumed as part of Merger with Arsanis271,230  

62.60  




Granted589,110  

14.69  




Exercised(51,617) 

7.05  




Forfeited(309,625) 

31.55  




Outstanding as of December 31, 20191,297,029  

$17.05  

8.41

$1,286  
Exercisable as of December 31, 2019495,740  

$21.66  

7.21

$952  
Vested and expected to vest as of December 31, 20191,122,542  

$17.15  

8.32

$1,245  
The aggregate intrinsic value of 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 options that had exercise prices lower than the fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the twelve months ended December 31, 2019 was $363 thousand. The intrinsic value of options exercised during the years ended December 31, 2018 and 2017 was not significant. The weighted average grant-date fair value per share of stock options granted during the years ended December 31, 2019, 2018 and 2017 was $10.78, $7.05, and $4.74, respectively.
Restricted Stock Units— During the twelve months ended December 31, 2019, the Company granted 116,689 restricted stock units to employees at a weighted average grant date fair value of $14.75 per share. The restricted stock units vest 25% annually on the grant anniversary over four years and had a grant date fair value of $1.7 million, which will be recognized as stock-based compensation expense, net of estimated forfeitures, over the vesting period.
The following table summarizes the Company’s restricted stock activity for the twelve months ended December 31, 2019:
Number of Shares
Unvested at December 31, 2018—  
Granted116,689  
Vested—  
Forfeited(14,916) 
Unvested at December 31, 2019101,773  

Stock-Based Compensation— Effective January 1, 2019, the Company adopted ASU 2018-7 and no longer remeasures the fair value of equity awards granted to non-employees at each reporting period end (see Note 2).
As of December 31, 2019, total unrecognized compensation expense related to unvested stock options and restricted stock units was $6.4 million, which is expected to be recognized over a weighted average period of 3.1 years.
Stock-based compensation expense was classified in the consolidated statements of operations as follows:

Year Ended
December 31,

2019

20182017
Research and development expense$909  

$258  $126  
General and administrative expense1,141  

501  366  
Total stock-based compensation$2,050  

$759  $492