Stock-Based Compensation

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

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 “2017 ESPP”) were assumed by the Company. In June 2019, the Company adopted the 2019 Inducement Equity Incentive Plan. These plans are administered by the Board of Directors or 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 provides 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. The total number of shares of common stock that may be issued under the 2015 Plan is 969,340 shares. 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 March 31, 2020, approximately 106,000 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— Under the 2017 Plan, the Company may 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 automatically increases 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, 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 March 31, 2020, approximately 114,000 shares were available for future issuance under the 2017 Plan. On March 25, 2020, the Board of Directors approved amendments to the 2017 Plan, subject to stockholder approval. If approved by the stockholders, the amendments would increase the number of shares of common stock reserved for issuance under the 2017 Plan by an additional 474,465 shares (subject to adjustment for certain corporate events) and would amend the “evergreen provision” of the 2017 Plan to eliminate the fixed number of new shares that may be added to the 2017 Plan’s share reserve each year pursuant to the evergreen provision, such that the amended evergreen provision will provide for an automatic increase in the share reserve on the first day of each year, beginning on January 1, 2021 and ending on January 1, 2027, by an amount equal to the lesser of (a) 4% of the Company's outstanding shares on such date and (b) a number of shares determined by the Board of Directors.

2017 Employee Stock Purchase Plan— The 2017 ESPP provides participating employees with the opportunity to purchase shares of the Company’s common stock at defined purchase prices over three-month offering periods. For the three months ended March 31, 2020, no shares of common stock were issued under the 2017 ESPP.

2019 Inducement Equity Incentive Plan— On June 17, 2019, the Board of Directors approved the adoption of the 2019 Inducement Equity Incentive Plan (the "Inducement Plan"), which is used exclusively for the grant of equity awards to individuals who were not previously employees of the Company (or following a bona fide period of non-employment), as an inducement material to such individual’s entering into employment with the Company, pursuant to Nasdaq Listing Rule 5635(c)(4). The total number of shares of common stock that may be issued under the Inducement 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 Inducement 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 March 31, 2020, approximately 137,000 shares were available for future issuance under the Inducement 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:


	Three Months Ended March 31,
	2020		2019
Risk-free interest rate	1.0	%	2.4	%
Expected term (in years)	6.01		5.90
Expected volatility	94.1	%	90.6	%
Expected dividend yield	0	%	0	%

Stock Options

The following table summarizes the Company’s stock option activity for the three months ended March 31, 2020:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2019	1,297,029	$	17.05	8.4	$	1,286
Granted	206,775	10.22
Exercised	(13,006)	7.38
Forfeited	(22,593)	17.46
Outstanding as of March 31, 2020	1,468,205	$	16.17	8.4	$	958
Exercisable as of March 31, 2020	543,825	$	21.17	7.1	$	771
Vested and expected to vest as of March 31, 2020	1,270,027	$	16.32	8.3	$	938

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 three months ended March 31, 2020 and 2019 was $35 thousand and $123 thousand, respectively. The weighted average grant-date fair value per share of stock options granted during the three months ended March 31, 2020 and 2019 was $7.75 and $12.88, respectively.

Restricted Stock Units— During the three months ended March 31, 2020, there were no significant grants, vestings or forfeitures of restricted stock units.

Stock-Based Compensation— As of March 31, 2020, total unrecognized compensation expense related to unvested stock options and restricted stock units was $7.0 million, which is expected to be recognized over a weighted average period of 3.0 years.

Stock-based compensation expense was classified in the consolidated statements of operations as follows:


	Three Months Ended March 31,
	2020		2019
Research and development expense	$	196	$	84
General and administrative expense	417		178
Total stock-based compensation	$	613	$	262